Hawaiian Electric Co. CEO and President Alan Oshima would like to puncture a dream once and for all: This state shouldn’t expect cheap electricity. It could become less expensive, eventually, but it won’t be cheap.
Hawaii simply won’t bridge the vast gap between our prices and those of the contiguous United States, where typical customers have until recently spent about $1 for every $3 we fork out to power our homes and businesses. Despite the sharp drop in the cost of fuel oil, which Hawaii uses to generate most of its power, our rates remain about two and a half times the mainland average.
Regardless of the volatility of oil prices, we will continue to pay a paradise tax in the islands, the head of HECO says. It is due to our remote geography, a “high-cost environment” and the fact that we can’t tap into neighboring state’s grids as a backup.
“There are costs for living in a disconnected, 2,500 miles-to-the-nearest-neighbor state,” Oshima says, raising his voice to add: “So let’s be real!”
While the head of the state’s largest electric company is knowledgeable about the many interconnected forces that result in our bills, the high rates are all-too-real for customers.
As is clear from Civil Beat’s series on the high cost of living in the islands, the cost of energy — including electricity — ends up getting factored into family and business budgets, and elevating the cost of other products and services.
The greatest single expense for most families is the state’s nation-leading rents and home prices. That won’t change until Hawaii builds a great amount of middle-class housing, or demand somehow subsides; both of which seem unlikely in the short term.
Electricity, by contrast, is that rare driver of high prices for which enduring change seems to be in the air.
Florida-based NextEra Energy is seeking regulatory approval for its $4.3 billion purchase of Hawaiian Electric Industries, HECO’s parent company. Meanwhile, renewable energy generation, particularly solar, has reached unprecedented levels in the islands.
Throw in the commitment by the Legislature and the governor to a far more ambitious shift toward renewable energy generation by 2045 and it is clear that Hawaii could be headed toward a transformation via several paths.
Decisions made today could affect the prices customers pay for generations to come, just as Hawaii’s long-term gamble on fuel oil has largely defined our outlandishly high electricity prices of recent years.
“We have integrated more rooftop systems in this state than anywhere else per capita. So I want to change that conversation.” — Hawaiian Electric CEO and President Alan Oshima
Since it was formed in 1891, Hawaiian Electric has been intertwined with the development of these islands. And its high prices in recent decades have been the source of growing resentment.
Asked how this happened, Oshima says the company hasn’t always made its case in a big-picture sort of way.
It has faced oft-repeated accusations that it came up with technical excuses to slow the remarkably rapid adoption of rooftop solar systems in recent years, to preserve its shrinking customer base.
“We were not there in that conversation,” says the veteran energy and telecom executive.
Seated at a long, elegant wooden table during an 85-minute interview in a private meeting room at the Pacific Club, he explains, “We were just hearing it in the media. And then, it happened so often that it became truth. If you look at the facts, they’re not true. We have integrated more rooftop systems in this state than anywhere else per capita. So I want to change that conversation.”
Oshima repeatedly highlights that an electric utility in Hawaii faces unique challenges and responsibilities which the company’s critics sometimes fail to acknowledge or, perhaps, understand.
He argues it is “myopic” to focus solely on high electric rates. “You have to see things in context. There are certain things that we do in Hawaii that you will never have to do in the lower 48.”
Oshima was appointed to head HECO a year ago, but he has been working for Hawaiian Electric Industries in various capacities since 2008. At the time he started with the company, the state’s electricity ecosystem was more traditional. Back then the utility faced few immediate competitive threats and the solar industry was tiny.
Seven years ago there were fewer than 1,000 rooftop solar systems in the islands and they were deemed too expensive and inefficient to merit much attention, he says.
But a lot changed in a very short amount of time. Solar technology quickly improved. State and federal tax credits totaling 65 percent of costs for homeowners were put into place.
Between 2008 and now, Oshima says, the price of a solar system fell by 85 percent. For homeowners — as sellers have explained in residential doorways and in the media — it suddenly made great economic sense to buy solar systems.
