SHOULD HAWAIIAN ELECTRIC BE CUSTOMER-OWNED? or HAWAII’S PETROLEUM DEPENDENCE: COULD CUSTOMER OWNERSHIP OF HAWAIIAN ELECTRIC REDUCE THE COST—AS WELL AS THE AMOUNT—OF OIL WE USE? - [ This long essay is from 2007-2009, but the concepts discussed are still valid today. The numbers are out of date and require updating. ] Part 1 of 2 The bipartisan support of energy legislation passed by Hawaii’s legislature in 2006 was refreshing. So is the apparent increased willingness of Hawaiian Electric (HECO) and its neighbor island affiliates Maui Electric Co. (MECO) and Hawaii Electric Light Co. (HELCO)--which I will collectively refer to as HECO for convenience--to use more local renewable energy, as evidenced by HECO’s ongoing multi-media PR campaign. But why is HECO spending so much of our money telling us how energy independent they want to make us--instead of spending this money on actually increasing efficiency and reducing dependency on imported oil--and why now? A cynic might say HECO is trying to reduce opposition to their desired new power plant in Campbell Industrial Park, in which HECO now promises they will try to use only “renewable” fuels--such as ethanol and biodiesel, at least some of which would be locally produced from sugarcane and other locally grown crops--instead of imported fossil fuels to generate electricity. Currently, more than 90% of Hawaiis electricity is still produced from imported fossil fuels, mostly oil. I want to believe HECO has the best of intentions. Nevertheless, I think HECO’s elaborate TV commercials and newspaper ads over what seems like the past year or so-- as well as local news coverage about this--still fail to directly address what may be the biggest obstacle to achieving the most cost-effective future mix of energy efficiency and energy independence in Hawaii: HECO and its Maui County and Big Island subsidiaries essentially are for-profit monopolies whose maximum allowed rates of return on investment (currently averaging about 11 percent) are guaranteed by the Public Utilities Commission (PUC), the government entity that regulates HECO. HECOs parent company-- Hawaiian Electric Industries (HEI)--also currently controls the electricity markets in all counties except Kauai. This may have been justifiable in the past in order to create a reliable electrical generation and distribution network at minimal cost to Hawaii’s citizens. But I think this form of ownership may become increasingly dysfunctional in the future. Why more legislation alone may not optimize energy efficiency and self-reliance in Hawaii  In 2006, both Democrats and Republicans were generally supportive of further development of Hawaiis local renewable energy sources, including, for example, more solar panels on public schools and more financial support for hydrogen fuel research. But measures that would have radically changed how the states electric companies operate were changed from requirements to suggestions to be considered by the PUC. These measures might have required HECO to: - spend all of the money HECO currently is allowed by the PUC to collect from customers for energy efficiency projects on such projects; - be more specific about how HECO will reach the existing state government-mandated goal of using 20 percent renewable, non-fossil fuels by 2020; and - end HECOs ability to automatically pass along any increases in the cost of imported fossil fuels to customers (in the hope that if HECO shareholders were forced to share this burden with HECO customers, they might be more motivated to reduce Hawaiis dependency on imported oil and switch to more local, renewable energy sources). However, I think the 2006 legislation is still based primarily on the hope that consumers will somehow be able to compel HECO to import significantly less oil (which we use not only to fuel our vehicles, but--as stated above--also to produce most of our electricity) via improved oversight of HECO by the PUC, better public oversight of the PUC, and better consumer and/or producer tax incentives for using local renewable energy. Many think and hope the latter will include some combination of: - wind energy (new and improved over previous failed local experiments), - solar energy (both to reduce electricity use--like existing roof-top solar water heaters-- and to generate photovoltaic electricity more cost-effectively), - wave energy, - geothermal energy (if past local political conflicts can be avoided) - ocean thermal energy conversion (OTEC)--also new and improved over past local attempts, - biomass energy (including possibly more daily residential garbage and agricultural waste, fuel crops such as sugarcane, other grass or oilseed crops, and/or perhaps algae farms--which may be much more land and fuel efficient than sugarcane), and - hydrogen energy (probably produced from some combination of renewable and fossil fuels, at least initially). Some proponents also think this type of import substitution would keep more energy profits in Hawaii while creating more jobs than it would eliminate, and would also reduce our vulnerability to supply disruptions even if world oil supplies remain plentiful. Others think trying to forcibly reduce Hawaii’s oil addiction will simply drive local energy prices