Sunday, January 16, 2011

 

Ku`oko`a: Transforming Hawai`i's Economy


By Henry Curtis

Dreams


Many people would like Hawai`i to move beyond its fixation on tourism and the military and become the health state or the high tech state. Some believe that we need to transform the Honolulu Harbor area from a shipping area to a gathering spot, a coastal green lei of parks and open space. Some believe that the threat of Peak Oil and Climate Change will greatly damage the state unless we deal with it now. Others believe we should finally realize the dream of the 1978 Constitutional Convention and become agriculturally and energy self-sufficient. If you wanted to achieve some or all of this, how would you finance it?

Ku`oko`a has one dream of a future. The three people most identified with it come from different backgrounds and seek different things. They have come together because through unity they can each achieve what they want.

The Ku`oko`a Team

Several years ago HECO brought Richard Ha to Maui to counter opposition to palm oil biodiesel. As a third generation Big Island farmer, Richard saw that biofuels offered a way for the State to get off oil. He began going to Peak Oil conferences on the U.S. continent. He saw how high energy prices impacted farming, from fuel for farm vehicles, to the cost of fertilizer, to shipping costs, high energy prices negatively impacted his farming and would damage the state economy. He also realized that biofuels was not the answer, that the financials would not pencil out. He became a firm believer in geothermal.

Ted Peck served as an officer on board a nuclear submarine. His XO was Ron Cox who would become the Pearl Harbor base commander and then HECO’s biofuel person. Ted went to Booz Allen, the international military and high tech company that came up with the way of recording key strokes as a way of breaking computer passwords. Ted ran the 180 person Hawai`i and Pacific Office. Governor Lingle brought him in as DBEDT Director Ted Liu’s energy person. The three top energy people at DBEDT had all resigned about the same time during a DBEDT procurement scandal and Ted Peck became the new DBEDT Energy leader. DBEDTs focus is to transform the State.

HECO also lost much of their top leadership during the same time period, and for a while it looked like they were going to significantly change to their approach.

Roald Marsh is an inspirational speaker and real estate venture capitalist who came occasionally to Hawai`i.

The Utility

Hawaiian Electric Company (HECO) owns Maui Electric (MECO) and Hawai`i Electric Light (HELCO). They account for all electricity sales in the State except for Kauai. Ever since the 1978 Constitutional Convention, HECO has, at some level, sought to develop renewable energy. At first utility pundits thought that the way to achieve this was by establishing a parent company, a holding company. Hawaii Electric Industries (HEI) was established in 1981-83 in order to create renewable energy sister companies to HECO. Instead HEI went into banking, real estate, insurance, and interisland shipping.

Around 2000 HECO decided that a child, a subsidiary, was actually the way to go. HECO established Renewable Hawaii Inc (RHI) to invest in renewable energy projects. It was stated that if RHI made an investment it would not impact how long HECO took to allow any renewable energy company to interface with the utility-owned electric grid. RHI failed to do anything significant.

In 2008 HECO and the State came up with a new plan, called the Energy Agreement. The State would increase and guarantee utility profits through a rate mechanism called decoupling while HECO would open up its grid through a mechanism called feed-in tariffs whereby ratepayers could build small renewable energy systems (0-5MW) and sell the electricity to the utility for a profit. DBEDT wanted these issues linked, but the State did not. The Public Utilities Commission (PUC) passed regulations guaranteeing the utility a healthy profit while the utility successfully bogged down feed-in tariffs in regulatory mire.

Honolulu Harbor

The Aloha Tower Development Corp (ATDC) published a Request for Proposal (RFP) to develop Piers 5 & 6 in September 2002, during the final months of the Cayetano Administration. Within a month or so of the new Lingle administration, Dallas developer Kenneth Hughes and his UC Urban project was chosen. A Development Agreement was signed in 2004. The ATDC Board approved the development rights for a mixed-use condo-hotel project in 2007.

