Backup fuel source is OK’d for import

The state Public Utilities Commission has cleared Hawaii Gas to begin shipping small amounts of liquefied natural gas to Hawaii, but the commissioners rejected the company’s request to recover nearly $1 million in equipment costs related to the plan from its customers.

Hawaii Gas plans to bring LNG to Hawaii in specialized 20-foot shipping containers in the first phase of a three-stage plan. By the time the third phase of the plan is rolled out in 2019, the company will be using LNG carriers to ship large quantities of the commodity to Hawaii that could be used for power generation.

Hawaii Gas, along with state government officials and Hawaiian Electric Co., say the state could significantly cut its electric rates, which are three times the national average, by using LNG to replace the expensive fuel oil that accounts for more than 70 percent of the power generated in Hawaii.

In its decision issued Thursday the PUC approved Hawaii Gas’ request to procure a supply of LNG and have it delivered by container ship to the company’s facility at Hono­lulu Harbor. Hawaii Gas said the LNG would be used to "back up" the existing supply of synthetic natural gas, or SNG, the company makes at its Campbell Industrial Park facility using a petroleum-based feedstock.

The PUC noted that the plan has the potential to lower costs for Hawaii Gas customers because it will be cheaper to bring in LNG than to make SNG using oil. LNG prices are near historic lows on the mainland because of a glut in production.

However, the PUC rejected Hawaii Gas’ request to pass along to customers $950,725 in capital costs for equipment that includes three LNG containers, a trailer-mounted "regassifier" and improvements to Pier 38 where the LNG containers will be unloaded. The regassifier will be used to convert the LNG back into a gas form so it can be injected into the Hawaii Gas pipeline.

In their ruling the PUC commissioners said the request was denied because Hawaii Gas spent more than $500,000 of the total before it had even submitted its request to the PUC. The commission noted that it was the fourth time in the past two years that Hawaii Gas had attempted to seek "retroactive approval" of capital expenditures under the PUC’s rules. The rules require utilities to obtain pre-approval for any capital expenditures over $500,000 that will be passed along to ratepayers.

The commissioners cited a previous ruling in which they warned Hawaii Gas about asking permission to have an expenditure covered after having spent the funds.

"The commission declines to establish a precedent whereby a gas or electricity utility is able to obtain the commission’s after-the-fact approval to expend funds for a capital expenditures project (which) the public utility has already completed, and which meets or exceeds the applicable monetary threshold which triggers the commission’s pre-approval process," according to the previous ruling.

Still, the PUC said it agreed with the intent of Hawaii Gas to diversify its supply of natural gas.

"Given the very limited quantity of fuel that is being discussed, the commission believes that the proposed Backup Project will have limited, through positive, value for (Hawaii Gas’) utility customers," according to the PUC ruling.

Hawaii Gas officials welcomed the PUC’s decision.

"We are pleased with the PUC’s approval of our SNG emergency backup project," said Jill Toku­naga, company spokes­woman. "We appreciate the PUC’s evaluation of the capital investment for this initiative. Hawaii Gas is committed to enhancing the safety and reliability of its gas system on behalf of its customers, and we will proceed with purchasing the necessary equipment for this program."

The LNG initiative will allow Hawaii Gas to increase the reliability of its gas supply to utility customers, she said.

"Bringing in LNG on a larger scale will allow us to further diversify our fuel supply, reducing vulnerability to changes in the market that can result from overreliance on one fuel or feedstock. Furthermore, LNG is currently less expensive than the naphtha we use to manufacture synthetic natural gas," Toku­naga said.

Richard Lim, director of the state Department of Business, Economic Development and Tourism, said last month that Hawaii potentially could import up to 2 million metric tons of liquefied natural gas a year by 2018.

Lim told participants at an energy conference in Singapore that the biggest demand for liquefied natural gas in Hawaii is for power generation, marine and ground transportation, and industrial uses.

HECO recently disclosed that it is in negotiations with the Navy to develop a nearshore floating terminal at Joint Base Pearl Harbor-Hickam where LNG could be unloaded from ships and piped to the utility’s power plants.