Editor’s Note: Choosing Our Electric Future

October, 2015

I ENVY PEOPLE who make their intellectual life easy by sticking to an ideology.

For some, there’s no need to investigate and think through a particular issue, because we always need to bomb our enemies back to the Stone Age; for others, war is never the solution, no matter what the threat. People’s opinions on economics are often governed by an ideology: Some believe the free market is always the answer; for others, it never is.

Of course, the opposite intellectual evasion is to avoid judgment because there’s no obvious answer, the complications are immense or the future unpredictable. In the case of Hawaiian Electric, indecision is not an option: We must choose our electric future.

First, let’s thank NextEra for offering to buy Hawaiian Electric. Most of us thought the only way to reach Hawaii’s goal of 100 percent renewable energy by 2045 was to impose change on a reluctant HECO and its fellow utilities. NextEra inadvertently persuaded us there are other options: reform and regulation of a privately owned utility remains a viable way forward, but we can also figuratively blow up the existing system by turning HECO and its brethren into cooperatives or county-operated utilities.

I wish there was an obvious choice among those three. Dennis Hollier’s report on page 92 outlines the pluses and minuses of each. But, after following this issue for many months, I believe co-ops are the best solution for each of the islands now powered by the Hawaiian Electric companies.

Here’s why: Free-market advocates should be delighted by a future in which there is lots of competition to generate renewable electricity, and that should drive down prices. The electric utility’s job would be to find the best prices from a mix of sources like solar, wind, geothermal, battery storage and whatever the future offers. That mix should add up to a dependable supply connected to a modern, islandwide grid and the utility’s customers.

We could have a private company do all of that – essentially revising the current regulatory model – but it may be hard to move a traditional utility in that direction, whether its HEI or NextEra. After all, those utilities must first serve shareholders, not the community. Their traditional financial incentives do not lead them toward Hawaii’s 2045 goal and it will be hard to overhaul those incentives. A private company may promise to follow our goals, but actually follow its own. Then, 20 or 30 years down the road, it will insist that it tried, but 100 percent renewable energy was really unachievable. Furthermore, most of the usual efficiencies you get with a private company operating in a free market disappear with a regulated monopoly.

If you think a municipally run utility is the answer, my simple rebuttal is: Do you want another Honolulu Board of Water Supply, a very inefficient agency? I don’t expect a Honolulu Board of Electricity Supply to be any better. People on Maui and Hawaii Island should look at their own water agencies as crystal balls into the future.

That leaves co-ops. Kauai’s electricity co-op started in 2002 and the early years were rough, but it seems to have its act together now and Dennis details lots of positives to co-ops. The biggest drawback, and it’s a huge one, is an electricity co-op on Oahu would be the biggest in America by a country mile. It’s not clear a co-op would work on that scale, but the alternatives appear worse. I think we should bet on co-ops, but make no mistake: Each path is a gamble.

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    by Tom Brandt, former planning and economic development specialist for the State of Hawaii, former Ph.D. candidate at UH-Manoa, who is currently employed by the USDA Natural Resources Conservation Service. Mr. Brandt has been thinking and writing locally about non-profit alternatives to the Hawaiian Electric for-profit monopoly utilities since 2002.

      1. Copied from my response to Henry Curtis’ blog post on Oct. 3, 2015 (second link above).

        To me, it does not matter how genuine Next Era’s “talk” about embracing local values may be. I think even if it is sincere, any effect it might have on Next Era’s actual business practices and decisions in Hawaii will still pale in comparison to their “prime directive”–i.e. their legally-mandated “fiduciary responsibility” to, first and foremost, maintain and, if possible, increase “value” (i.e. profits) for their shareholders.

        1. Hence, my personal long-term interest in non-profit public ownership alternatives to our for-profit monopoly Hawaiian Electric utilities since 2002–well before Next Era entered the picture. But I am glad NE did enter the picture in the sense it seems their takeover bid has largely been the catalyst that has brought thought and discussion about non-profit alternatives from the “fringe” into something closer to mainstream debate!:)

          1. And thanks to Life of the Land’s (LOTL) long-term commitment to challenging the status quo, as well as to more recent participants and developments–including:

            – LOTL’s recent formal request to the PUC asking them to pro-actively study alternative non-profit ownership options (rather than simply waiting for “viable” non-profit entities to come forward with fully-formed proposals before the PUC will consider these options);

          2. – the article in this month’s issue of Hawaii Business magazine asking “Who should own Hawaiian Electric?”, which I regard as the most objective and comprehensive analysis of alternative business models for the Hawaiian Electric utilities that I have seen published so far by any mainstream media source in Hawaii; and

          3. – the activities of the Hawaii Island Energy Cooperative, KULOLO (Keep Our Utilities Locally Owned and Locally Operated), the president and CEO of Kauai Island Utility Cooperative (KIUC), and the feasibility studies ordered by the Maul mayor, under consideration by the Honolulu county council, and the one State Rep Chris Lee recently indicated is also pending–

          4. even Mina Morita–Hawaiian Electric and Next Era supporter, and former PUC chair–is now acknowledging supporters of non-profit alternatives, even though she thinks they should make their case to the state and county legislatures, rather than to the PUC. While I don’t necessarily agree with her on the most “appropriate” approach, at least she is now directly acknowledging this discussion in her own blog.

