Saturday, October 01, 2011

 

PUC issues landmark biofuel ruling


By Henry Curtis


the commission finds and concludes that the contract price for the AKP-produced biofuel is excessive, not cost-effective, and thus, is unreasonable and inconsistent with the public interest.


The Hawai`i Public Utilities Commission (PUC) issued a key biofuel Decision and Order on September 29, 2011 in docket  2011-0005.  Key parts of the decision and order are listed below. The * denote footnotes.


By this Decision and Order, the commission denies the HECO Companies' request, as set forth in their Application* to approve HELCO's Biodiesel Supply Contract with Aina Koa Pono-Ka'u LLC ("AKP" or "Seller"), dated January 6, 2011, for approximately sixteen million net United States ("U.S.") gallons annually of locally-produced biodiesel over twenty years. (pp. 1-2)



*The parties are HAWAIIAN ELECTRIC COMPANY, INC. ("HECO" or "Hawaiian Electric"), HAWAII ELECTRIC LIGHT COMPANY, INC. ("HELCO"), MAUI ELECTRIC COMPANY, LIMITED ("MECO")(collectively, the "Companies" or "HECO Companies"), and the DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS, DIVISION OF CONSUMER ADVOCACY ("Consumer Advocate"), an ex officio party to this proceeding, pursuant to Hawaii Revised Statutes ("HRS") § 269-51 and Hawaii Administrative Rules ("HAR") § 6-61-62(a). The commission denied motions to intervene filed by Life of the Land and Hawaii Renewable Energy Alliance, and dismissed as untimely the County of Hawaii's motion to participate.


Specifically, the commission finds and concludes that the contract price for the AKP-produced biofuel is excessive, not cost-effective, and thus, is unreasonable and inconsistent with the public interest. In effect, from a real world, bill-paying perspective, the HECO Companies seek the commission's approval to consistently charge affected ratepayers a premium for HELCO's purchase and use of AKP-produced biofuel under the terms of the twenty-year contract. Such a result is unreasonable and not in the public interest.



By the HECO Companies' own projections: (1) the incremental cost difference between the AKP-produced biofuel and the cost of the petroleum fuel it intends to replace will be an estimated eight-figure amount in 2015, the first year in which the sixteen million gallons of biofuel is utilized; and (2) over the course of the twenty-year contract period, the total estimated cost impact of using AKP-produced biodiesel instead of petroleum fuel will be a nine-figure amount. (2)



The commission has received written comments from the public in support of or in opposition to the HECO Companies' Application. Members of the public also appeared and testified at the public hearings, expressing their support of or opposition to the Application. The written and oral comments expressed to the commission represent a broad cross-section of the community, including individual Big Island and Oahu ratepayers, businesses, community, public interest, and business organizations, labor groups, legislators, the Energy Office of the State Department of Business, Economic Development, and Tourism, and the County of Hawaii mayor. (pp. 29-30)



Reasons advanced by the public in support of the HECO Companies' Application include:



- Energy independence, self-sufficiency, and security.



- Long-term investment that should lead to stabilizing electric utility rates.



- The use of a renewable energy. resource which further reduces the State's dependence on petroleum-based fossils fuels.



- The use of biofuel for existing fossil fuel facilities, thereby reducing capital investments for new generation capacity. The use of TekGar, LLC s catalytic MWDP technology has several compelling competitive advantages, including: (1) high-efficiency biodiesel production; (2) clean "green" output; (3) existing commercial operating history; and (4) modular and flexible output.


- Minimal greenhouse gas emissions.


- Economic benefits, including jobs (construction and permanent) for Ka'u and other Big Island residents.


- The proposed biofuel surcharge is necessary to enable the AKP Project to succeed. Most of the renewable energy sites are located on the neighbor islands, even though Oahu creates the largest demand against which the statewide renewable energy mandates must be measured.



- The proposed biofuel surcharge is cheap when compared to the long-term costs of relying solely on fossil fuels for the generation of electricity.



- Allowing the commission the discretion to allocate the costs of renewable energy projects among the aggregated customer base of the HECO Companies will encourage more renewable energy project developments on the neighbor island and assist the State in transitioning to a clean energy economy.


- The use of the biochar by-product as a productive soil amendment for agriculture.


- Carbon sequestration through biochar is a carbon-negative process.
(pp. 30-31)


Conversely, reasons advanced by the public in opposition to the HECO Companies' Application include:


- The lack of an environmental assessment or environmental impact statement for the AKP Project.


- Emissions generated from burning biofuel, which is not a clean renewable energy resource.


- Health, safety, and ground transport (i.e., trucking) concerns related to the AKP Project.


- Inadequate water supply for the source crops.


- Utilizing the land for food crops, and not as source crops for biofuel.

- Utilizing other renewable energy resources, which are "clean" and lower in cost, in lieu of biofuel.



- The AKP Project will increase, and not decrease, electric utility rates.


- Based on the HECO Companies' estimated amount of the proposed monthly biofuel surcharge, the cost of AKP-produced biofuel (which is filed under confidential seal) is not economical.


- The proposed biofuel surcharge is unfair and unnecessary.


- Arbitrary, preferential treatment for the biofuel industry.


- The MWDP technology is unproven on a commercial scale (i.e., the AKP Project is not technically or economically feasible) .


- Net zero displacement of petroleum diesel, when one energy unit of petroleum diesel is used to produce one energy unit of biofuel.


- Lack of ratepayer benefits.