At one time a lei of green had been envisioned: Waikiki Beach, Ala Moana Park, Kewalo Basin, Kakaako Park, the Free Trade Zone, Piers 5 & 6, the Falls of Clyde and Aloha Tower. Along the way Aloha Tower was built but it was isolated from other economic activity and it suffered. UC Urban’s vision was broad. By removing the Honolulu Power Plant, redesigning Nimitz Highway so that it would be safe and easy for pedestrians to get to the harbor area, building a rail stop and ferry stop at Aloha Tower, and financing it with a huge waterfront hotel, the area would be transformed. By 2009 the whole project had died a painful death.

There were other dreams presented during those years. In 2005 HECO had informed the PUC that they had a 200MW shortfall on O`ahu and they needed a 100MW biofuel peaking unit in Campbell Industrial Park. The only intervenor in the regulatory proceedings, Life of the Land, proposed the use of ocean energy resources to meet all 200MW of need and also to produce additional MW so that Honolulu Power Plant could be torn down. In place of the downtown plant, Life of the Land proposed one level of partially below ground parking, with a passive park on top.

Ku`oko`a plans to decommission the Honolulu Power Plant. They plan to redevelop the site as well as Piers 5 & 6. Part of the site would be used to house their new international headquarters, other space would be used for a variety of open space and commercial activity including a hotel, fish market, farmers market, nightclubs, parking, a stop on the proposed rail line, etc.

Geothermal Companies

In addition to acquiring Hawaiian Electric Industries, Ku`oko`a also wants to acquire Magma Energy Corp and Ormat Technology Inc.

Ku`oko`a might be able to buyout both companies for $1.5-2.0B.

The Magma Initial Public Offering in 2009 sold 66 million shares raising $87 million. The stock is currently selling at $1.38/share. Magma Energy Corp was founded in 2008 and owns two plants in Iceland with a capacity of 175MW, and a 23MW plant in Nevada. For the fiscal year ending June 30, 2010, Magma Energy had assets of $199M, liabilities of $57M, revenue of $5M, gross profit of $1.7M. The stock trades on the Toronto Stock Exchange under the acronym MXY.

Ormat Technology Inc (the owner of Puna Geothermal Ventures) has issued 45M shares of stock which is currently trading at $31/share. Ormat Technology Inc is a vertically integrated energy company focusing mostly on geothermal. The stock is traded on the New York Stock Exchange (NYSE). Twenty entities control 86% of its stock. The majority shareholder, with almost a 60% share, is the Israeli company Ormat Industries Ltd. (ORMT) which is listed on the Tel Aviv Stock Exchange (TASE). Ormat is the leading vertically integrated geothermal power giant which explores, develops, builds, owns, operates, and maintains geothermal facilities.

Geothermal Energy

There are many geothermal advocates. Geothermal energy is nearly inexhaustible. The available resource is greater than the amount of oil the world has used and has left. A geothermal plant has a very small geographically footprint (MW/acre) compared to other energy sources. Geothermal produces continuous (baseload) power at a very low cost. When done right geothermal produces minimal greenhouse gases.

At the low end, the California Geysers produce electricity for 3-3.5 cents/kWhr, while some geothermal resources need 6-12 cents/kWhr. Credit Suisse (2009) calculated that geothermal power costs 3.6 cents/kWhr, versus 5.5 cents/kWhr for coal.

Geothermal has a capacity factor (average output/maximum output) of 0.84 (nuclear is 0.90, wave energy is 0.6, wind is 0.4, solar is 0.20)

Geothermal ranks fourth in U.S. renewable energy production: hydropower (72%), wind (15%), and biomass (8%), geothermal (4.6%), solar (0.3%).

The Earth has 40,000,000MW of potential geothermal resources. There are about 200 geothermal plants in the world, producing 11,000MW of geothermal energy. The US has about 77 plants which generates 30% of the geothermal energy in the world (3,000MW). Half of this is generated in the Geysers (72 miles north of San Francisco) while a sixth of it is generated in the Salton Sea area in south central California. Several states produce geothermal energy: California, Nevada, Oregon, Idaho, Arizona, Utah and Hawai`i. The leaders are California (2,605 MW) and Nevada (333 MW). The Philippines rank second in the use of geothermal (1,200 MW)

The two major geothermal companies in the U.S. are Calpine and Ormat.

