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HomeMy WebLinkAboutREP AWESC 004 09/05/2012 2010-2012REPORT OF THE COMMITTEE ON AGRICULTURE, WATER AND ENERGY SUSTAINABILITY DATE: September 5, 2012 RE: Comm. No. 822/Res. No. 297-12 PLACE: Council Chambers Hilo, Hawaii TIME: 5:46 p.m. Council Chair and Members Hawaii County Council Hilo, Hawaii 96720 Your Committee on Agriculture, Water and Energy Sustainability, to which was referred Resolution No. 297-12, reports as follows: Resolution No. 297-12, transmitted by Council Member J Yoshimoto via Communication No. 822, dated August 28, 2012, urges Hawaii Electric Light Company (HELCO) to renegotiate its Purchase Power Agreement (PPA) contracts with all independent power producers using renewable resources so that the cost to the consumer is not based on avoided costs. There were nine testifiers from the Hilo Council Chambers: six spoke in support and three provided comment. There was one testifier from the Pdhoa Council Office who spoke in support. After the public testimony, Mr. Hoffmann assumed the Chair to allow Mr. Yoshimoto to speak on his resolution. Mr. Yoshimoto read a section of a report from the Public Utilities Commission (PUC), which states, "Although it has approved the Application, the commission is disappointed that HELCO and PGV were unable to negotiate an increased reduction in the avoided cost -based payments that PGV will receive under the Fifth Amendment. As a consequence, the vast majority of the annual energy procured from the Existing Facility would still occur at pricing that is linked to fossil fuels and thus provides no price advantage or stability benefits to HELCO's customers. The 8 MW Expansion was the opportunity to renegotiate the underlying contract terms for the Existing Facility, but HELCO and PGV failed to produce a better economic result for customers. By approving this Application, the commission is not approving the underlying avoided cost - based PPA, as that contract was developed and approved prior to the implementation of HRS §269-27.2(c), which required all new generation pricing to be de -linked from the price of fossil fuel. Existing law prevents the commission from unilaterally amending the underlying PPA, and as such the commission can only approve the incremental increase in generation that is de -linked and the amendment to the Existing PPA, which de -links a portion of those energy charges. While disappointed by the results of the Contracting Parties with respect to avoided costs in the Existing PPA, the commission approves this Application because, as a whole, the proposed project will provide benefits over the status quo." AWESC Report No. 4 AWESC-4 Page 2 September 5, 2012 Mr. Yoshimoto asked Jay Ignacio, President of HELCO, to come forward. He was accompanied by Norman Verbanic, Production Manager. Mr. Ignacio stated that he agrees with the resolution and has already made contact with the independent power producers (Puna Geothermal Venture (PGV); Apollo Energy Corporation/Tawhiri Power, LLC; Wailuku Holding Company, LLC; and enXco/Hawi Renewable Development, LLC) to renegotiate existing contracts. In fact, PGV has already approached HELCO to negotiate a new contract. Mr. Yoshimoto asked Mr. Ignacio if he was able to share any details of the negotiations. Mr. Ignacio replied that the information is confidential. Mr. Yoshimoto wanted to know how many years are left in the contract with PGV. Mr. Verbanic replied that it ends in 2027, so 15 years. Mr. Yoshimoto asked if HELCO and PGV are negotiating the entire Purchase Power Agreement. Mr. Ignacio explained that the original contract with PGV was for 25 megawatts (MW), then they amended their contract to expand to 30 MW and, most recently, to 38 MW. During the last amendment, they renegotiated only five of the 30 MW, so now they are currently negotiating for the 25 MW. If negotiations fail, then they will stay with the terms of the existing contract. Mr. Yoshimoto then inquired as to when the contracts will end for the other independent power producers. Mr. Verbanic replied that Wailuku Holding Company, LLC has a 30 -year contract to end in the mid 20's; Apollo Energy Corporation/Tawhiri Power, LLC has a 20 -year contract to end 2026; and enXco/Hawi Renewable Development, LLC has a 20 -year contract to end 2027. Mr. Yoshimoto asked if all these contracts are based on avoided cost. Mr. Verbanic confirmed that they are. Ms. Smart expressed concern over the HELCO ads that ran in the newspaper. HELCO spent $16,770 for four colored ads. She feels that this is money that could have been better spent, like going back to the customers. Mr. Ignacio explained that Hawai`i's PUC does not allow the cost for ads to be passed on to the customers; they were paid for by the shareholders. Mr. Yagong submitted the following amendment via Communication No. 822.1: "BE IT FURTHER RESOLVED that Hawai `i Electric Light Company shall appear before the Council at the West Hawai `i Civic Center for the scheduled October 17, 2012, Council Meeting to report the results of its efforts to renegotiate its Purchase Power Agreements with all independent renewable energy power producers, and specifically if Puna Geothermal Venture was amendable to lowering the price rates for payers and the amount of the new negotiated price, if one has been agreed