(pp. 31-32)

Based on its review and analysis, the Consumer Advocate states:


1. The contract is reasonable and should be approved, provided that the commission approves the proposed Biofuel Surcharge Provision. []


3. The price provision of the contract (filed under confidential seal) is not inconsistent with certain other biodiesel prices observed by the HECO Companies in recent months. []


6. There are provisions within the contract that mitigate the risks to HELCO, and as a result, to the HECO Companies and their ratepayers.[]


13. The initiation and consideration of an environmental assessment process pursuant to HRS § 343-5 and any subsequent determination as to whether there may be any significant effects on the environment which may necessitate an environmental impact statement is not within the commission's statutory authority.

(pp. 40-46)



The HECO Companies chose to file and retain the AKP biofuel pricing information under confidential seal. Thus, to the commission's knowledge, the entities that are privy to the confidential information are the HECO Companies, the Consumer Advocate, AKP, and the commission.


In this regard, the commission, at the outset, notes that the non-Parties who support or oppose the AKP Project are not privy to the confidential biofuel pricing information, other than AKP. The commission further notes that the HECO Companies' underlying reasons and data in support of the agreed-upon biofuel price and twenty-year term of the contract have also, to a large extent, been filed under confidential seal. (p. 51)


The commission, based on its extensive review, finds and concludes that the contract price for the AKP-produced biofuel is excessive, not cost-effective, and thus, is unreasonable and inconsistent with the public interest.


In support thereto, the commission specifically finds and concludes as follows:


3 . The HECO Companies estimate that in 2015 – the first year in which the sixteen million gallons of biofuel will be delivered to HELCO — HELCO' s total fuel cost will be higher by an eight-figure amount than if it utilized only petroleum fuel. In other words, the incremental cost difference between AKP' s biofuel and HELCO' s petroleum fuel in 2015, alone, is an estimated eight-figure amount. []


4. The HECO Companies further estimate that over the course of the twenty-year contract period, the sum of "the estimated cost impact by year of using biodiesel instead of diesel fuel” will be a nine-figure amount.*


* At least two members of the public have attempted to estimate the total amount of the proposed biofuel subsidy based on electricity sales for the calendar year 2 010. See electronic mail comment from Mr. Henry Curtis, Executive Director, Life of the Land, dated August 1, 2011, at 7-8 (based on the electric sales of HECO and HELCO for the calendar year 2010, the total amount of the subsidy would be $26,553 million per year); and electronic mail comment from Mr. Roger Dunn, dated July 31, 2011, at 1 (based on HECO's electricity sales for 2010, the proposed biofuels tax would raise $26 million per year to subsidize sixteen million gallons of biodiesel).

(p. 52)

8. The HECO Companies assert that the initial per gallon contract price for the AKP-produced biofuel is competitive with the price currently being paid for biodiesel in the State for the generation of electricity. The Consumer Advocate, likewise, "notes that the price provision of the Contract is not inconsistent with certain other biodiesel prices observed by the HECO Companies in recent months.


The commission, in response, finds that the HELCO-AKP contract is for twenty years, with an annual escalation factor. By contrast, the commission-approved biodiesel contracts for

HECO and MECO, which the HECO Companies and the Consumer Advocate refer to, are short-term contracts, three of which are limited to testing purposes. (p. 56)


The commission's non-approval of the Biodiesel Supply Contract renders moot the HECO Companies' remaining requests. Nonetheless, the commission finds it feasible to make certain observations with respect to the proposed Biofuel Surcharge Provision. (p. 60)


The commission, conceivably, will not know until a future date as to whether HECO, HELCO, and MECO may need to aggregate their renewable portfolios in order to meet the renewable portfolio target of fifteen percent.[] The HECO Companies, in their Reply Statement of Position, contend that they have aggregated their renewable portfolios to meet a collective RPS goal [] The commission rejects as unsupported the HECO Companies' unexplained contention in this regard. In effect, the HECO Companies' assertion that they have aggregated, or more specifically, will need to aggregate their renewable portfolios to meet the 15 percent RPS target for December 31, 2015, lacks supporting facts and evidence in this docket record. (pp. 66-67)


As a final matter, the commission is aware of and rejects as unwarranted and without merit the possible perception that by not approving the Biodiesel Supply Contract, the commission is "anti-biofuels" or "anti-renewables." Indeed, State law, which recognizes the use of cost-effective biofuels as a renewable electrical energy resource, reflects the State's overall policy of reducing its reliance and dependence on fossil fuels. Nonetheless, in this instance, the commission finds and concludes that the contract price for the AKP-produced biofuel, which the HECO Companies chose to file and retain under confidential seal, is excessive, not cost-effective, and thus, is unreasonable and inconsistent with the public interest.


The commission, in implementing the State's energy policy, finds value in converting the existing fossil generation units to utilize indigenous renewable fuels in order to continue providing firm power. However, the purchase of an annual minimum quantity of indigenous biofuel, that likely would require the utility to operate generation outside of economic dispatch to ensure these volumes are consumed, had the potential to displace or curtail more economical, existing renewable energy resources on the HELCO system or restrict the addition of other new low-cost, fixed price renewable energy projects.


Furthermore, the degree to which utility customers should be required to provide financial assurances for indigenous biofuel development, and under what terms and conditions, is a critical policy issue that has not been fully vetted from a regulatory perspective. Given the foregoing, the commission intends to explore the appropriate forum for this and other biofuel-related issues to assist in establishing a more comprehensive evaluation of converting existing utility and independent power producer fossil generation units to utilize indigenous renewable resources.

(pp. 69-70)




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