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Friday, December 5, 2014

THE SELLING OF HAWAIIAN ELECTRIC INDUSTRIES

It was nearly four years ago that a local hui, led by Kuakoa Inc., (L to R: Kuokoa President Ted Peck, COO Aaron Landry, Chairman Richard Ha and CEO Roald Marth.) attempted to purchase Hawaiian Electric Industries (HEI).  The effort failed.  Then yesterday, it was announced that NextEra of Florida will purchase HEI for $4.3 billion.

As Director of the Hawaii Natural Institute at the University of Hawaii from 1984, I worked closely with HEI on a wide array of programs.  Actually my relationship with them began in 1972, and over the years, several close friends served on the company's board.  I also interacted with various other utilities across the nation and, in particular, with the Electric Power Research Institute, located in Palo Alto, California.

Yes, HEI, or, rather, a subsidiary, Hawaiian Electric Company (HECO), is rather conservative, and I could appreciate their pain when their representatives testified before the Hawaii State Legislature.  Even though, in the early days, they were smart enough to plant one of their members on the staff of the State Senate Energy Committee, the legislators regularly chastised them for having the wrong attitude and delaying any progress in renewable energy commercialization.  

In contrast, the senators and representations smiled at me, even waved, and only thanked me for our efforts at the University of Hawaii.  Of course, by then I had spent three years working for U.S. Senator Spark Matsunaga in Washington, D.C., and I better understood that you never convince anyone at a hearing.  I personally got to know the key leaders and tended to travel with them to various locations, many times related to energy matters.  Getting to know people is a good part of any success.

But there was a reason why HECO was so careful.  On each of their grids--Oahu, Maui and the Big Island--that was it, they could not link-in to the national grid when something monumental went wrong.  They had to be conservative and move slowly.   This was a period of transition, and nothing works well with any consistency the first time.  

On occasions I thought they took too many risks.  I remember cautioning Dudley Pratt, president of the company, about leaping into wind energy, for the technology in the 80's was not yet ready for prime time.  It was our job at the university, as guinea pigs, to develop next generation energy options, which almost never worked the first and second and third time.  Remember, that i-Phone you use has been through thousands of failures at Apple.  That's the big difference with energy, where every new system, like ocean thermal energy conversion, for example, is so expensive that no governmental/financing systems is available to risk billions of dollars.

So what has been the local reaction to this sale?  Executives from both companies were effusive and said all the right things.  But, of course, that would be expected.  They can always later change their minds.  Our national congressional representatives and new governor were cautious, while environmentalists were skeptical.  Robert Harris of the Alliance for Solar Choice indicated that with 4.7 million customers, only 2,565 have rooftop solar PV.  How bad is this?  
  • That's 0.05%.
  • The U.S. average is 0.5%, or ten times higher than NextEra's region.  
  • Hawaiian Electric?  11%.
The Oahu percentage is high, but that is because our electricity rate is 300% (12 cents/kWh versus 36 cents/kWh in Hawaii) the national average.  It's worse for residencies on the Big Island (42 cents/kWh), Molokai and Lanai, both 46 cents/kWh.  That's 383% of the mainland average for Molokai and Lanai.

David Block, former director of the Florida Solar Energy Center, and served by Florida Power and Light, (FPL) owned by NextEra, has been sending me info about this buyout.  I'll keep his personal views confidential from earlier conversations, but I'll quote the Miami Herald:

Read more here: http://miamiherald.typepad.com/nakedpolitics/2014/12/fpl-parent-nextera-buys-hawaiian-electric-for-43-billion.html#storylink=cpy
  • NextEra has also effectively blocked the emergence of competitive distributive energy generation in Florida with a dominant, take-no-prisoners approach to regulation and politics, while Hawaii has merged as one of the nation's top one of the markets where competitive distributive generation is becoming a reality.

  • Read more here: http://miamiherald.typepad.com/nakedpolitics/2014/12/fpl-parent-nextera-buys-hawaiian-electric-for-43-billion.html#storylink=cpy
  • Forbes contributor William Pentland points out that "Hawaii has become a flash point in the battle over the future architecture of the electric grid. The relentless rise of power prices in the state has accelerated customers’ adoption of distributed generation.  That's in stark contrast to Florida where FPL and its parent, NextEra, has kept wholesale competitors out by controlling access to the transmission grid except for incumbent utilities.

    Read more here: http://miamiherald.typepad.com/nakedpolitics/2014/12/fpl-parent-nextera-buys-hawaiian-electric-for-43-billion.html#storylink=cpy
This morning, the Honolulu Star Advertiser had a front page article entitled "Bigger is better for utility customers, NextEra CEO says."  That is HEI's CEO Connie Lau to the left, and Jim Robo of NextEra.  Clearly, the strategy for HEI into the future will be to curtail residential PVs and shift to large wind and solar farms, and as a bridge, import liquified natural gas.  Why?  Of course NextEra is big, ten times larger than HEI, but NextEra is already the nation's largest generator of wind and solar power, and very little on home rooftops.  

Secondly, 70% of their electricity in Florida comes from natural gas, while 75% of HECO's from petroleum products.  To begin with, natural gas and liquified natural gas are two totally different fossil fuels.  The problem NextEra will face in Hawaii is who will pay for the infrastructure expense of this future fossil fuel, and, more importantly, what will be the cost in 10 years of this exotic gas fuel itself, for once installed, the utility will be committed for twenty years or more.  

Today, they have few other options, for solar/wind are intermittent, energy storage is expensive, geothermal is a possibility, but OTEC is a decade or two away.  Certainly, NextEra will apply a full court press to underwater cable linkage of their three islands.  Again, though, who will pay for all that.  I suspect it will be the consumer.  All in all, my sense is that with deeper pockets and advantageous economy of scale prospects, Hawaii should be in a better position to least painfully survive once the price of oil again doubles from $60/bbl to $120/bbl, and no doubt in time higher.

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Typhoon Hagupit has again become Super Typhoon Hagupit, now back up to 150 MPH, with one minute gusts as high as 185 MPH.  The current track has "Lash"--although in the Philippines, this storm is called Ruby--moving just north of Tacloban, and soon in the range of Manila as at least a Category 1, and possibly Category 2.


Depending on exactly what path Super Typhoon Hagupit takes, the devastation could well be calamitous.  Over the past 10 years, six separate tropical cyclones have claimed over 1,000 lives in the Philippines, including:
- Haiyan/Yolanda Nov. 2013: Over 7,300 killed (AP)
- Bopha/Pablo Dec. 2012: 1,901 killed
- Washi/Sendong Dec. 2011: 1,268 killed
- Fengshen/Frank Jun. 2008: 1,410 killed
- Durian/Reming Nov./Dec. 2006: 1,399 killed
- Winnie Nov. 2004: 1,593 killed

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