upon. " Mr. Yagong explained that the purpose of this amendment is to strengthen the resolution by requiring HELCO to report back to the Council, which was suggested by Ms. Mililani Trask (Indigenous Consultants, LLC) in her written testimony (Communication No. 822.2). This resolution will also help to keep the public in the loop. Mr. Yoshimoto asked Mr. Ignacio if this proposed amendment provides enough time for him to report back based on the status of the negotiations with PGV. Mr. Ignacio said they would be willing to provide an update, but the contents of the negotiations are confidential, so he is not sure how much information he will be able to share with the Council. He noted that the last negotiations for the eight megawatts -expansion took three years; however, both sides understand AWESC-4 Page 3 September 5, 2012 the urgency. Mr. Yoshimoto asked if the amended agreement would have to go back to the PUC for approval. Mr. Ignacio confirmed that it does. The amendment submitted via Communication No. 822.1 passed unanimously (Mr. Blas, Mr. Ikeda and Mr. Pilago were absent). Ms. Ford asked if they are negotiating to lower their wholesale (utility) cost or the retail (consumer) cost. Mr. Ignacio explained that they are negotiating the rate that they pay to PGV for the energy that is sold to HELCO. If they can lower the cost, then the savings can be passed on to customers. HELCO doesn't make any profit from the energy that is purchased from the power producers. Ms. Ford then asked Mr. Ignacio if the chart from Ms. Trask (Communication No. 822.2) was accurate. It shows the production cost at eight cents/kilowatt-hour (kwh), the cost to the utility at 16 cents/kwh, and the cost to the consumer at 43 cents/kwh. Mr. Ignacio replied that it may be a little outdated. Mr. Verbanic said last month's avoided cost was 19 cents/kwh for on -peak hours. Mr. Ignacio explained that the difference between the cost to utility and the cost to consumer goes towards other operating expenses. Ms. Ford stated that part of the problem is that Hawai`i's PUC needs to do more. She pointed out that California's PUC is the nastiest and is totally committed to protecting the consumer. Ms. Ford is concerned that with fixed overhead costs and having to keep the shareholders happy, the negotiations may reduce costs by only one or two cents. Mr. Ignacio explained that HELCO's biggest cost is fuel and purchase power, which is 60 percent of the bill. HELCO is trying to reduce that by reducing payments to the independent power producers. Even if the fuel and purchase power costs were reduced, HELCO will still have huge fuel bills, which is why HELCO signed a contract with Hu Honua in order to have generation that is not dependent on oil. Hu Honua would be dependent on biomass, so as oil prices fluctuate, customers will not have the burden of that fluctuation. HELCO is also going for a RFP for more geothermal. If approved, that set of energy will not be linked to fossil fuel. Mr. Ignacio explained that to reduce the fuel and purchase power costs, HELCO will have to enter into more contracts with independent power producers, and in order to do that, HELCO needs to be financially healthy. Mr. Hoffmann feels that the Administration and the Council are not doing enough. Government needs to work together with the community. He urges all of Hawai`i's mayors and county councils to work together to address this issue. Mr. Yoshimoto explained that the Council has no authority over the PUC, so something needs to be done at the State level to address these issues. The purpose of this resolution is to show these companies that the people care. And because the Council has no authority, the Council cannot mandate or demand, it can only suggest to the companies to go back to the drawing table. Eventually, the contracts will end, so this may give the companies some incentive to provide a better deal to consumers in order to extend their contracts. Mr. Yagong noted that Mike Kaleikini, Plant Manager for PGV, was in the audience. He informed Mr. Kaleikini that the consumers don't have three years to wait for negotiations to complete. Mr. Yagong is encouraged that HELCO and PGV have already initiated negotiations, AWESC-4 Page 4 September 5, 2012 but he hopes for some good news on October 17, 2012, when HELCO is supposed to report back to the Council. Ms. Smart commented that HELCO should include their ads in the newsletter that is attached to the customers' bills. The newsletter is a great tool to educate consumers of HELCO's attempts to renegotiate its contracts and to ask for their support through written testimony, testifying at PUC hearings, and/or putting pressure on the other companies. Using HELCO's website is also a great way to get information out. Your Committee on Agriculture, Water and Energy Sustainability is in accord with the purpose and intent of Resolution No. 297-12, as amended to Draft 2, and recommends its adoption. dwe Respectfully submitted, COMMITTEE ON AGRICULTURE, WATER AND ENERGY SUSTAINABILITY J YOSHIMOTO, CHAIR AWESC REPORT NO. 4 ADOPTED: Scr 1 0 2012 AYES NOES A&E EX BLAS x FORD X HOFFMANN X IKEDA X ONISHI X PILAGO X SMART X YAGONG X YOSHIMOTO X Respectfully submitted, COMMITTEE ON AGRICULTURE, WATER AND ENERGY SUSTAINABILITY J YOSHIMOTO, CHAIR AWESC REPORT NO. 4 ADOPTED: Scr 1 0 2012