There are two major air emission approaches: (1) venting geothermal gases into the atmosphere; and (2) re-injection of the steam into the Earth. Hawai`i tried both approaches, venting in the early years until there was such a public outcry that they went with the second approach.

Geothermal steam can contain hydrogen sulfide (which has a bad odor of rotten eggs), dissolved salts and toxic elements such as boron, lead, and arsenic.

Modern geothermal engineering techniques are able to cause earthquakes through a process called fracking (hydraulic fracturing) which seeks to fracture rocks 3-4 miles underground with explosives or pressurized water and then using steam generated to produce geothermal energy.

Big Island Geothermal and the Transmission Cable from Hawai`i Island to O`ahu

Starting shortly after statehood, Hawai`i began exploring the possibility of using geothermal energy to generate electricity. Hawai`i envisioned building 500MW of generators on the Big Island and shipping the power to O`ahu. The geothermal power plants would be built in Puna, overhead transmission lines would bring it to Kawaihae Harbor on the west side of the island, an undersea cable would bring it to an area of Maui, just south of Kihei. The line would briefly come on shore, then go back off shore, pass between Moloka`i and Lana`i and land in Waimanalo, in a new substation. Additional overhead transmission lines would be built between Waimanalo and Palolo.

The Hawaii Deep Water Cable Project came to an abrupt end in 1991 when Federal Judge David Ezra ended all federal expenditures, noting that money had been spent for 13 years on the project without an Environmental Impact Statement (EIS). This avoidance on an EIS was illegal under federal law.

Other problems occurred due to geothermal. The State gave away part of the Puna Rainforest in exchange for lava rock. The developers tracked alien species into the forest and trampled on native practices. The new power plant had continual discharges into the air, including a 31-hour well blowout in 1991.

The Hawai`i Supreme Court issued a landmark decision on the protection of Native Hawaiian rights. Ormat Technologies, Inc. acquired Puna Geothermal Venture (PGV) in 2004.

The idea of geothermal powering the State never went away. An electric grid needs continuous power to constitute 2/3 of the electricity generated. For Hawai`i, continuous power could come from oil, coal, biofuels, geothermal and ocean thermal. The first three cause global warming.

We can create biofuels from waste oil and this is a good use of a waste product, but supplying biofuels to power half of the electric grid would require a massive transformation and cause substantial emissions of greenhouse gases.

Thus the State has two realistic options: geothermal and ocean thermal.

Ted Peck noted that the way geothermal was originally done was wrong. He stated that “big business came in and bulldozed in an Avatar-like fashion," (Pacific Business News, October 11, 2010). Ku`oko`a plans to only build geothermal plants where there is community buy-in.

The Internet

Ku’oko’a will spend $5B to install Smart Meters with broadband internet service to every ratepayer in the State.

According to a survey by PCMag, Hawai`i has the second slowest internet rate. Rates varied from 781 Kbps (Nevada) to 322 Kbps (New Mexico). The average was 557 Kbps while Hawaii was 378 Kbps. “To track surf speeds, PCMag used a custom-designed SurfSpeed application that grabs pages from several popular Web sites to measure actual Internet surfing speed and pored through data from more than 17,000 unique IP addresses.”

A Report on Internet Speeds in All 50 States: A Project of Communications Workers of America (November 2010) found that “the United States ranks 25th in the world in average Internet connection speeds ...[while] Hawaii ranks 31st in the nation in internet speeds” with an internet speed of 3.4 megabits per second.

Many web applications can be conducted at lower transfer rates (500 kbps – 1 mbps) including basic email, low quality video, web browsing and music streaming.

Video applications requires higher speeds: Medical file sharing & remote diagnosis (5 mbps – 10 mbps) to High Definition telemedicine, video, and gaming (100 mbps – 1 gbps)

“Half (49 percent) of U.S. residents’ Internet connections fall below the Federal Communications Commission’s (FCC) minimum broadband speed standard of 4 megabits per second (mbps) download and 1 mbps upload. This is the minimum speed generally required for using today’s video-rich broadband applications and services, while retaining sufficient capacity for basic web browsing and e-mail. Only 1 percent of U.S. Internet connections meet the FCC’s broadband speed goal for the year 2015 of 50 mbps download and 20 mbps upload.”