higher, and swap oil-related environmental problems for others associated with at least some forms of local renewable energy. For example, some fear that expanding local sugarcane production again--this time as a substitute fuel for imported oil--may require more energy than it creates, and might place unsustainable demands on future land and water supplies which, in turn, could offset any reduction in local electricity costs by increasing the cost of living in other ways (primarily housing). Some also think it would still be much easier (politically) and effective to simply further improve incentives and/or mandates to maximize efficient local use of electricity (as has already been proposed by the 2007 Hawaii legislature). In any case, the fact remains that our electricity rates are already about double the national average, and many think--like global warming--that peak oil (i.e. the point at which global oil demand exceeds global oil supply) is already or will soon be a reality. The war in Iraq has also once again increased awareness that oil really may not be cheaper than local alternatives if all of the indirect political, military, economic, and environmental costs and risks of petroleum dependence--which we bear collectively--are not ignored. However, as long as HECO remains a for-profit monopoly, I think the clout consumers have will always be limited--even if they collectively become more willing to substantially reduce their electricity usage via more efficient use and/or pay more for local alternatives if necessary. For example, as mentioned above, an effort was made to legislatively force HECO to spend all of the money it is allowed to collect from its customers for renewable energy and energy efficiency programs on such programs. (In 2004, HECO allegedly spent less than half of more than $19 million it collected for this purpose.) In response, a HECO spokesperson said that part of this money is used to offset the lost revenue from consumers who are already more energy efficient to in order to avoid passing this cost back to all consumers! I think this fact, in a nutshell, summarizes the biggest obstacle to maximizing energy efficiency, reducing petroleum dependency, and controlling the cost of electricity in Hawaii. As I also previously stated, the 2006 legislation continued to allow HECO to fully pass on to consumers any increases in the cost of imported fossil fuels, which critics claim reduces the incentive for HECO to use more local renewable sources. Instead, lawmakers instructed the PUC to find a way to share the risk of fossil fuel cost increases “fairly” between the utility and its customers, while at the same time “encouraging” HECO to develop more renewable power sources and also somehow “protecting” HECO’s profit margin. I think this juggling act may prove very difficult as long as HECO remains a privately- owned, for-profit entity because HECO’s board of directors has a fiduciary responsibility to maximize return on investment. This may be even more difficult without meaningful campaign finance reform--such as truly competitive public funding of local elections, a.k.a. Voter Owned or Clean elections legislation--that would reduce HECO‘s political clout in our state legislature. For example, some critics claim HECO used customer money to pay four HECO employees to serve as free staff to state legislators in 2006. One critic also contends that HECO may be able to meet Hawaii’s existing modest renewable energy targets for the year 2020 without any large-scale changes over the next 14 years. Furthermore, I don’t think consumers will do much to demand changes in their sources of electricity unless and until technological advances make it cost-effective for more individual households, businesses, and/or apartment buildings and neighborhoods to produce at least a substantial part of their own electricity--which may happen sooner than most think. Why advances in distributed generation a.k.a. co-generation may undermine the future viability of HECO as a for-profit business Today’s centralized electricity generation and distribution system was designed by Edison in the 19th century, and could become antiquated--or at least necessary primarily for sharing more decentralized electricity production--in the 21st century due to some combination of technologies such as: - Decentralized small-scale hydrogen fuel cells; - micro-turbines; - Combined heat and power (CHP) systems; - light-emitting diodes (LEDs); - residential-and/or neighborhood scale wind mills (which are now commercially available); - urban roof-top gardens (that not only reduce energy use by reflecting heat, but which also can increase urban green space, absorb greenhouse gases, and increase local decentralized food production) - new smart window and building materials with embedded computers capable of not only optimizing energy efficiency but also possibly generating electricity, - photovoltaic tape or strips (which would be cheaper, more flexible, and more portable than existing photovoltaic panels), and even - solar “paint”--which can already reduce electricity use for air conditioning by increasing rooftop heat reflectivity, and may soon be able to generate electricity photovoltaically using nanotechnology (i.e. molecular and atomic-scale engineered electrical generation). Collectively known as “distributed generation” and/or “co-generation“, these are just some of the technologies which may make this possible, along with existing and new passive substitutes for electricity (e.g. roof-top solar hot water heating and state-of-the- art solar ovens) combined with increased use of existing and new more energy efficient technologies such as compact fluorescent lighting, Energy Star appliances, more efficient computers, and more widespread use of state-of-the-art green construction techniques. For example, local firm Navatek recently filed for a patent on a wave energy device that can extract electric power over a wider range of wave sizes and frequencies than other wave power devices currently being tested or in operaton here and elsewhere around the world. Honolulu Seawater Air Conditioning--another relatively new firm--thinks it can dramatically reduce air conditioning costs, as well as imported oil dependency, in certain parts of Hawaii using OTEC technology. Both of these might also eventually be cost-effective on a more decentralized basis. But other future innovations may dwarf these examples. Caterpillar and Fuel Cell Energy are developing ultra-low emission electric generating products for industrial and commercial use. Toshiba is developing a fuel cell to power laptop computers, and two major automobile manufacturers are developing residential-scale “home” fuel cell refueling systems to produce electricity for both transportation and home use. Hawaii- based firm Hoku Scientific is also developing and manufacturing fuel cell membranes and assemblies to generate electricity for stationary and automotive use. Two National Science Foundation awardees also recently announced development of a small-scale fuel cell prototype that would eliminate the need for an extensive hydrogen distribution system. The hydrogen could be supplied in returnable tanks such as the propane tanks used for gas grills, and potentially connected and scaled up to compete with fuel cells now being tested in the auto industry. In an article published locally last year, a Michigan professor quoted a 2004 Technology Research News article which stated an ethanol-to-hydrogen converter designed for home use would not be much bigger than a coffee mug. Others are working on microbial fuel cells, which could be the future holy grail of distributed electricity generation. According to genomics pioneer Craig Venter--who was in Honolulu recently to discuss the latest developments in human, animal, and plant DNA sequencing--various types of microbes constitute somewhere between 60% and 90% of all the biomass (i.e. life) on Earth, with the remaining minority being the plants and animals we can see with the naked eye. Venter also estimates at least half of these microbial lifeforms may be in the worlds oceans. So I currently cannot imagine a more abundant, cheap, and decentralized source of energy if microbial fuel cells become reality. But Venter also thinks it may be possible to: - use photosynthesis in certain bacteria to directly make hydrogen, - to make synthetic microbes that can capture carbon dioxide gas--a global warming by- product of fossil fuel use--and sequester it in sugars, proteins, or methane for possible recycling into non-polluting transportation fuel, and - that making diesel fuel from algae may eventually be far more efficient than any other current or possible source of bio-fuels. Finally, even without all of these advances, Venter agrees with those who think Hawaii could be the first state in the nation to be completely independent from imported energy. I think it is likely that commercial and industrial users--and hopefully Hawaii state and local governments (like the U.S military and the State of California)--will lead the way to widespread use of these technologies. Predicting penetration of the residential market may be more difficult because this may depend less on technological advances than the extent to which our politicians are willing and able to incentivize consumer independence from HECO, as well as the willingness of mortgage lenders to include the cost of these alternatives--if necessary--in new or refinanced home loans to spread the cost over the life of the mortgage. Perhaps HECOs parent company Hawaiian Electric Industries (HEI) other major subsidiary--American Savings Bank--could lead the way on this. I think “distributed generation” or “co-generation“ and future technological increases in energy efficiency--which more decentralized power generation may also improve by reducing energy lost during traditional longer-range transmission--pose the biggest long- term threats to the pocketbooks of HECO consumers as well as to HECO’s profit margin. Here’s why: if more consumers are able to use less of HECO’s electricity and/or generate more of their own, I think HECO’s fiduciary responsibility will require HECO to continually try to raise the cost of electricity for its remaining customers to offset these losses as long as HECO remains a for-profit monopoly. But this is not necessarily because HECO’s executives and board of directors are greedy. As a for-profit entity, I think they have