By Nancy Cook Lauer
Stephens Media
It’s a nondescript little building tucked away at the back of the Hawaii Electric Light Co. base yard. Yet it’s the power center for the entire island.
Inside, technicians and engineers monitor wall-size displays that track electricity at each of the island’s 12 power plants and approximately 50 substations. It’s a colorful screen, with violet denoting electrical frequency, yellow showing current and red and green map points depicting the status of substations. It’s designed so an experienced viewer can grasp the entire electrical situation at a glance, yet there’s plenty of detail in columns of numbers for those needing a more precise picture.
It’s a balancing act, says Norman Verbanic, manager of HELCO’s Production Department. Combining the old-technology “firm power” sources such as oil burners with the new-tech “nonfirm” hydro, solar and wind feeding into the grid means the system needs to be ever-ready to kick in when the more variable sources fluctuate. The trick is to keep a constant frequency feeding into the grid; a balancing act that’s pretty much automated, but still requires a 24/7 human vigil.
“We’re running our units at less-efficient output in order to maximize renewables,” Verbanic said.
While the electric grid itself may not be operating at peak efficiency, shareholders in the investor-owned corporation aren’t feeling the pinch.
Hawaiian Electric Industries Inc., the parent corporation that includes Hawaiian Electric Co., American Savings Bank and other minor subsidiaries, boasted a 21 percent increase in profit in 2011 compared to the prior year, according to the company’s March 22 statement to shareholders in advance of the May 9 annual meeting. Most of that profit is attributed to the utility side of the business.
HECO, the utility covering Oahu, has in turn as subsidiaries HELCO and MECO (Maui Electric Co.) as well as two alternative energy subsidiaries that are currently inactive.
“In 2011, we delivered strong financial results and continued to move our business forward,” says the statement to stockholders signed by HIE President and CEO Constance H. Lau.
The consolidated company ended 2011 with $138 million in profit, and earnings per share rose from $1.21 to $1.44, according to HEI’s annual report, filed Feb. 17 with the Securities and Exchange Commission. Total shareholder return, which is capital gain plus dividends, was 22.1 percent, exceeding the utility industry’s average of 20 percent and banking industry’s average of minus 5.2 percent.
It’s hard for some people, such as South Kona Councilwoman Brenda Ford, to stomach the company’s profits when faced with Big Island residents struggling to pay their power bills. Ford took HELCO President Jay Ignacio to task during a recent presentation before a council committee.
“Those of us on the council represent a lot of angry consumers of electricity,” Ford said.
Big Island residents pay a starting rate of 40.1 cents per kilowatt hour, compared to the statewide average of 36.25 cents and the national average of 11.43 cents in January 2012, according to the U.S. Energy Information Administration. That’s by far the highest in the nation, with no other state reaching even half that.
A typical residential customer’s monthly electric bill, using the average 500 to 600 kilowatts, runs $204 to $250. That’s significantly above the typical $80 to $129 monthly the largest percentage of customers reported in a nationwide survey the Mountain View, Calif.-based business research and consulting firm Frost & Sullivan conducted last summer.
Total electric sales revenues between 2009 and 2011 have increased 46.9 percent to $2.96 billion, with HECO’s revenues growing by 52.5 percent, MECO’s by 40.8 percent and HELCO’s by 29.2 percent, according to the company’s financial statements.
But investor-owned utilities need to stay strong, said Farah Saeed, a Frost & Sullivan energy and power systems principal consultant. The 200 or so investor-owned utilities make up just a fraction of total utilities in the United States, compared to several thousand municipal utilities.
“It’s important for these utilities to remain profitable,” Saeed said. “It relieves resources to be spent on R&D, on making upgrades to infrastructure.”
If shareholders don’t make a profit, they’re likely to invest elsewhere, leaving the utility vulnerable to bankruptcy or hostile takeovers by companies that may not share the utility’s goals, she said.
Ignacio points out the utility doesn’t set the rates and shareholders’ returns. That’s done by the state Public Utilities Commission in a process that includes numerous studies and opportunities for public input, he said.
What does HELCO want? Ignacio said the goal is simple.
“We are shooting for low-cost clean energy,” Ignacio said.
The biggest challenge is untying electric rates from the cost of oil, Ignacio said. Thus the push for more geothermal, biomass, wind and other sources of fuel. Currently, renewable energy sources — geothermal and wind — account for 36.7 percent of the energy mix. Another 22.6 percent comes from residual fuel oil, 22.5 percent from diesel fuel oil and 19 percent from naphtha fuel oil.
The state has set a mandate of 40 percent renewable energy by 2030. HELCO’s 36.7 percent is leading the way, compared to about 12 percent statewide and 11 percent in the nation. HELCO is so intent on converting to renewables, it’s considering retiring some of its oil-burning steam generators in order to bring more renewables into the mix, Ignacio said.
Ignacio said HELCO is looking to increase geothermal power as a way to bring a stable and cheaper source of energy into the Big Island grid. The company has recently announced it will be seeking proposals for a contractor to produce up to 50 megawatts at a location in West Hawaii.
Estimates put geothermal as low as 10 cents per kilowatt hour to produce, compared to 21 cents for oil. Even if the cost of geothermal rises to 15 cents, there still should be savings, he said.
“Having the price of our energy linked to the cost of oil is to no one’s benefit,” Ignacio said.
Will customers ever see the benefits of switching to lower fuel costs?
There are no guarantees, because HELCO faces a challenge not shared by many other utilities. The sheer size of the Big Island — 4,000 square miles of territory — and the lack of a concentrated metropolitan area increase the costs of infrastructure such as transmission lines and substations. Having a metropolitan area allows a concentrated customer base to share the costs of the piping electricity to the outliers.
“If we can get low-cost geothermal, then we can get savings passed on to all customers,” Ignacio said.
Email Nancy Cook Lauer at ncook-lauer@westhawaiitoday.com.
