Hawaiian Electric Co. is considering asking environmental regulators to extend deadlines for complying with new regulations that they say would cost ratepayers hundreds of millions of dollars.

The extension requests could allow the utility that serves Oahu, the Big Island and Maui County time to switch from oil to liquefied natural gas for powering the state’s electricity needs. The new rules don’t apply to LNG.

The Environmental Protection Agency regulations take effect in April 2015 and apply to the sulfur content of fuel. In 2017, the rules restrict ash residue.

But experts an LNG plant couldn’t be on line until 2019 at the earliest.

HECO currently uses low sulfur fuel oil in its generators. In order to continue using the oil, the electric utility estimates that it will have to spend about $1 billion in technological upgrades to bring its generators into EPA compliance.

But the extensions may have a hard time gaining the support of Hawaii’s political leadership, support that may be needed to convince EPA to grant any waivers.

U.S. Sen. Brian Schatz said that he would want to take a hard look at HECO’s plan that would support whether HECO could make the switch to LNG. And he noted that energy experts have said there’s another option: HECO can switch to diesel fuel, which would require minimal changes to the utility’s generators.

“It would be premature to ask for any waiver without fully scrubbing their plan for coming into compliance,” said Schatz. “Obviously, it’s preferable if they can make the fuel switch or technological improvements to come into compliance with federal law.”

Hawaii’s energy sector is increasingly debating whether or not the state should begin importing LNG for its energy needs since Gov. Neil Abercrombie announced last year that his administration was considering the fuel. Environmental groups and clean energy advocates oppose the move and argue that it will derail the state from moving forward on its renewable energy goals.

But supporters of natural gas say the fuel will provide Hawaii ratepayers with cost savings. And they say the expense of complying with the new EPA rules boost the argument in favor of switching to LNG.

HECO declined an interview request for this story. But in a statement, the utility said that there is a lot that needs to be done before it can import significant quantities of LNG.

“We believe we may be able to import small quantities of LNG by (2015), but that is not enough time to develop the infrastructure, conduct the important environmental and other reviews, and acquire the contracts, permits and approvals needed for a larger-scale use of LNG,” wrote HECO spokesman Darren Pai. “We are looking into a number of different options, including possible request for extensions to the compliance date that will allow us the most flexibility to provide our customers more clean energy at the lowest possible prices.” 

Fereidun Fesharaki, an oil and natural gas expert and fellow at the East-West Center, is a strong supporter of importing LNG. He said that the state wasn’t going to achieve its renewable energy goals by the dates outlined. By 2030, 40 percent of the state’s energy must be derived from renewable energy sources.

“The pace and direction which has been set is pretty OK,” he said of the state’s clean energy policy during a media briefing on Wednesday. “But the timing is unrealistic.”

In the meantime, he said it makes sense to switch to LNG, particularly given the current state of Hawaii’s oil refineries. Tesoro, one of the state’s two oil refineries announced last week that it was shutting down.

And Fesharaki predicts that Chevron, Hawaii’s other refinery, will shut down within the next couple of years, making the state more vulnerable to major disruptions in the international oil market.

A spokesman for Chevron did not immediately return a call for comment.

Building the extensive infrastructure needed for LNG, including an import terminal, regasification plant and pipelines, will cost at least half a billion dollars, said Fesharaki.

The earliest that Hawaii could begin importing significant quantitiets of LNG is 2019 or 2020, he said.

LNG imports will also require a long-term commitment on the part of the state to use natural gas, something that worries clean energy advocates.

“An LNG contract would bind you for 20 years,” said Fesharaki.

By comparison, oil contracts are for one-year, or sometimes quarterly, he said.

Diesel Option

HECO could switch to diesel rather then natural gas, according to the EPA and other officials. That also would sidestep having to spend hundreds of millions of dollars so it can continue to use low sulfur fuel oil. Diesel burns cleaner and meets the EPA’s new emissions standards.

Currently, diesel prices are on par with what Hawaii is paying for low sulfur fuel oil, said Fesharaki. But in coming years, he said diesel prices are expected to be higher. And in the long run, despite the hefty investments needed for LNG infrastructure, he said that natural gas would be cheaper for Hawaii consumers.

“If you make a commitment to buy diesel on a long-term basis, you would be forcing the consumer to have long-term diesel rates,” he said.

If the state and utilities ultimately decide to move forward on large-scale imports of LNG, he said it made sense to try to get extensions from the EPA. Otherwise, the utility will have to switch to diesel and then to LNG, which would be more costly than if it just switched to LNG. HECO has recently made the case for switching to LNG.

Exemption Not Guaranteed

But it’s not clear if HECO can get an extension for complying with the EPA rules.

Federal regulators have historically been reluctant to grant waivers due to economic hardship or increased prices, according to a recently released report on LNG by FACTS Global Energy. Fesharaki founded the energy consulting company.

However, the chances of a waiver are better if “the reason for delay is to put in place infrastructure that will result in a major improvement in the environment,” according to the report, which suggests that the state and Hawaii’s congressional delegation sign on to the proposal to boost the utility’s chances.

Louise Kim McCoy, a spokesman for Abercrombie, said the administration has not been asked to help secure an extension, and no determination had been made.

Schatz said that it was too early to say whether he would support an extension to EPA requirements and that he would have to consult with other members of the delegation. He said that there should be a “good faith effort” to comply with the EPA rules before the utility is offered any relief.

Ultimately, the decision of any extension from EPA rules will fall to the clean air brach of Hawaii’s Department of Health, according to Dean Higuchi, a spokesman for the EPA. The EPA has delegated authority over some federal rules to the state.

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