The price of oil has plummeted by more than 50 percent since July of 2014, falling to its lowest point in six years and buoying the hopes of cash-strapped residents that they will see major reductions in their electricity bills.
But as statements covering February power usage begin rolling out, those residents may be disappointed by the relatively moderate dip in rates. Hawaiian Electric customers on Oahu, the Big Island and Maui will still be paying two to three times the national average for electricity.
We already use 38 percent less electricity than the average American household, but the latest cost figures suggest that it’s still not time to liberally crank the air conditioning or stop cooking with kiawe.
On Oahu, a typical residential bill for 600 kilowatt hours of electricity will only be 18 percent cheaper than last July, falling to $177.45 from $217.24.
A bill for the same amount of energy on the mainland is about $72 per month.
Hawaii electricity rates were similar to other states in the 1990s, but have since soared. While other states switched to cheaper natural gas and coal, Hawaii remained heavily dependent on oil. (Chart courtesy of Blue Planet Foundation)
This is in spite of the fact that crude oil prices, which generally track with prices in Hawaii, fell from $105 a barrel in July to $47 in January, a 55 percent drop. Oil powers about 70 percent of the state’s electricity.
On Maui, the decline is even smaller, with the discount to bill payers averaging just 15 percent. Typical bills on the island are expected to decline from $235.28 last July to $198.78 for February.
On the Big Island, typical bills will average $214.71 this month, down 17 percent from a high of $259.42 last July.
After the 1970s Middle East oil embargo, mainland states began diversifying their fossil fuel portfolio, switching to natural gas and coal and away from oil. The shift has resulted in much lower rates on the mainland for electricity. Hawaii is unique in that it never made the switch, remaining almost completely dependent on oil, with its volatile and rising costs, for electricity.
But now that oil prices have fallen, what’s keeping our electricity bills so high?
One reason is that residents pay for a lot more than fuel on their electricity bill. HECO also tacks on nine other charges that cover such things as renewable energy and energy efficiency programs, the cost of delivering power and maintaining the utility’s infrastructure and the cost of processing electricity bills.
Extra charges are typical for electricity bills throughout the country. But overall, Hawaii’s added costs tend to far exceed other states, even as they make up a smaller percentage of the overall bill.
For example, at Florida Power & Light Co., customer rates are comprised of about 30 percent fuel costs and 70 percent non-fuel costs. In Hawaii, these costs are much more evenly split, and non-fuel costs decline as a percentage of the overall rate when oil prices go up. (Florida Power & Light is a subsidiary of NextEra Energy, which is in the process of buying HECO.)
Customer electricity rates include fuel and non-fuel charges.
However, the Florida customers are only paying about 7 cents per kilowatt hour for non-fuel costs, while customers on Oahu are paying double that, or about 15 cents per kwh. Maui customers are currently paying about 13 cents per kilowatt hour for non-fuel charges and Big Island residents 17 cents per kilowatt hour.
National energy experts say it’s not easy to gauge whether Hawaii’s non-fuel charges are reasonable or excessive. Robert Thormeyer, a spokesman for the National Association of Regulatory Utility Commissioners, noted that Hawaii is unique in that it has isolated electric grids, whereas utilities on the mainland often connect to grids in neighboring states, which help lower infrastructure costs.
But he noted that there is also an incentive for utilities to keep their operating and infrastructure costs high because the companies earn a return on these costs, whereas power, whether it be from oil or solar energy, is generally a pass-through for the utility.
Recently signed contracts for wind and solar energy are also keeping Hawaii energy bills high. It currently costs HECO about 13.6 cents per kilowatt hour to generate electricity from its oil-powered generators on Oahu, according to HECO, and slightly more on Maui and the Big Island. But residents pay 20-23 cents per kilowatt hour for the energy produced from recently installed wind projects on Oahu and Maui, even though wind prices have declined to single digits on the mainland. HECO has also contracted to buy solar for about 18 cents per kwh. The fixed-price wind and solar contracts are for 20 years, as is also standard on the mainland.
What You’re Paying For
It may sound surprising in this era of automated billing, but HECO charges us about $11 a month on average to cover the cost of reading our meter and processing our bill. This cost fluctuates based on how much energy we use.
The typical customer is also paying an additional $12 per month or $144 per year because of a rate-setting program called decoupling. The policy took effect about four years ago and was supposed to have a nominal effect on electricity bills, but has been driving up rates.
Decoupling guarantees utilities enough revenue to cover their fixed costs if their electricity sales decline, essentially protecting HECO’s profits while the state encourages energy efficiency and rooftop solar.
The Public Utilities Commission has said in the past that HECO has done a poor job controlling its costs, causing customers to end up paying more under decoupling. The commission is currently reviewing whether it should amend or even scrap the policy.
Typical HECO customers are also paying about $5 per month in added charges to support Hawaii’s energy efficiency and renewable energy programs. This includes a program initiated this year that is known by its acronym GEMS. The Green Energy Market Securitization program provides low-cost loans to residents who want to switch to solar, but have poor credit or can’t afford upfront costs for a system.
Customers are also paying for studies related to interisland wind projects and the state’s energy efficiency program, which provides rebates for energy saving appliances.
Hawaii’s high electricity rates have increasingly become the subject of scrutiny by the Public Utilities Commission. HECO has pledged to drive down rates 20 percent by 2030 by switching to natural gas and lower priced renewable energy resources. However, environmental critics have questioned whether natural gas, which also has volatile prices, will end up driving down prices in the long run.
The sale of the utility to NextEra could also bring costs savings. The Florida company says its strong balance sheet will help it borrow capital at lower rates and bring efficiencies to the utility’s operations.
Civil Beat has broken down the charges on a residential electric bill below:
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