a legal responsibility to maximize return on investment for their shareholders. As a result, if HECO and its neighbor island affiliates (MECO and HELCO) remain for- profit monopolies in the future, I fear that all future electricity alternatives will be evaluated only in terms of their ability to reduce our dependency on imported oil--which may simply result, for example, in more imported coal replacing some imported oil, and only to the the extent this is profitable for HECO, MECO, and HELCO--rather than their ability to reduce our dependency on HECO, MECO, and HELCO. My best hope if HECO, MECO, and HELCO remain for-profit monopolies is that they will be able to offset any future slowdown in electricity sales by figuring out a way to also profitably sell some type of locally-produced renewable transportation fuel at less cost to Hawaiis consumers than gasoline from local imported oil refineries. I suspect HECO will respond this is at least part of the intent of local biorefinery experiments to produce ethanol--for transportation fuel as well as electricity--using local feedstock (woodchips, bagasse, agricultural, commercial, and residential green waste, as well as fuel crops such as sugar cane) that may be much cheaper and energy-efficient (in part because it is a chemical rather than biological process) than imported ethanol currently produced primarily from corn or other environmentally unsustainable sources (such as eucalyptus factory farms or virgin rain forests). I suspect this is also why the Legislature, Governor, and PUC may all first look at competitive bidding from local, renewable independent power producers to feed into the HECO transmission grid when new sources of future electricity are needed. Many may also argue that this is the real--or at least the currently more feasible--meaning of, and model for, future increases in distributed generation and/or co-generation. However, even cheaper locally produced ethanol might eventually be uncompetitive with a fuel called biobutanol (under development by BP and DuPont) which may be less corrosive than ethanol and closer in energy content to gasoline, while an experimental facility in Massachusetts has already found that algae might yield as much as ten times more fuel per acre than cellulosic ethanol. Ironically, if HECO bet more on these and other technologies (e.g. more utility-scale wind, wave, solar, and/or OTEC energy, for example) and less on ethanol--and they won these bets--this might further slow future HECO requests for rate increases. But if technological advances increasingly make independence from HECO more feasible and cost-effective for more customers, these measures may simply postpone the inevitable decline of HECO as a viable for-profit business. Possible future forms of HECO ownership Some think the best response to potential increased consumer independence from HECO would be to eliminate HECO’s monopoly and allow free market competition to determine the most cost-effective mix of electricity sources in Hawaii. But critics of this solution point out what a disaster electricity deregulation has been on the mainland, and feel this would be infeasible in Hawaii--even if successful on the mainland--due to Hawaii’s geographic isolation (and inability to sell electricity to--and purchase electricity from-- other states if necessary and cost-effective). HECO would also probably do everything it could to prevent competition. But even if HECO failed to do so, critics of deregulation also feel unrestrained competition could undermine the reliability of our power supply. As a result, I think there may be a more desirable third option: public ownership of our electric utilities. Public ownership already exists elsewhere, and can take two forms: government ownership or direct ownership by electricity consumers. I think direct ownership by consumers may be preferable for the following reasons. Theoretically, a government buyout of HECO could be financed by tax revenues and/or borrowed money, and gradually paid back from the following sources: - the profits that currenty go to HECO shareholders (current maximum return on investment allowed by PUC for HECO, HELCO, and MECO averages more than 11%), - the taxes HECO currently pays as a for-profit business, and - the money HECO spends on marketing and promotion. HECO executives would also no longer have to risk customers’ money on foreign and other investments in order to try to increase profits (in attempts to boost returns on investment to offset possibly less than expected profits from electricity sales), most of which I believe have failed in the past or are losing money now. It may be possible to reduce the cost of a customer buyout by giving annual tax breaks to HECO parent company HEI shareholders in exchange for gradually transferring ownership--instead of, or in addition to, more tax incentives for HECO to use more local, renewable electricity sources. (It is my understanding that a HECO subsidiary invested in a similar “ownership transfer” power project in China.) After the purchase was complete, the future profits, for-profit taxes, public relations expenditures, and foreign and other investments attempting to boost profits for HEI shareholders could be used