The U.S. continues to lag far behind other countries. The United States ranks 25th in the world in average Internet connection speeds. In South Korea, the average download speed is 34.1 mbps, or 10 times faster than the U.S. The U.S. trails Sweden at 22.2 mbps, the Netherlands at 20.7 mbps, Japan at 18 mbps, and even Romania at 20.3 mbps. Moreover, people in other countries have access to much faster networks. More than 90 percent of Japanese households have access to fiber-to-the-home networks capable of 100 mbps or greater in both directions. According to the Organisation for Economic Cooperation and Development (OECD), the average of advertised speeds offered by broadband providers in Japan was 107.7 mbps and in South Korea was 52.8 mbps. According to the OECD, the United States ranks 24th among industrialized nations in average advertised broadband download speed at 14.6 mbps.”

There is a digital divide: “Nearly 100 million Americans do not have broadband at home. An estimated 14 to 24 million of these people do not even have access to broadband. All too many Americans find themselves on the wrong side of a digital divide based on race, income, geography, and age.”

There is a geographical divide: Rural areas in the US and Hawaii have lower rates than urban areas.

The Name

Kū`oko`a has appropriated a Hawaiian word with strong meanings. This is bound to create tension.

At the time of the overthrow of the Hawai`i Kingdom in 1893, virtually all of the population except for a small subset of haole business interests, opposed the overthrow and favored the re-emergence of an independent Hawaiian nation.

The Hawaiian Sovereignty Movement re-emerged over the past four decades. Kūʻokoʻa has special meanings. Kūʻokoʻa means independence, liberty, freedom; independent, free. Lā Kūʻokoʻa means Independence Day. Hōʻike no ke Kūʻokoʻa means Declaration of Independence. Ka Nupepa Kūʻokoʻa was the Independent Newspaper published in Honolulu (1861–1927). Hoʻokūʻokoʻa means to establish independence, make independent.

No one identified as being affiliated with Kū’oko’a Inc has any connection to Native Hawaiians nor has the group suggested any form of geothermal royalties to Native Hawaiians.

Kaua`i

Kū`oko`a also wants to acquire Kauai Island Utility Coop (KIUC). They believe that a cable to Kauai will be difficult and integrating Kauai into the state network will be a money loser, however, they are seeking to offer the same package of renewable energy and broadband internet service to every electric ratepayer in the State.

The Future

Kū`oko`a wants to complete the deal by November 2011. They want the new company to be an economic showcase for the 2011 Asia Pacific Economic Cooperation (APEC) forum.

During November, Hawaii will host the 2011 Asia Pacific Economic Cooperation (APEC) forum. Attendees will include business leaders, heads of state, cabinet ministers, and leaders of international financial institutions such as the World Bank and the World Trade Organization. A total of 10,000 people are expected to attend.

Kuokoa can be contacted at freedom@kuokoa.com


# # #

Henry Curtis
ililani.media@gmail.com

Comments:

Hi Henry, can you explain a little more about this recent legislative change in decoupling revenue and profits from sales, and what this change suggests for taxpayers/consumers?

August 31, 2010 - Public Utilities Commission Issues Final Decision Approving A Decoupling Mechanism For The Hawaiian Electric Companies To Encourage Their Support For Renewable Energy And Energy Efficiency Initiatives
HONOLULU – To encourage the Hawaiian Electric Companies (Hawaiian Electric Company, Hawaii Electric Light Company, and Maui Electric Light Company) to accelerate the adoption of clean energy resources, including renewable energy generation and energy efficiency programs, the Hawai‘i Public Utilities Commission (Commission) today approved a decoupling mechanism that is designed to de-link the Hawaiian Electric Companies’ revenues and profits from their electricity sales. http://puc.hawaii.gov/news
 

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