State regulator OKs Hawaiian Electric’s takeover of Army power service on Oahu

Hawaiian Electric has received state approval to take over power distribution at 12 Oahu Army installations under a 50-year contract that won’t affect other customer rates.

The state Public Utilities Commission approved the deal Friday under which Army electrical distribution systems will be privatized at bases and other facilities, including Schofield Barracks, Wheeler Army Airfield, Tripler Army Medical Center, Fort Shafter and Army housing areas.

Hawaiian Electric will charge the Army for service and infrastructure upgrades.

The Army sought bids for the contract in 2016 as part of an Army-wide initiative to privatize utility systems.

Last year the Army selected Hawaiian Electric as the winning bidder over several competitors, though completing the deal was subject to PUC approval.

The commission, which regulates Hawaiian Electric as the main electricity provider on Oahu, in Maui County and on Hawaii island, deemed the contract “reasonable and in the public interest.”

The PUC consideration included a review and no objection from the state Consumer Advocate.

In its approval order, the PUC said Hawaiian Electric must file annual reports covering the Army system and cannot shift any expenses from the Army system onto general ratepayers.

“The company shall not be permitted to recover costs from general ratepayers that are deemed unrecoverable from the Army,” the order said.

The U.S. Defense Logistics Agency valued the contract at an estimated $638.5 million over 50 years.

This estimated value includes Hawaiian Electric paying the Army $16.3 million for its electrical distribution systems through monthly bill credits, and recouping $24.4 million in upgrade expenses over the first five years to fix system deficiencies.

Hawaiian Electric also estimates that it will spend and recover $213 million on system improvements over the life of the contract.

Currently, Hawaiian Electric feeds electricity to Army installations, and the Army distributes the electricity within its facilities and bills to individual users including more than 100,000 soldiers, civilians and family members.

The Army is relying on private companies to more efficiently operate and maintain utility systems throughout the country.

As of late 2018 the Army reported that 152 of its 356 U.S. electrical, gas, water and wastewater systems had been privatized, saving $3.4 billion compared with continued Army ownership.

“The Army needs secure, reliable energy to do our mission, and that’s what this effort is all about,” Col. Tom Barrett, commander of U.S. Army Garrison Hawaii, said last year. “Privatizing the Army’s electrical system on Oahu supports energy resilience, and energy resilience is critical to Army readiness.”

Hawaiian Electric and the Army have agreed to work together for one year in a transition period and then complete an expected total transfer of system ownership and operations in late 2021.