As of this summer, according to HECO, there were nearly 70,000 homes on Oahu with rooftop solar or that have received approval from the electric company. That amounts to nearly 30 percent of single-family homes on the island.
“We have to protect every customer, not just those who are seeking their own rooftop systems.” — Alan Oshima
Getting this far has not always been a smooth process. HECO has faced widespread accusations that it was using safety concerns about its system not being able to handle so much rooftop solar to limit the loss of business. Some solar advocates, arguing that Hawaiian Electric was unnecessarily blocking progress, called on the company to get out of the way.
This came after regulators in Hawaii, following others in numerous states, engaged in a process known as decoupling, which disconnected Hawaii power companies’ revenues from the amount of electricity they sell in recent years.
Oshima insists that safety concerns were his company’s motivation. “Nobody expected this exponential growth in rooftop solar,” he explains.
The utility did a great amount of work to assure that the energy generated on customers’ rooftops, which can be sold to the power company, is safely integrated into the power system. “We have the obligation of universal service. We have to protect every customer, not just those who are seeking their own rooftop systems.”
Two months before the announcement of the NextEra-Hawaiian Electric merger last December, HECO said it would clear a backlog of rooftop solar applications.
These days, Oshima says, most applications are turned around in two months with exceptions for customers in areas with particularly crowded circuits, where additional work or research is necessary to make sure it can be done safely.
Today, Hawaii has the most photovoltaic capacity per capita of any state. On Oahu, there is 20 times more solar capacity per capita than the typical American utility, according to Environment America’s 2014 “Lighting the Way” report.
“So when people say: ‘Get out of the way,’” says Oshima, “we have gotten out of the way.” Hawaiian Electric predicts a tripling in the amount of rooftop solar by 2030.
Robert Harris, the Hawaii director of public policy at Sunrun, a solar company operating in 12 states, suggested that if Hawaiian Electric has gotten out of the way, it wasn’t because the company wanted to. To Harris, the version of events put forward by Oshima “feels like revisionist history.”
Harris argues that the great progress cited by Oshima is largely thanks to the Public Utilities Commission, which required Hawaiian Electric to install solar systems unless it could provide a specific technical reason why it could not.
Oshima acknowledges that the high cost of electricity has left Hawaii particularly vulnerable to a rebellion by some renewable energy advocates, groups and customers. This allowed rooftop solar to scale up and become economically competitive much faster than elsewhere in the country.
Part of the reason for the high prices of recent years has to do with the many factors that can sharply alter the price of oil used in HECO’s power plants. Such factors are often related to uncontrollable international events, and they can be entirely unexpected, like the 2011 nuclear mishap in Japan.
A massive tsunami that wrecked the Fukushima nuclear power plant in Japan led one of the wealthiest countries in the world to suddenly seek energy solutions in a way that affected Hawaii. Japan took to purchasing large amounts of oil from the same markets as Hawaiian Electric does. The result: Hawaii’s fuel prices shot up.
“So you had the confluence of policy, tax credits, a very robust industry and much higher energy charges,” says Oshima.
But it all traces back to Hawaii’s decision to use oil for most of the state’s electricity. “Fuel oil, that’s what got us to this real big humbug,” he says.
Fuel oil may have gotten Hawaii into the situation that it is in, but regulator-turned-energy consultant Ron Binz said HECO should be more creative and not automatically pass fuel oil costs, which can make up between 50 percent and 70 percent of bills, on to consumers.
“HECO will say that the price of oil is the price of oil,” says Binz. “The more subtle response is: You have chosen to burn oil, and you decide how much to buy, and when.”
Basically, the company should buy more oil when prices are low, whether it currently has incentives to do that or not, Binz says.
Hawaii’s electrical system is based on five power grids, from the village-sized one on Lanai to the vastly more elaborate system for nearly 1 million people on Oahu.
Beyond that complication, most other electricity markets benefit from efficient backup systems that allow them to turn to agreements with neighboring states or countries to buy or sell electricity as necessary when they have a shortage or too much production.
“When you say, when will (prices) drop, technology will get us there.” — Alan Oshima
Hawaii, as an isolated archipelago, doesn’t have that option, even between its own islands.
