UPDATED 9/30/2011 5:30 p.m.

It’s a no for the Aina Koa Pono contract that was to supply 16 million gallons of biofuel to the electric utility on the Big Island for 20 years. The company also hoped to transport fuel to Oahu and Maui County at later dates.

In a ruling released Thursday, the state Public Utilities Commission rejected the biofuel start-up’s contract with Hawaii Electric Light Co. saying that the cost of the fuel was “excessive, not cost-effective, and thus, is unreasonable and inconsistent with the public interest.”

Notably, the ruling by the three commissioners follows an opinion by the consumer advocate, who advises the PUC, recommending that the contract be approved. As the name suggests, the consumer advocate looks out for the interests of ratepayers.

The company, which has high-profile community members stacked on its board, hoped to build a biofuels plant in the Kau region of the Big Island and grow feedstocks such as sweet sorghum and eucalyptus that would be converted into fuel.

Since the project was announced nine months ago, it had attracted strong support for the plant’s potential to stimulate the agricultural industry and supply jobs, as well as heated opposition against the cost of the fuel. Local residents also complained about the noise and disruption that trucks toting biofuel would have on the quiet town of Pahala.

The PUC’s ruling is a blow to Hawaiian Electric’s strategy of using biofuels to meet energy mandates required by state law. By 2015, 15 percent of utility sales must come from renewable sources, 25 percent in 2020, and 40 percent in 2030. If the utility fails to meet these benchmarks it can be fined $20 per megawatt hour for the electricity not coming from renewables.

In addition to the Aina Koa Pono contract announced at the beginning of this year, the utility also recently signed contracts with Phycal for algae biofuels and Hawaii BioEnergy, for a biofuel plant on Kauai. Both contracts still need to be approved by the PUC.

Asked if Thursday’s decision could impact future biofuel rulings, Peter Rosegg, spokesman for Hawaiian Electric Co., which owns the utilities on Oahu, the Big Island and Maui, said, “I have no idea.”

Rosegg said that Hawaiian Electric’s attorneys were currently reviewing the order and couldn’t comment on it at this time, though he affirmed the utilities continued commitment to biofuels.

While the cost of the biofuel in Aina Koa Pono’s contract has been kept confidential, Henry Curtis, executive director of Life of the Land, estimated that ratepayers would be subsidizing the cost of the fuel by $26.5 million per year.

The PUC’s ruling did not disclose the cost of the fuel, but said that the estimated price differential between regular diesel and the biofuel was a “nine figure amount” during the course of the 20-year contract.

The commissioners also said they rejected any perception that they are “anti-biofuels” or “anti-renewables.”

Hawaiian Electric issued a statement on Friday saying, “We are very disappointed by the Public Utilities Commission’s decision in the Aina Koa Pono docket, although we welcome the commission’s restatement of support for locally grown and processed biofuels to fuel existing fossil-fired generation units.”

The utility also said that it would redouble its efforts to stimulate the market for local biofuels and “to help landowners and biofuel providers here bridge the difficult and costly start up of production.”

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