Critics Question True Cost Of Hawaiian Biofuels

Two contracts for Hawaiian-based, locally-produced biofuels, aimed at supplying a portion of the state’s electricity needs, are under consideration by the Public Utilities Commission, and more are expected. But the cost of the energy to ratepayers could be significant.

The recent contracts have touched off a stormy public policy debate about whether biofuel is in the best interest of the state and its ratepayers, or whether the benefits will ultimately be reaped by Hawaiian Electric Co.’s shareholders.

Fueling the controversy is what some critics see as a lack of transparency on the part of the utility about biofuels’ cost.

Hawaii’s 2008 Clean Energy Initiative, signed by the state, Hawaiian Electric, and the U.S. Department of Energy, states that "we commit to being open and truthful with our community about the investment necessary to transition to a clean energy future."

Yet, the utility has declined to disclose pricing information for a contract with Aina Koa Pono, a start-up company that hopes to supply sixteen million gallons of biofuel to the Big Island electric company. Hawaiian Electric has argued that the disclosure could compromise current and future negotiations with other biofuel companies.

A second contract with Maui-based Pacific Biodiesel was announced earlier in August.

Hawaiian Electric also wouldn’t say whether the pricing of future contracts currently under negotiation for biofuels are expected to be higher than the current or projected cost of petroleum.

The 2008 energy agreement affords biofuel a role in the state’s renewable energy mix, and says that "paying a reasonable cost premium for locally-produced biofuels is acceptable."

How much higher that cost can be, in comparison with petroleum, is unclear. Ultimately, it will be up to the Public Utility Commission (PUC) to decide whether the contracts proceed.

The issue of ratepayers paying a premium for biofuels came to a head after the Public Utility Commission ruled in March that it didn't have the authority to implement a cost-sharing mechanism in the Aina Koa Pono contract that would spread the premium for the fuel that would be used on the Big Island across ratepayers on Oahu and Maui. Hawaiian Electric subsequently went to the Legislature and a bill was passed that gave the PUC this authority, not just for the Aina Koa Pono contract, but for any renewable energy project. The PUC recently ordered Hawaiian Electric to hold community meetings on Oahu and the Big Island to explain the surcharge in the Aina Koa Pono contract.

The Aina Koa Pono contract is for a period of twenty years and the company is hoping to produce fuel from a variety of agricultural feedstocks, such as sweet sorghum.

The negotiated pricing of the contract is significantly higher than the price of petroleum. In order to offset the cost burden to Big Island ratepayers, the utility has proposed spreading the costs across Oahu ratepayers.

The contract, submitted to the PUC for review in January, contains redacted pricing information. The utility’s argument for why the pricing is reasonable is also redacted. The information is available to the PUC and the Consumer Advocate for review, but not the public.

The utility has said that if spread among ratepayers on Oahu and the Big Island, the cost to purchase the fuel from Aina Koa Pono is expected to add about $1.75 to $2.10 a month to a typical residential electric bill. If spread amongst Big Island ratepayers only, a much smaller population that pays higher rates than Oahu, it would increase the cost for residents exponentially.

The Pacific Biodiesel contract is for much less fuel - 25,000 gallons a year - and will be derived from used cooking oil. Pacific Biodiesel is the only commercially successful biodiesel company in the state, and is particularly focused on ground transportation.

Hawaiian Electric Senior Spokesperson Peter Rosegg said that given the small amount of fuel to be purchased from Pacific Biodiesel, the impact to residents’ electric bill is "very minor."

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