          5. And while I do not sense that Mina is ready to abandon her support for continued for-profit monopoly ownership by either HEI or Next Era, I do give her credit for recently posing, on her blog, what I think are some legitimate questions that need to be asked and answered by proponents of conversion to non-profit ownership, and which I hope the ongoing and pending studies will address.

          6. Even though I personally have been trying to stimulate more thought and discussion about non-profit alternatives to our legacy for-profit monopoly electric utilities ever since Kauai Electric became a non-profit customer-owned entity 13 years ago,

          7. I now think yet another “third” alternative deserves more consideration at the same time we try to assess and compare the pros and cons of both non-profit customer ownership and non-profit municipal (i.e. government) ownership relative to continuation of for-profit monopoly ownership by either HEI or Next Era.

          8. The new third alternative I have in mind is this: I think an argument can be made that at some yet to be determined future point in time, it may become more tech feasible and more cost-effective to ask state and/or local taxpayers to subsidize the possibly shrinking future number of increasingly lower-income electricity customers who still cannot afford the upfront cost of investing

          9. in “distributed” (i.e. increasingly decentralized) electrical generation and storage–if and as distributed tech alternatives continue to increase in quality and decline in cost–in order to completely wean themselves from continued dependency on Hawaiian Electric, and to “pay” ALL remaining HEI customers to go “off the grid”, along with the possibly growing number of Hawn Electric customers who can afford to go off the grid themselves.

          10. I think this might not only overcome what might otherwise remain the primary argument of supporters of perpetuating our legacy for-profit monopoly utilities–that being it is now, and (they assert) always will be, “unfair” if customers who can afford to go off the grid themselves leave a shrinking number of increasingly more low-income electricity customers “stuck” with Hawaiian Electric,

          11. who will invariably and eventually be forced to ask the PUC to increase electricity rates paid by its remaining customers–ostensibly to maintain reliable service to those remaining customers– but primarily to try to perpetuate the HEI utilities as viable for-profit entities that can still generate sufficient profits to pay dividends at a level that is satisfactory to their shareholders, and which will allow HEI to continue paying obscenely exorbitant salaries to its over-paid executives.

          12. So the $64K question in my mind is this: Will it be both necessary AND desirable to first buy the HEI utilities and convert them to non-profit entities? Or would it be as or more feasible, and possibly more cost-effective, to simply do what I suggested above,

          13. i.e. simply subsidize ALL remaining HEI customers to go off the grid/s, and–IF and only as long as necessary–replace HEI’s aging and increasingly decrepit centralized grids with a more decentralized network of smaller, newer, more efficient, and more cost-effective micro-grids and nano-grids?

          14. Note: Before we try to determine if it is feasible and desirable to “buy” the HEI utilities in order to convert them to non-profits–including consideration of the pros and cons of using eminent domain to do so–I also think we should first determine the legal feasibility (as suggested by State Rep Chris Lee, Ed Wagner, and others)

          15. of simply asking the State Legislature to revoke HEI’s monopoly charter or franchise–an “entitlement” that was created by our state government in the first place–which might mean we may not be legally compelled to literally “buy” the HEI utilities (in a sense possibly similar to what happens to “improvements” paid for by a tenant on leasehold land, which simply revert to the landlord’s ownership at the end of the tenant’s lease).

          16. I think micro-grids and nano-grids could be built, if and as needed, on a much more incremental (as well as a much more affordable) basis, especially compared to the cost–which HEI customers will ultimately be asked to pay–to modernize, “harden”, and then maintain HEI’s legacy grids,

          17. including (for better or worse?) the ostensibly latest and best state-of-the-art “smart” grid and “smart” meter techs, which will also “conveniently” help to perpetuate dependency–ON Hawaiian Electric and/or Next Era– of the maximum possible number of future electric “customers” who will dutifully have to pay their monthly electricity bills forever and ever, Amen!:)

          18. As a result, I hope those who support consideration of conversion to non-profit ownership alternatives will also incorporate consideration of this “third” option into their future thinking and discussion about possible and preferable alternative future scenarios that could maximize the ability of Hawaii’s electricity consumers (individually and collectively) to achieve our goal of TRULY (NOT as currently defined in the statute enacted this year) 100% “renewable” energy independence by 2045,

          19. while simultaneously minimizing (as much as possible) the cost of doing so for Hawaii’s electricity consumers, again both individually and collectively–and with or without ANY kind of traditional utility, whether for-profit OR non-profit–both of which I think could be rendered obsolete by the “utility death spiral” expected by many over the next 10 to 30 years.

          20. Like Henry Curtis, I believe, this means equal consideration should be given to the possible feasibility and desirability of a “grid-less” future,

            which could ultimately prove to be the most preferable long-term future to the extent it could potentially lower the future cost of electricity to nearly zero (beyond the cost of upfront investment in the necessary technologies, and any ongoing maintenance, upkeep, and occasional replacement expenses).

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