The result, Oshima says, is that Hawaii continues to require “redundant backup,” which comes at a cost.
That will almost certainly continue to be the case as the state moves to achieve its renewable energy generation goals.
Beyond that, solar and wind power, from the perspective of the power company, are making for a wild ride. The reason? The trade winds need to blow for turbines to generate power.
On sunny days, solar power may be the greatest single generator of electricity, but at night it generates nothing at all and cloudy days bring great uncertainty. “We have no predictability about whether it is going to be producing, how variable it is going to be with cloud cover,” says Oshima, “so that is part of the problem.”
Many experts say that large-scale battery storage is a likely solution for Hawaii, but affordable technology that can be used on a broad scale doesn’t yet exist.
Until batteries are ready, many experts believe, Hawaii will continue to need a dynamic energy mosaic to provide reliable service.
These are some of the many challenges Hawaii will need to resolve if the state is going to succeed in producing most, if not all, of its electricity through renewable energy generation by or before 2045.
“When I’m on the mainland … people are amazed at how Hawaii is so far advanced in integrating renewable energy.” — Alan Oshima
“In normal strategic planning, in any context, if you go beyond five years, you are just guessing,” Oshima says.
Hawaii is trying to sketch out its road map for the next three decades. In such a disruptive technology context, Oshima says, “You are really guessing. There are certain things you can kind of predict, but not everything.”
“If you are looking at 2045, it will be a mixture of resources, a mixture of parties, and I think the electric utility will have a big role in trying to ensure that we have a stable system because our economy and our lifestyles require stable electricity, without fluctuations,” he says. “That is the responsibility of whoever is running the electric grid.”
Despite disagreements about which paths to take, Hawaii is making a lot more progress than some people in the industry seem to realize, according to the head of HECO.
“When I’m on the mainland … people are amazed at how Hawaii is so far advanced in integrating renewable energy,” Oshima says, adding that outsiders are also impressed with the seeming alignment of regulators, the Legislature (which passed the 2045 goals), the utility company and even the solar industry.
There will continue to be differences because that is a part of the competition between technologies, but, Oshima says, “We are more aligned than not aligned.”
People like Harris suggest a whole lot more alignment is possible, but that it might not happen without additional pressure from regulators.
Ultimately, Oshima believes there is too much focus on month-to-month electric bills — even if fluctuations in those bills bring volatility to family and business budgets.
“Not to say that rates aren’t too high — we are really, really trying to work on that — but people have to look at things holistically.”
According to HECO, the current bill for average residential use is $142, which Oshima repeatedly says should be put into the context of other monthly expenses, like a family’s cell phone bills. His point is that most families spend more on their collective phone connections each month than on the electricity that helps to power them.
It is an interesting argument, but it isn’t likely to provide much comfort to people struggling to pay their basic monthly costs.
Oshima acknowledges that the situation was particularly bad during a sustained period when the average monthly electric bill of Hawaiian Electric customers was above $200.
While he says prices have cascaded 40 percent since mid-2014, he knows that has had almost nothing to do with his company and everything to do with turbulent oil markets. What oil prices have given, they can just as easily take away.
So when can customers count on prices coming down in a sustained way thanks to forces Hawaii might be able to control?
“When you say, when will they drop? Technology will get us there,” Oshima says, citing the need to improve the grid, partly to allow the power company to collect more data about home use. That would allow HECO to share that information with customers to help them reduce their consumption or consume more at the most cost-effective times.
Upgrading the power system may be costly in the short term, he says, but investment is required to reap the cost-saving benefits of technology down the road.
Oshima foresees other technological improvements, like more efficient solar panels and wind turbines capable of producing far more energy, which could help Hawaii meets its renewable energy goal and have an impact on prices.
“So when people say: How are you going to get to 100 percent (renewable energy generation)? I say technology,” Oshima says.
Read our ongoing report on Hawaii’s high cost of living and the search for what can be done about it here.
And you can continue the broader conversation and discuss practical and political solutions by joining Civil Beat’s Facebook group on the cost of living in Hawaii.