DWS counters claim of contractual obligation to purchase renewable energy for well site

  • Lalamilo Wind Farm. (Courtesy photo/ LALAMILO WIND FARM)

KAILUA-KONA — The Hawaii County Department of Water Supply on Wednesday challenged assertions that it’s obligated to buy a specified amount of wind power to run eight deep wells in South Kohala.

Lalamilo Wind Co. secured a county bid to build a wind farm for the Lalamilo-Parker Well Sites and signed a power purchase agreement with DWS in 2013. Since becoming fully operational in September of last year, LWC says the department hasn’t purchased the minimum amount of power specified by the contract and required to keep the renewable energy project financially viable.

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LWC contends the power purchase agreement stipulates DWS must buy at least 8,000 megawatt hours (Mwh) annually. Will Rolston, former Hawaii County energy coordinator who was central to the project, agreed with LWC and added the county and DWS would never have been able to secure a contract without that guarantee.

Representatives of LWC went before the Water Board in June asking its members mandate the department buy enough wind energy monthly to meet the annual standard, saying anything less will eventually end with LWC bankrupt and DWS in breach of contract.

DWS representatives presented to the Water Board at Tuesday’s meeting in Hilo, stating they had no such obligations. The department doubled down on that in an email response to West Hawaii Today on Wednesday, which was conveyed by DWS spokesperson Nyssa Kushi.

“No,” DWS officials said when asked if they believed they’d violated the contract. “We are following the terms of the purchase agreement (PPA).”

As to how much energy the department plans to purchase for the rest of this year and in the years moving forward, officials said that would depend.

“We will continue to purchase what the wind can provide and what DWS is able to utilize in accordance with the terms of the PPA.”

Rolston, who attended Tuesday’s meeting and testified as to the department’s responsibilities as he sees them, said he didn’t understand why DWS wasn’t “champing at the bit” to use as much clean energy as possible.

In the email, DWS acknowledged it has a responsibility to be as environmentally conscious as possible, saying that’s the reason the wind project first came to fruition. Officials said their use, or lack of use, of the wind energy available is about water storage and timing.

“To ensure adequate water storage levels and the longevity of our deep well pumps/motors and related equipment, we have established parameters for tank levels and deep well run times,” DWS wrote. “We continue to work with LWC on adjustments to those parameters to allow for increased wind energy use.”

Richard Horn, a co-owner of LWC, agreed there has been cooperation.

“What happened before was they were using HELCO power and keeping reservoirs virtually full all the time, so there was no area available to pump water and store it, which is what you have to do with the wind energy when it’s available,” Horn said.

LWC proposed DWS lower standing reservoir elevation in the tanks to roughly one-third of capacity, which allows adequate opportunity for wind energy to be utilized and doesn’t interrupt water service in the area.

A computerized system was developed and implemented over the winter, said Horn, adding pumping capabilities have improved. The issue that remains is that three of the eight deep wells at the site are inoperative. Until July, four of the eight were down.

Four working wells are the bare necessity to keep water flowing in the area, Horn said. LWC’s computer system needs at least five to make it viable, which it now is. But the system hasn’t been running long enough for LWC to collect a full month of data on clean energy purchased versus energy bought from HELCO.

Horn believes because only five deep wells work, there still won’t be enough capacity to meet the 8,000 Mwh annual standard. Time is of the essence for LWC, which is in default with its lender.

Rolston cited section 4.5.1 of the power purchase agreement, which he says stipulates DWS is on the hook to pay for the annual standard whether it uses that energy or not, also known as an unscheduled outage clause. DWS disagrees.

The Water Board has enlisted the advice of its corporate counsel on the matter and has pushed a decision until at least its August meeting.

WHT reported in two previous articles that the current rate of DWS payment to HELCO for non-renewable energy is 41 cents per kilowatt hour (Kwh), significantly more than the fixed rate of 27 cents per Kwh the department pays LWC for its renewable product.

