State study explores utility alternatives

  • SEN. LORRAINE INOUYE

HILO — The Hawaii State Energy Office on Tuesday unveiled a study analyzing alternative models for utility ownership and regulation in Hawaii.

The $1.2 million study was produced by London Economics International LLC of Boston in response to a law signed in 2016 providing funding “for a study to evaluate alternative utility and regulatory models including, but not limited to, cooperative, municipal and independent distribution system operators; and evaluate the ability of each model to achieve state energy goals, maximize consumer cost savings, enable a competitive distribution system in which independent agents can trade and combine evolving services to meet customer needs; and eliminate or reduce conflicts of interest in energy resource planning, delivery and regulation.”

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Alternative ownership models recommended for further study included co-operatives, individual ownership and investor-owned utilities.

Alternative regulation models to the Public Utilities Commission included performance-based regulation, an electricity reliability administrator, and distribution-focused regulation.

The study also was “to include a long-term cost-benefit analysis of each model and the steps required to carry out each scenario for each county.”

A statement from the energy office called the study “the most extensive analysis of its kind ever conducted in Hawaii.” It examined existing ownership and regulatory models in each county and evaluated them in comparison to alternative models.

Big Island Sen. Lorraine Inouye, a member of the Energy, Economic Development and Tourism Committee, said the study was funded “because there was a debate as to whether the Big Island should create their own (utility) co-op.”

Legislation in 2016 to study co-operative electrical utilities was authored by Kona Rep. Nicole Lowen, the current House Energy and Environmental Protection chair. There was no senate version of the bill.

That was also the year the state Public Utilities Commission rejected a proposed $4.3 billion acquisition of Hawaiian Electric Industries, the parent company of Hawaiian Electric, Hawaii Electric Light Co. and Maui Electric, by Florida-based NextEra Energy Inc.

Inouye said there are still too many questions unanswered, and she will likely introduce a bill “to continue the next study on the pros and cons.”

“I would say it won’t take us two-and-a-half, three years to do this next project,” Inouye said. “There’s too many questions that were raised today. My recommendation at the hearing today was … we should conduct a long-term cost-benefit analysis. My recommendation is to do the pros and cons of the study. … I raised a question if the consultant ever considered looking into the renewable energy portfolio standard that we are already committed to — 100 percent by 2045. … Was there any discussions regarding going forward if there’s a generation and distribution of geothermal resources (by) undersea cable? And the cost benefit if the different islands go independent.

“I think there were still a lot more questions raised that didn’t extend to the study. Are we going to allow the counties to make their own decisions on the utility service — and everybody do their own thing, sort of, the three islands, Oahu, Maui and Big Island? “Let’s say they go into single ownership, each island on their own. I think that would create havoc to the PUC.”

Inouye also questioned whether an independent electrical utility on the Big Island would have the resources available to provide the level of response HELCO, part of the Hawaiian Electric Industries group, displayed after Tropical Storm Iselle hit Puna in 2014 and caused widespread damage and power outages.

The study also found going from the current model to a co-op on Hawaii Island would raise rates for consumers.

That finding disappointed Marco Mangelsdorf, owner of ProVision Solar and spokesman for Hawaii Island Energy Cooperative, a group hoping to follow the lead of Kauai County, where ratepayer-owned Kauai Island Utility Cooperative is the power utility.

“LEI asserts that adopting the co-op model on the Big Island would lead to a rate increase of 8.2 percent,” Mangelsdorf said. “Why? Because, according to them, the debt accrued in the purchase of HELCO by Hawaii Island Energy Cooperative would require such an increase. LEI assumes a purchase price of $760 million.”

“They concluded on thus far unpublished assumptions and methodology that a co-op would lead to a rate increase of 8.2 percent. Our numbers show different, that the co-op model would not lead to a rate increase but most likely a decrease. That’s my biggest takeaway and my biggest disappointment. It’s not a complete surprise in that they telegraphed back in November as they were doing their meet-and-greet and dog-and-pony shows … what they thought would be a 12-plus percent base rate increase. And we pushed back hard on that, but not hard enough, apparently to get them to go to zero or a minus number.”

He said almost 4/5 of the capital needed to buy the Big Island utility could come from the U.S. Department of Agriculture Rural Utility Service, since Hawaii Island is officially considered 79 percent rural.

Mangelsdorf agreed with Inouye that there will be further discussion and study, and the 184-page study just released “provides substantial grist for the mill.”

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“I think it added more color, more breadth and depth to the discussion of what is the best way forward to where we need to go, where we need to go being cost-effective renewable energy, clean renewable energy, not biomass-burning renewable energy and lower costs,” he said. “As anybody who lives here knows, we pay the highest electric rates in the country. So the report is an important addition to the discussion about how we must do things better and cheaper.”

Email John Burnett at jburnett@hawaiitribune-herald.com.

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