instead to help pay for: - the potentially higher cost (at least initially) of local, renewable energy sources without increasing consumers’ electricity bills, and/or - burying power lines, and/or - simply lowering what we pay for oil-based electricity. Since much HEI stock is currently owned by institutional investors--many outside of Hawaii--these HECO profits also currently do not benefit HECO customers. Financing a government buyout of HECO with money borrowed by state and local governments may be both politically and economically infeasible for the foreseeable future because both may already have what some regard as dangerous--or potentially dangerous--debt levels. A direct cash buyout by government in the form of installment payments over time may also be infeasible because current state government surpluses may disappear. Some think state government could simply use its powers of eminent domain to force HECO to sell. But I think this would likely be challenged legally by HECO, and could be tied up in court for years--which may simply increase the purchase price, rather than reducing it. Furthermore, under government ownership, the money that currently goes to HEI shareholders as profit and to the government as for-profit taxes might also be squandered by bureaucratic inefficiencies and/or diverted to other government programs, along with the customer money HECO spends on public relations and other attempts to increase return on investment for shareholders. However, if HECO customers became its owners, what might have been future HECO profits, for-profit tax payments, continued PR expenditures of customer money telling us how energy “independent“ HECO wants to make us, and any other customer money invested elsewhere in attempts to increase return on investment for shareholders would theoretically go back into the pockets of its customers. As owners, customers might choose to reduce their electricity bills as much as possible rather than invest at least some of the savings resulting from customer ownership in burying power lines and/or more expensive, but local, renewable energy alternatives. But unlike government ownership, HECO customers could make this choice by direct democracy as long as the power supply remained reliable, and the cost savings might eventually be sufficient to do all of these things. Regardless of the non-profit governance structure chosen by HECO customers after a buyout, a customer-owned HECO would also still be subject to our existing legislatively mandated goal of a 20% reduction in imported fossil fuel usage by the year 2020. Perhaps most importantly, if distributed generation/co-generation become technologically feasible and cost-effective on a widespread scale, I also think the transition from more traditional centralized power generation and transmission may be much less politically, legally, and economically contentious and painful if HECO and its Maui and Big Island affiliates become customer- owned first. In the conclusion of this essay in tomorrows Star Bulletin, I will attempt to examine in more detail the possible feasibility of a customer buyout of HECO and its affiliates. Tom Brandt has been an economic development specialist in Hawaii for nearly 20 years. He has authored other articles locally on comparative tourism, agricultural, and high-tech economic futures in Hawaii, and has been invited to discuss these topics on local radio and TV programs. Mr. Brandt also studied strategic planning and comparative analysis of various economic development policy options--including ways to increase and broaden local capital ownership- - as a Ph.D. candidate at U.H.- Manoa. SHOULD HAWAIIAN ELECTRIC BE CUSTOMER-OWNED? or HAWAII’S PETROLEUM DEPENDENCE: COULD CUSTOMER OWNERSHIP OF HAWAIIAN ELECTRIC REDUCE THE COST—AS WELL AS THE AMOUNT—OF OIL WE USE? Part 2 of 2 In the first part of this essay, I attempted to explain how technological advances may make it increasingly cost-effective for more individual households, businesses, and/or apartment buildings and neighborhoods to produce at least a substantial part of their own electricity in the not-too-distant future. Also known as “distributed generation” and “co-generation“, I think this and future technological increases in energy efficiency may pose the biggest long-term threats to the pocketbooks of customers of Hawaiian Electric (HECO) and its neighbor island affiliates Maui Electric Co. (MECO) and Hawaii Electric Light Co. (HELCO), as well as to their profit margins--IF they remain for-profit monopolies. If more consumers use less electricity generated by HECO and its affiliates due to increased efficiency and/or by cost-effectively generating more of their own, I think the fiduciary responsibility of Hawaiian Electric Industries (HEI)--the parent company of HECO, MECO, and HELCO--will compel them to continually request approval from the Public Utilities Commission (PUC) to increase the cost of electricity for its remaining customers to offset these losses and/or to risk more customer money on other investments in attempts to increase returns on investment for HEI shareholders. HECO and its affiliates currently control the electricity markets in all Hawaii counties except Kauai. As a result, I also