Commentary: And you thought YOUR electric bills were high?

The note posted in our vacation condo on Maui was direct and to the point: “Electricity on Maui is extremely expensive. Please turn off lights and fans when you don’t need them and when you leave the apartment.”

As it turns out, the first sentence was a bit of an understatement, as retail residential customers of Maui Electric Company on Maui pay rates that are almost the highest in the nation and are more than double the next highest rates outside Hawaii, according to the U.S. Energy Information Administration (EIA) and the utility’s own documents. Only rates on the three neighboring Hawaiian islands of Lanai, Molokai and Hawaii are higher.

The EIA’s Electric Power Monthly report issued in September showed residential retail customers in Hawaii paid, on average, 36.61 cents per kWh of electricity consumed during the month of July. However, that rate varies across the three utilities operated by parent company Hawaiian Electric Industries (NYSE:HE) and is adjusted monthly.

Maui Electric, which serves the islands of Maui, Lanai, and Molokai, is one of three utilities operated by HE. Hawaiian Electric Company serves the island of Oahu, and Hawaii Electric Light Company serves the island of Hawaii, or the “Big Island.”

According to HE’s “Effective Rate Summaries” filing with the Hawaii Public Utilities Commission on July 3, the energy charge for the first 350 kWh for customers of Maui Electric on Maui was 35.13 cents per kWh in July, while the utility’s customers on Lanai and Molokai were charged 44.44 cents and 43.36 cents, respectively.

Residential retail customers of Hawaiian Electric on Oahu had the lowest rate in the state, at 32.06 cents per kWh for the first 350 kWh, while customers of Hawaii Electric Light on The Big Island were charged 37.5 cents per kWh, the company said in its filing. But those numbers reflect only the energy charge. As with most utilities, there are adders.

Residential customers on Maui are assessed, on an ongoing basis, an energy cost adjustment factor, a purchased power adjustment, a revenue balancing adjustment that reflects a decoupling adjustment and a public benefit fund surcharge, totaling an additional 9.9 cents per kWh for a total of 45.03 cents per kWh. Top-tier prices for usage above 1,200 kWh added nearly three cents per kWh, for a total of 48 cents per kWh.

According to the EIA report, average prices in New York State were the next highest in the U.S., at 20.04 cents per kWh, making New York’s rates less than half of the rates on Maui.

The average residential retail customer on Maui uses about 600 kWh of electricity per month, a Maui Electric spokesperson told TransmissionHub Sept. 25. Factoring in the rates per kilowatt-hour as well as the fixed basic monthly charge of $8.50 for single-phase service, a bill for such a customer would be $284.55. During July, I used 575 kWh at my home near Seattle – almost the same as the average residential customer on Maui – and my bill from Puget Sound Energy was $59.76.

“The cost of electricity in Hawaii is generally higher than on the U.S. mainland because the electric systems on each island are independent,” Maui Electric explained on its website. “There are no neighboring utilities from which to draw power in the event of a problem.  Thus, we must build additional backup capabilities into our systems.” 

Renewables helping but hitting hindrances

The HE companies are required by law to achieve 15% of electricity sales from renewable resources by 2015 and 40% by 2030, and in April reported they had achieved 13.9% during 2012. And while the incorporation of more renewables could bring financial benefits along with their environmental benefits, the utility appears to be having some difficulty using existing renewables to their maximum potential.

Currently, Maui Electric has contracts to purchase the output of three wind farms, Kaheawa I and II and the Auwahi Wind project, which have a total nameplate capacity of 72 MW. However, the utility drew harsh criticism in a May 31 rate case order from the Public Utility Commission (PUC) of Hawaii, which noted that the HE companies decommitted a total of 15,625 MWh of wind during 2012 because Maui Electric’s “generation system is not equipped to integrate [wind energy] efficiently.” Moreover, that number is expected to increase to 54,429 MWh annually “in the near future” (Docket No. 2011-0092).

Those decommitments came at a cost. The PUC order noted that the average cost of each kWh of decommitted wind energy, which would have cost 11.953 cents, had to be replaced by fossil fuel generation, at an average cost of 20.843 cents per kWh.

Further, the PUC noted that “must-run” designations of certain oil-fired steam units at the utility’s Kahului Power Plant (KPP) “contributes to curtailment of renewable generation,” and that Maui Electric “appears to be reluctant to fully commit to the retirement, reduction in use, or re-designation of its KPP units, even in light of abundant available wind energy on Maui.” The four steam units were placed into service in 1948, 1949, 1954, and 1966.

Approximately one month later, in its integrated resource plan issued at the end of June, the company announced firm plans to deactivate two of the Kahului units in 2014, and to retire all four units by 2019.

Importing renewables a possibility

While the Hawaiian Islands are not presently electrically interconnected, there are plans afoot to change that, potentially allowing for renewable energy generated on the wind-rich but more sparsely populated islands, including Maui, Lanai, and Molokai, to be shared with the other islands, including Oahu and Hawaii.

In 2011, developer Castle & Cook proposed building a 200 MW wind farm on Lanai and connecting that project to other islands via an undersea cable. In October of that same year, HE issued a draft request for proposals (RFP) for 200 MW or more of renewable energy for Oahu.

In 2012, the Hawaii legislature passed a bill that established the regulatory structure under which interisland undersea transmission cables can be developed, financed, constructed, and regulated. The long-range intent, as stated by Gov. Neil Abercrombie (D), was to enable the creation of “an integrated grid [that] will stabilize energy prices and equalize rates between the islands.”

While such a cable would provide the opportunity to carry renewable energy from the islands with the best wind resources to other islands, including Oahu, where the bulk of the state’s population and electrical demand reside, many of the locals with whom I spoke were not particularly enthusiastic about the idea. Some even asked why their island should “suffer” to benefit Oahu. It seems there is a limit to the spirit of aloha.

In July 2013, the PUC instructed HE to bring more clarity and certainty in its October 2011 draft RFP for renewable energy for Oahu. The PUC said that the current document should be updated to eliminate references to the Lanai wind farm, noting that the Lanai project would be reviewed in a separate filing.

In addition, HE was directed to remove solicitations for proposals for an undersea cable project from the existing draft RFP. Instead, the PUC said it planned to investigate whether an undersea cable system to interconnect the Oahu and Maui electrical grids is in the public interest and if so, under what conditions such a grid-tie cable system should be developed, operated and regulated.

Fuel costs contribute

According to HE’s Power Facts sheet, Maui Electric has firm generation of almost 268 MW on Maui, of which approximately 252 MW is fired by imported oil which carries with it high prices and extreme price volatility. Therefore, unless and until the island can reduce its dependence on oil, either through increasing the amount of other types of generation, importing energy, energy conservation, or some combination of these factors, Maui residents may continue to pay retail rates electric that are as high as Mt. Haleakala.