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Editor’s Note: Living Hawaii is examining the high price of energy in the islands and efforts to bring down those costs as part of the state’s broader shift toward renewable resources. The proposed merger of NextEra and Hawaiian Electric is undoubtedly at the center of any discussion about making electricity more affordable in the state.
A broad-based energy insurgency is shaking up the biggest power players in the islands.
It is made up largely of renewable energy elements who argue that Hawaiian Electric is so tightly tied to its 20th century business culture that the company is incapable of responding to the state’s fast-evolving electricity needs.
This is crucial to why some activists, policymakers and business representatives are working to weaken Hawaiian Electric. Most ultimately want to peel control away from an iconic electric utility that began to illuminate Hawaii in the 19th century.
Welcome to Hawaii’s true power struggle. The fight is, of course, all about electricity — who generates, manages and pays for it.
But the ultimate question for the state’s cost-burdened customers — at least as seen through the lens of Civil Beat’s ongoing series about the high cost of living in the islands — is whether or not these disruptive forces will bring down the high price of electricity as the state works toward its long-term renewable energy generation goals.
There are many battlefields in the war over Hawaii’s energy future. The most direct confrontation, though, likely involves NextEra Energy of Florida’s bid to acquire Hawaiian Electric in a $4.3 billion merger.
If the deal goes through, it could give new strength to Hawaii’s debt-laden electric utility. And if the deal ends up scuttled, it will almost certainly leave a more fragile HECO in its wake.
Henry Curtis is describing the end of Hawaiian Electric as we know it, and he shows no sign of being bothered.
His visions of a greatly changed power system in Hawaii all begin with the failure of the NextEra-HECO merger.
Seated at an outdoor table at the Hawaii Convention Center on the sidelines of the recent innovative energy summit, the avuncular energy blogger and activist argues that a failed merger could lead Hawaiian Electric Industries stock to “tank big time.”
It might also trigger a further downgrading of Hawaiian Electric’s credit rating, which Moody’s recently lowered from “stable” to “negative,” making borrowing more expensive for the company.
“This is not 1999 and (we) are imagining what a clean energy future will look like. It is now underway.” — U.S. Sen. Brian Schatz
Curtis, who heads the nonprofit Life of the Land — a group that has been critical of the proposed merger to PUC regulators who have the power to nix the deal — says that the merger’s failure would leave HECO executives “surveying the wreckage.”
This, by his logic, would “trigger a veritable feeding frenzy” in which power players large and small might come forward with proposals to eat away at the electric utility. And this might lead to a much more interventionist Public Utilities Commission dictating key elements of the utility’s business.
Curtis laid out distinct scenarios about how this could happen. In the people-power model, nascent efforts to create electricity co-ops and municipal power companies in the various counties ultimately come to fruition, making Hawaiian Electric far less central to the generation and distribution of electricity in the state. (The Kauai Island Utility Cooperative offers a possible model for others.)
In another scenario, Curtis says, Hawaiian Electric could be partly or wholly swallowed up by another enormous business entity, like Macquarie Infrastructure Co., which owns Hawaii Gas.
Revolutionary movements tend to start slowly. Their leaders and strategists often look for longstanding resentments they can tap into to undermine their opponents.
When it comes to electricity, the roots of resentment are clear. When many other states began shifting away from aging coal and nuclear power plants and toward more flexible and affordable energy sources, like natural gas in the 1990s, Hawaii stuck with oil to generate most of its electricity. This gamble ended up costing customers across the islands.
In recent years, residents of various islands have paid three to four times the average mainland rates. And even with the sharp drop in oil prices this year, people on Oahu continue to pay about two and a half times the average mainland rate, with customers on other islands paying more.
The utility’s high electricity prices have made it easier for renewable energy producers, particularly solar and wind, to become competitive.
Still, despite monthly bills that average around $180 — and that often surpass $200 for families — it took something else to stir up a new level of opposition to Hawaiian Electric: the prospect of reinforcements. That, in many ways, is what NextEra’s decision to buy Hawaiian Electric for $2.6 billion and assume another $1.7 billion of HECO’s debt amounts to.
The announcement of the deal came at a time when the utility had limited prospects for quick fixes for its aging power grid and the high cost of shifting away from oil. Meanwhile, the company’s delays in connecting rooftop solar customers’ systems to the power grid were wearing on renewable energy advocates.
But in a very different way, Hawaiian Electric has facilitated the spread of renewable energy. The utility’s high electricity prices have made it easier for renewable energy producers, particularly solar and wind, to become competitive.
In Florida, NextEra’s customers pay rates that are below the national average and the company pledges to bring large savings to the islands — although it says it can’t guarantee customers will actually pay lower rates while the state is still hooked on oil.
To Curtis, a one-time door-knocking activist for the California consumer rights organization CALPIRG who moved to Hawaii nearly a quarter century ago to engage in similar work, NextEra’s acquisition effort is “a blessing in disguise.”
It isn’t that he believes NextEra would do good things for Hawaii if the deal goes through; he suggests the company’s promises are ephemeral and that the threat of the company taking over Hawaiian Electric has unified many disparate groups in opposition to the deal.
Life of the Land is one of 28 official intervenors in the merger case; all but one have come out against an early draft of the deal, often in strikingly similar language.
To people like Curtis, NextEra’s power play has also led to a deeper contemplation of what Hawaii really needs from its power company as we advance into the 21st century.