attempted to explain conceptually why customer ownership of HECO and its affiliates may do more than any other form of ownership to maximize both energy self-reliance and energy efficiency in Hawaii while also minimizing energy costs as much as possible. I argued that after a non-profit customer buyout of HECO and its neighbor- island affiliates was complete, what might have been HECO’ s: - future “profits“, - for- profit tax payments, - ongoing public relations expenditure of customers’ money to tell us how energy “independent” HECO wants to make us, and - foreign and other investments (in attempts to boost future returns on investment to offset possibly less local electricity demand, but most of which have failed in the past or are losing money) could instead be used to help pay for: - the possibly higher cost--at least initially--of local, renewable energy sources, but without increasing consumers’ electricity bills, and/or - to bury power lines, and/or - to simply lower what we pay for oil-based electricity. Since much HEI stock (the parent company of HECO and its neighbor island affiliates) is currently owned by institutional investors--many outside of Hawaii--these HECO profits also currently do not benefit HECO customers. In todays conclusion, I attempt to examine in more detail the feasibility of a customer buyout of HECO and its neighbor island affiliates. Customer ownership on Kauai and the mainland Customer ownership is already reality on Kauai, the only county in Hawaii where Hawaiian Electric Industries, Inc. (HEI)--HECO’s parent company--doesn’t own the electric utility. According to one source, nearly 1,000 customer-owned mainland utilities also already exist--primarily in rural areas. More than 600 of these in 45 states are affiliated with Touchstone Energy--a national advocacy and support organization for customer-owned electric utilities. On Kauai, no state or local government funding was necessary. Hawaii’s congressional delegation helped obtain a federal Rural Utility Service (RUS) loan for the entire purchase price ($215 million) about five years ago. Due to the cost savings of customer ownership, the main architect of the Kauai buyout claimed loan payments would not increase monthly electric bills and, sometime after three years, a rate reduction would be possible. I believe Kauai customers have not seen much savings yet, but primarily due to lingering hurricane repair costs and other management problems. Kauai Electric served about 30,000 customers at the time of their buyout, so the acquisition cost on a per customer basis was about $7,000 plus interest ($215 million divided by 30,000). By comparison, the cost of buying HECO and its Maui and Hawaii County affiliates can only be estimated because all are part of HEI, along with American Savings Bank and other minor subsidiaries. Nevertheless, I think a reasonably accurate estimate is possible. When I first attempted this analysis several years ago, HEI’s market value was about $1.4 billion, and electricity sales accounted for about 75% of HEI’s gross revenues. So, if the electric utilities accounted for a similar percentage of HEI’s market value, they might have been worth a little more than $1 billion then, or approximately five times the cost of Kauai Electric. But HECO and its affiliates also had about 400,000 customers, and—unlike Kauai—no hurricane repairs to pay for. So I estimated the acquisition cost on a per customer basis to buy HECO, MECO, and HELCO at then current fair market value might have averaged a little over $2600 plus interest (Approx. $1.05 billion divided by 400,000). This wouldve been less than half the cost per customer on Kauai. HEIs market value has now grown to about $2.5 billion due to Hawaiis strong economic growth in recent years. HECOs customer base has also grown to more than 430,000 now. I believe the share of HEI gross revenues earned by subsidiary American Savings Bank may now account for a bigger percentage of total HEI gross revenues--as well as HEI market value--relative to electricity sales. But lets assume that electricity sales still account for about 75% of HEIs gross revenues, and that the electric utilities still account for about 75% of HEI total market value. If true, the cost to buy HECO and its neighbor island affiliates at current fair market value might have increased to a little less than $4200 per customer (75% of $2.5 billion, divided by 430,000). This is still less than the cost per customer to buy Kauai Electric, even before adjusting for inflation since the Kauai buyout. As a result, as long as the cost per customer to buy HECO, MECO, and HELCO is the same or less than the cost per customer to buy Kauai Electric (adjusted for inflation), I think it may be even more likely--compared to Kauai--that loan payments to buy HECO and its affiliates would not increase monthly electric bills, and that rate reductions might be feasible even more quickly for customers of HECO and its affiliates compared to customer-owners on Kauai. Furthermore, I dont believe it is inevitable the fair market value of HECO will eventually rise to the point where a customer buyout will never be financially feasible. On the contrary, it may gradually become more affordable over time--if