A utility monopoly

By CAROLYN LUCAS-ZENK

Stephens Media

Here on Hawaii Island, there’s only one choice for electricity. Residents must buy their power from Hawaii Electric Light Co. regardless of the energy price or quality of service — unless they’re living off the grid, said Jeffrey Ono, state Division of Consumer Advocacy executive director.

Hawaii Island has always had private power, mostly because there’s never been a desire or serious interest to have an electric cooperative or a municipally owned utility, Ono said.

According to HELCO, electricity was introduced to the island in 1890 by Hilo Boarding School, where a water-driven dynamo, capable of powering 12 bare bulbs, was installed in an irrigation ditch. Businessmen in 1894 started Hilo Electric Light Co. with a small ice plant and a 500-light dynamo. That was replaced with a 3,000-light dynamo six months later because of electrical lighting’s popularity.

Small electric companies in North and West Hawaii supported the sugar and coffee industries. A trading company helped finance the start of the Kona Light and Power Co. in 1932. Kohala Ditch Co. took over the sale of electricity from sugar companies in 1934.

Up until the end of World War II, nearly 80 percent of the power produced for the island came from hydroelectric plants situated along rivers. After the war through the early 1990s, renewable energy was purchased from sugar companies that burned sugar cane to create power. Hilo Electric had purchased or merged with the smaller companies by 1956, and franchised the entire island by 1963, meaning it had the monopoly on electricity distribution.

The Public Utilities Commission approved Hawaiian Electric Industries’ acquisition of Hilo Electric Light Co. on Aug. 27, 1969, said Dean Nishina, public utilities and transportation officer for the state Division of Consumer Advocacy. The company’s name changed to HELCO in 1975. Besides HELCO, Honolulu-based HEI is the holding company for American Savings Bank, Hawaiian Electric Co. on Oahu and Maui Electric Co.

At the turn of the 20th century, franchises granted specific companies the exclusive right to serve a particular geographic area of the island with their type of product.

HELCO pays 2.5 percent of its gross revenues to the county annually in franchise taxes as required by Hawaii Revised Statutes. These franchise taxes pay for the use of the public rights of way. HELCO paid the county approximately $10.9 million in January. It has paid 2.5 percent of its gross revenues to the county at least since 1982, when the tax rate was applied to all franchises, said Deanna Sako, Hawaii County Finance Department deputy director.

Hawaii County, or more specifically, its Department of Water Supply, is HELCO’s single largest customer. On Hawaii Island, the water department, formed in 1949, is operated semiautonomously, with regulatory oversight from Hawaii County, the U.S. Environmental Protection Agency, Hawaii Department of Health, Department of Land and Natural Resources, the State Commission on Water Resource Management and the county Water Board, said Kanani Aton, the water department’s spokeswoman.

Water Supply, however, is now using its resources to lower expenses and produce its own power by reclaiming kinetic energy through hydroelectric generators in Kaloko, Kahaluu and Waimea. The three hydroelectric generators produce roughly 400,000 kilowatt hours annually, Aton said.

“The department’s purpose has always been drinking water. Historically speaking, water use in Hawaii began with agriculture and plantation systems, not energy generation. As this use evolved, a lot of these systems were dedicated to the department,” Aton said. “Energy management has now become a part of operations with the hire of Energy Management Analyst Julie Myhre, hydroelectric generators, leak detection, HELCO partnerships, recycling and fleet fuel reduction.”

High costs typically stop municipalities, a co-op or the public from taking over a private utility or forming their own in Hawaii, Ono said.

For the government, a co-op or another company to take over HELCO, the company would have to be willing to sell, and an interested buyer would also need to be able to pay for all of its assets, such as transmission and distribution lines, substations and generators — something that would cost millions of dollars. Or, the county or state could use its eminent-domain powers to condemn HELCO’s facilities, as well as deal with years of court action that would almost certainly follow. Or, the county, a co-op or another company would have to come up with the capital to build its own electrical system, Ono said.

In regard to using eminent-domain powers, local attorney Frank Jung said there would have to be “legitimate reasons” by the state or county to seize private property, and the government would still have to pay the utility for the value of its assets.

The power of eminent domain is granted to governmental bodies — federal, state and local — by the Fifth Amendment to the U.S. Constitution.

The government can take privately owned land, as long as the land will be used by the public, and the owner is paid a fair price for the land, what the amendment calls “just compensation.”

Jung didn’t know what reasons would be considered legitimate, but the government’s claim would need to be stronger than simply seeking to provide power more efficiently or at a lower rate. The government could seek to “prove massive malfeasance” but he said the PUC would have likely stepped in to rectify the problems before the government would even go that route.

HELCO President and CEO Jay Ignacio said those interested in starting an electric utility would have to build their own infrastructure or purchase HELCO’s. Utilities own the transmission and distribution lines, thanks to exclusive franchises. Ignacio said transmission rights can’t be purchased, however, the PUC has an open docket investigating the implementation of intragovernmental sales of electricity. It’s considering whether to allow renewable energy producers operating on state lands to sell electricity directly to state government entities located on the same island as the producer.

Ignacio mentioned Kuokoa Inc., a company formed for the purpose of buying all the shares of HEI and converting the publicly traded company into a private concern in an attempt to bring Hawaii to 100 percent renewable energy in 10 years. However, he doesn’t foresee HELCO going the same direction as Connecticut-based Citizens Communications Co., which sold Kauai Electric to a group of Kauai businessmen who formed the state’s first electric co-op in 2002.

“Certainly not at this time,” he said. “HELCO is not operating at a loss and is earning a net income. We’re well ahead of the state’s mandate of 40 percent renewable energy by 2030. We have a drive to get more renewable energy sources that are not linked to the price of oil and are primarily of customer interest.”

HELCO’s use of renewable energy is at 36.7 percent, compared to about 12 percent statewide and 11 percent in the nation. Ignacio said HELCO is so intent on converting to renewables it’s considering retiring some of its privately owned oil-burning steam generators, which its shareholders have invested “lots of money in,” to bring more renewables into the mix. “It’s the right thing to do,” he added.

Mayor Billy Kenoi said the county is “looking at all possibilities and incentives when it comes to reducing fossil fuel consumption and providing firm, cheap, renewable power,” but it’s also “working within the existing framework.”

He stressed the county is focusing its efforts on “innovative public-private partnerships” because “it’s going to take all of us to collectively work together, find the best model for tomorrow and make this happen.”

Email Carolyn Lucas-Zenk at clucas-zenk@westhawaiitoday.com.