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Q: How do you expect your particular industry to be affected?

Constance H. Lau, PR/CEO, Hawaiian Electric Industries Inc.

A. Maurice Kaya, energy consultant, former state chief technology officer and energy administrator

I’ve spent much time understanding energy markets both in Hawaii and in the rest of the nation and the world. Hawaii, like many other islands and isolated locations, suffers from a magnification of effects simply because we have become so dependent on petroleum, and practically our entire energy infrastructure has been built to take advantage of the attributes of this energy resource over time. We cannot expect to find immediate future relief from high oil prices. Supply constraints, competition for oil from China, India and other emerging economies, and uncertainties over supply from unstable foreign governments hostile to the interests of the U.S. are all at work to keep oil prices at unprecedented high levels well into the future.

The energy industry in Hawaii must adapt, and the urgency to do so has become much more compelling today, especially for the electric industry. Despite its business being regulated by state government, the electric industry has not been able to insulate itself and its customers from the damaging effects of oil dependence. Just look at what is happening to electricity costs on all the islands. The typical electric company balance sheets show that one-half or more of its revenues is tied to oil-based fuel costs, costs that are passed through directly to its customers and from which it derives no additional profit. That is not a sustainable business model, and in the extreme, as more customers reduce costs, lowered sales force the company to seek increased rates, compounding the effect on businesses, other consumers and even the company itself. Clearly the imperative to find an alternative business model, one that relies on rewarding investments in energy efficiency and renewable energy, de-linking the stranglehold currently held by oil, and delivering and profiting from energy services is more attractive. We also feel the same disproportionate effects on everything we use that relies on liquid fuels for transportation, whether they are for air, land or sea travel. Transportation fuel companies are not regulated (with perhaps some minor exceptions) so fuels substitution to renewable resources will be more difficult, but still necessary over time. Still as consumers, we are currently held hostage to what now appear to be more frequent fuel surcharges imposed by airlines and overseas shipping companies.

Equally unsettling is the prospect of carbon regulation, as the U.S. and other economies struggle to contend with global climate change. As markets are established to price carbon emissions, those economies that are more dependent on fossil fuels will be hit proportionately harder. Hawaii faces daunting economic challenges if it remains so dependent on oil and other high-carbon fuel sources.

 

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