HECO is unable to get PUC approval for every future requested rate increase, and if HECO gradually loses customers and/or sales due to increased cost-effectiveness of distributed generation and/or more efficient electricity use by customers. I also think current HECO efforts to encourage energy efficiency will only last as long as these add to HECO profits. This is admittedly a simplistic financial analysis. But my intent is to demonstrate the possible financial feasibility of a customer buyout in a way that might stimulate more thought and discussion between financial experts and non-experts, as well as between supporters and critics of HECO. And now that we know HECO did not spend more than $10 million it was allowed to collect from customers in 2004 for increasing energy efficiency and renewable energy, it may be possible and more desirable to use the money collected for this by HECO--every year in the future, as long as necessary--to help finance a customer buyout of HECO and its affiliates instead of trying to force them to spend this money on energy efficiency and renewable energy. However, the former owner on Kauai--Citizens Communications Company--was a willing seller because the company felt it could reinvest elsewhere for a better return. In contrast, HECO and its affiliates are currently not for sale. Nevertheless, ongoing technological improvements in distributed generation and energy efficiency (which may slow or stop future growth in per capita electricity sales), political pressure, and better investment returns elsewhere might eventually compel HEI shareholders to consider selling HECO, MECO, and/or HELCO. Furthermore, if the estimates above are still close to correct, it might also be financially feasible to offer even more than fair market value to HEI shareholders to entice a sale. At the very least, customer buyouts on some or all of the other neighbor islands alone might be possible. But while other neighbor islands might qualify for federal Rural Utility Service (RUS) loans, different governmental and/or private lenders would be necessary on Oahu, where the purchase price would be highest. Some venture capitalists also now specialize in buying companies to convert them into employee-owned firms. So it might be possible to find venture capitalists interested in buying HECO and/or its neighbor island affiliates to convert them to customer ownership. If it proves impossible to obtain 100% debt and/or equity financing for a customer buyout of HECO, another option may be possible.  When I first attempted this analysis and estimated it might cost about $1 billion for customers to buy HECO and affiliates, I thought a surcharge averaging up to about $25 per customer per month--but much less for most residential customers—could be added to electricity bills for about 100 months to pay for the purchase. ($25 average per customer per month for 100 months multiplied by 400,000 customers equals $1 billion). Even if it cost nearly twice as much now (or in the future) to buy HECO, I think a nearly double monthly surcharge--averaging about $50 per month but, again, much less for most residential customers--might still be feasible over about the same time period (about 100 months, or a little more than eight years). This monthly amount could be reduced and stretched out over a longer time period if necessary. But whatever the cost per customer--and whatever buyout payment formula was agreed upon--I think all or part of these payments could gradually be refunded to customers out of future cost savings after they become owners. It has also been suggested to me that it would be cheaper for the public--either indirectly through state or county governments, or directly as customers--to buy and own only the HECO, MECO, and/or HELCO electrical transmission grids, while letting HECO and its affiliates retain ownership of their electrical generating capacity, and then subjecting them to competition from more decentralized suppliers of other local, renewable sources of electricity. Whether or not this would be more or less politically and economically feasible--and more or less appealing to current HEI owners--than a complete buyout is debatable. Nevertheless, these are the types of questions about which I hope to stimulate more thought and discussion. Customer ownership is not a quick fix. But, in the long run, it may result in greater energy efficiency and independence at less cost than our ongoing legislative and regulatory efforts to coerce HECO to behave differently. If true, I think our goal for the year 2020 should be 100% customer ownership of HECO rather than merely a 20% reduction in the use of imported fossil fuel to generate electricity. Tom Brandt has been an economic development specialist in Hawaii for nearly 20 years. He has authored other articles locally on comparative tourism, agricultural, and high-tech economic futures in Hawaii, and has been invited to discuss these topics on local radio and TV programs. Mr. Brandt also studied strategic planning and comparative analysis of various economic development policy options--including ways to increase and broaden local capital ownership- - as a Ph.D. candidate at U.H.- Manoa.
Posted on: Fri, 22 Aug 2014 10:04:18 +0000