Efforts to upend the status quo can create strange bedfellows, as when solar companies and Hawaii Gas, a company that many renewable energy activists and businesses have battled with on other fronts, work side by side against a merger that would strengthen the power of its more dominant energy competitor.
Solar industry lobbyist Robert Harris, though, sees this as logical in the circles he works in. “I’d argue that everybody is opposed to NextEra,” he said. “Group-consensus think is that NextEra isn’t appropriate.”
The glue that holds most of the opponents together, says Harris, is “a mutual interest in cleaner, cheaper and self-sustaining power.”
NextEra, of course, says that it is also profoundly committed to making energy in Hawaii cheaper, cleaner and more sustainable.
Revenue is also a driving force on all sides. NextEra says it sees financial opportunities in expanding its presence in the islands, including in the solar sphere, while the fast-expanding solar industry in this state has already become a big-dollar business. REC Solar, the largest of the many solar companies in the state, claimed revenues of about $55 million in 2014.
U.S. Sen. Brian Schatz noted in a recent meeting with the Civil Beat editorial board how far the renewable energy sector, especially solar, has come. “Part of where we are in energy is that the industry is starting to mature. You have vested interests within solar that are fighting against each other and you have highly profitable and growing concerns. This is now really high stakes.”
“This is not 1999 and (we) are imagining what a clean energy future will look like. It is now underway.”
To Harris, director of public policy at the solar company Sunrun, technology is what has brought disruption of the energy sector within reach.
He describes the electric utility as “stagnant” because it is anchored to 20th century business logic based on building more to earn more money, rather than on earning rewards for successfully managing the change necessary to satisfy the 2045 renewable energy goals.
Harris, who is also the spokesperson for The Alliance for Solar Choice. noted the disruption that new technology has made possible in a wide array of industries. Apple’s iTunes, iPod and phones helped to destabilize the traditional music industry’s economic model. More recently, app-driven companies like Lyft and Uber have battered the traditional taxi industry by allowing outside individuals to compete with them.
“You can look at all of the changes that have occurred and how quickly they have happened, all because of technology,” said Harris. “Industries can change very quickly.”
He is hardly alone in believing that the energy sector, especially in Hawaii, is ripe for such disruption.
After all, technological innovations have made the tools to generate renewable energy more affordable even as they have become easier to use. And the increasing scale of production of solar panels to satisfy burgeoning demand around the world has led a wide array of experts to conclude that the economic benefits of solar power will only grow.
One of the people who Schatz was working with at the end of the 20th century to envision the clean energy future was then-state Rep. Mina Morita, who headed the state House Committee on Energy and Environmental Protection. She was later appointed to the Public Utilities Commission, becoming its chair, before moving on earlier this year.
In the late 1990s, renewable energy couldn’t compete with fossil fuels, Morita recalled in an interview with Civil Beat, so policymakers had to find ways to support it with subsidies, among other things. Such efforts, she suggested, only made sense until renewable energy like solar and wind energy generation became more affordable.
“That was Clean Energy 1.0,” Morita recalled. “Now we are way beyond that because renewables are cost competitive with fossil fuels.” The electric system should now be “as market-driven as possible.”
Since Morita left her PUC chair, she has become a vocal critic on her energy blog of people in the renewable energy sector who might be ignoring adverse consequences of Hawaii’s fast-moving shift toward renewable energy.
The way things are set up now, Morita said, investing in rooftop solar tends to save money for people who can put systems on their roofs, but additional costs are getting shifted onto people who cannot afford to invest in solar panels or who, for logistical reasons — like limited sunlight — can’t buy into the renewable system. The people left behind, she argued, end up paying even higher electricity rates to compensate for others who pay for a decreasing share of Hawaiian Electric’s overall electrical infrastructure.
The result, she said, is that renewable energy companies can “cherry-pick” relatively wealthy customers. If enough people do this, she warned, it could undermine the financial viability of the broader electricity system. “When you look at the electricity system, you get the most benefit when everybody shares in the cost.”
In revolutions, uncertainty is a natural companion. In this transformation, the costs will be, too.
Morita is not against using alternative energy, but she emphasizes “getting the economics right” and making sure that less privileged people are not left behind.
Harris, the solar lobbyist, pointed out that Hawaii’s renewable energy commitments include a sort of escape clause linked to affordability.
“We are not going to 100 percent at all costs. It has to be a cost effective approach,” said Harris. “Most people in the energy sector believe it will be.”
When it comes to radical transformations, belief is often a key part of the equation. It conveys the act of faith that is necessary when so many details about the shift to renewable energy generation remain murky.
Even a devoted advocate of change like Curtis notes the uncertainty.
“We, here, don’t really have a model for how we are going to go through the storm. The storm is going to last years or decades,” he explains. “We are at the front, and we have no idea what is coming. Yes, we want to protect the people in the back of the boat who can’t afford this. (But) even if we do nothing, we are going to go through this.”
He is right. Barring a significant change in direction, we are all going to go through this and nobody in the fast-evolving energy sector — neither utility executives nor their renewable energy competitors and critics — knows for sure what path Hawaii will take in 2016, much less in the run-up to 2045.
And if Hawaii doesn’t know exactly how it is going to get somewhere it has never been, it is difficult — or perhaps impossible — to map out the price tag.
In revolutions, uncertainty is a natural companion. In this transformation, the costs will be, too.
You can also find Civil Beat’s entire ongoing Living Hawaii series here. And you can also continue the broader conversation and discuss practical and political solutions by joining Civil Beat’s Facebook group on the cost of living in Hawaii.