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According to a rate chart DWS sent WHT following publication, the current HELCO rate is actually 27.8 cents per Kwh. Also according to the chart, beginning in October of 2016, HELCO rates never tipped above 27 cents per Kwh until June, when they reached 27.3 cents per Kwh.

HELCO wouldn’t confirm current or former rates it charged DWS, saying rates qualified as confidential customer information.

  1. beyond kona July 27, 2018 8:49 am

    The elephant in the room that nobody at the County or WHT will address, and assuming costs are similar based on this article, then why does DWS ignore its contractual access to clean wind power from the LWC facility, and instead continues and amplify a dependency on buying dirty power direct from HELCO.

    Nor does WHT explain, in DWS refuting HELCO’s power cost disparity as reported yesterday)…”Last month, 240,141 kilowatts went (un-utilized),” Richard Hardin, member/manager at LWC, wrote in an email. “Our price for that energy is $64,838.00. The HELCO price is $98,457.”

    The LWC and DWS power partnership is arguably the first time in Hawai‘i, and perhaps the nation, that a local government has developed such a wind-powered, water-pumping facility capable of significant greenhouse gas reductions at no cost to the taxpayer.

    The LWC windfarm, officially opened in September 2016 with five turbines generating 3.3 megawatts of electricity, and is an outstanding Hawaii Island example of contributing to the State’s Clean Energy Initiative’s goal of 100% renewable energy by 2045.

    The role of power costs in DWS operations is clear enough to DWS ratepayers. The utility’s customer water bills are also comprised of nearly 50% in power costs, and for Agriculture water customers power costs represent more than 60 plus percent of their water bill.

    Questions were also raised as far back as 2014 as to DWS’ too close relationship with HELCO, and DWS’ management failures in addressing the high cost of HELCO power versus clean power alternatives. DWS management preference for HELCO and to continue that primary power dependency is a public interest question that remains unanswered.


    1. KonaRich July 27, 2018 10:45 am

      Your making to much sense. K. Okamoto being an chief Engineer and all you would think he would foresee all the problems operating the deep well pumps with solar. If they can bust LWC, do you think HELCO would play a bigger part in all this, like getting that .27 Kw/H above fossil fuel generation cost. It’s got a NextEra smell to it.


  2. CongressWorksForUs July 27, 2018 10:32 am

    27c per Kw/H? For wind energy? For real?

    For perspective, that’s more than 4 times the cost for the same wind energy in the Midwest.

    Is there something special about Hawai’i wind that makes it so expensive??? /sarc


    1. beyond kona July 27, 2018 3:06 pm

      Good question. Start with a baseline assumption that everything costs more in Hawai’i. Being one of the most remote and populated locations on Earth, Hawai’i has some of the highest costs associated with cap ex intensive projects (like wind farms and fossil fueled power plants), and an absence of infrastructure and high taxes are other factors contributing to operating expenses.

      A UT (Austin) study from Nov 2016 found wind to be “…the most competitive source of new electricity generation is most cases, and the lowest-cost option for a broad swath of the mainland, from the High Plains and Midwest and into Texas.”

      The real question is not wind power costs in Wyoming. Even if you accept DWS’ counter claim of near power cost parity between LWC zero emissions wind power versus HELCO’s diesel-powered grid, why choose HELCO? And by extension, continue to support the purchase with ratepayer dollars of imported dirty power when, instead, you can choose clean power, produced and delivered locally, and at the same cost?


      1. Nolan Steiner July 27, 2018 5:09 pm

        That’s a good perspective, we’ll said


  3. Nolan Steiner July 27, 2018 4:55 pm

    It would be helpful to know the breakdown in fixed costs vs variable costs on this project to understand the 27+ cents per kWh in the Power Purchase Agreement. My guess is that a significant portion of the overall costs are the transportation premium to get all those materials to Hawaii (first shipped to HNL, then transferred again for inter island to Big Island. That transportation cost is a big influence on the high price of power in Hawaii, but admittedly not the only influence. I’ll see if I can look up the PPA in public documents, unless it is redacted for the public. Would be great to use all that renewable energy. Are there other ways to use that green power other than sales to DWS?


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