DWS requests power cost charge increase despite renewable energy to spare

Correction: A former version of this article stated that Hawaii County Department of Water Supply was paying HELCO a current rate of 41 cents per kilowatt hour for energy at the Lalamilo-Parker Well Sites. According to a rate chart DWS supplied West Hawaii Today after this article was published, the department is paying a rate of 27.8 cents per kilowatt hour. HELCO does not confirm rates as they are considered confidential customer information. It is the policy of West Hawaii Today to correct any incorrect or misleading information as soon as it is brought to the attention of the paper.

KAILUA-KONA — Hawaii County Department of Water Supply believes it’s time ratepayers up their antes.

Today at its monthly meeting in Hilo, the county’s Water Board will vote on a DWS proposal to increase the power cost charge from $1.88 to $1.94 per 1,000 gallons. The department has cited the increased cost of electricity from Hawaii Electric Light Company (HELCO) as the basis for asking the public to pay more.

But Will Rolston, director of Energy Island and former Hawaii County energy coordinator, finds the department’s request curious considering the case of the Lalamilo Wind Company.

“It’s kind of funny that DWS is asking for a power cost increase when they’re not using as much cost-effective energy as possible,” Rolston said.

Lalamilo Wind Company (LWC) owns and operates a wind farm in South Kohala that was commissioned by DWS through the county to produce renewable energy. The wind energy generated is used exclusively for running eight deep wells at the department’s Lalamilo-Parker Well Sites.

In 2017, the Mayors’ Climate Protection Center awarded Hawaii County an honorable mention award for the LWC wind farm project.

“This is arguably the first time in Hawaii, and perhaps the nation, that a local government has developed such a wind-powered, water-pumping facility capable of significant greenhouse gas reductions at no-cost to the taxpayer,” the center stated.

LWC produces and offers enough energy to run all eight wells, which are some of the deepest on the island and service several resorts on the Kohala Coast — meaning the amount of electricity required to run them is significant.

The fixed clean energy rate Lalamilo offers is 27 cents per kilowatt hour, while HELCO is currently charging DWS a non-fixed rate of 27.8 cents per kilowatt hour at the Lalamilo-Parker Well Sites, according to a chart provided by DWS. The department added that before June of this year, HELCO prices were actually cheaper than LWC rates.

HELCO would not confirm specific rates, either current or former, because such are considered confidential customer information, said HELCO spokesperson Kristen Okinaka.

In the seven months since LWC went to full-time operations, DWS has left nearly 2 million kilowatts of clean energy unused, instead paying the utility for that electricity.

“Last month, 240,141 kilowatts went (unutilized),” Richard Hardin, member/manager at LWC, wrote in an email.

DWS is HELCO’s biggest customer, representing roughly 5 percent of the utility’s energy sales islandwide. The department operates in the neighborhood of 70 water sources across Hawaii County, but Rolston said these eight wells account for approximately 25 percent of DWS energy costs.

That’s why he chose them for the project in the first place when he served as county energy coordinator.

“The intention was to lower the cost of energy at that pumping station so we could pass it on to water ratepayers,” Rolston explained. “That’s actually what’s happening, it’s just that DWS isn’t purchasing the minimum amount of energy that makes the project financially viable.”

Rolston estimated the department’s choice to buy so much energy from HELCO has cost LWC around $750,000 in promised revenues, while collectively costing ratepayers more than $400,000.

Hardin believes those numbers will only go up, as the price of oil continues to rise and the loss of the Puna Geothermal Venture (PGV) to Kilauea’s fury has tipped the supply and demand scale for traditional energy on Hawaii Island.

Keith Okamoto, DWS manager-chief engineer, didn’t return multiple requests for comment on why the department has chosen to forego such a large quantity of renewable resources in favor of more expensive non-renewable ones.

However, it may involve deep well equipment failures in South Kohala.

The department has struggled to keep water flowing in North Kona for more than a year and a half, as premature equipment failures have kept between three and five of the area’s water sources simultaneously offline almost all that time.

The same issues have plagued the Lalamilo-Parker Well Sites that the wind farm serves. Rolston said four of the eight wells were inoperative for an extended period. That number dropped back to three just this month.

“The fact that they’re not keeping the wells operational is killing the project,” Rolston said.

Making waves

DWS purchasing practices have far-reaching implications beyond potentially costlier water for customers.

The loss of PGV decreases the island’s renewable energy quotient from around 54 percent to between 25-30 percent. And when DWS, the island’s biggest energy consumer, leaves renewable resources on the table, the math deteriorates along with the air quality.

That math gets even worse if LWC folds. Hardin said his company is currently in default with the bank that loaned it $10 million of the $15 million required to complete the project.

That isn’t because LWC failed to make payments. It’s because the payments they’ve made are coming out of their own pockets rather than from DWS purchases, leaving the lender apprehensive as to whether the investment is sustainable.

“We’re not getting the minimum revenue we need to keep the project alive,” Hardin said.

DWS purchases are trending upward, he added, as the department has moved from buying about half of the energy LWC generates to about two-thirds. But it may not be enough, as the bank could pull out at any time.

“We’re now really at the precipice of this thing doing exactly what it was designed to do, which is to save the ratepayers $1 million a year for 20 years with clean energy,” Hardin said. “But we’re in jeopardy of being bankrupt while we’re getting there.”

If LWC sinks, litigation to the tune of $15 million could follow, as it appears DWS may be in breach of contract as per the power purchasing agreement based on the amount of energy it’s buying — or the amount it’s refusing to buy.

“I think DWS believes they have a choice (of how much energy to buy and when) but … they don’t understand the contractual ramifications,” Rolston said. “They’re not fulfilling their part of the bargain.”

LWC, a special purpose entity created by the development company Site Constructors, which won the wind farm bid, signed the power purchase agreement in 2013.

The company began powering the wells on a part-time basis in 2016 and took up full-time operation in September of 2017, the date Rolston said signals the beginning of the 20-year contract.

Specified in the power purchase agreement was a stipulation that DWS would purchase a minimum of 8,000 megawatt hours (Mwh) of electricity annually. The three-person committee that ran the request for proposal — which included Rolston and two DWS employees, Julie Myhre and Clyde Young — also estimated an average annual consumption of 13,100 Mwh.

LWC crafted a business model around the expectation of 13,100 Mwh per year, but will remain afloat and contributing to Hawaii Island’s renewable energy goals at 8,000.

DWS guaranteed throughout the contract language that it would purchase at least that much, Rolston said. Without that guarantee, no company would have submitted a bid.

Myhre, a former DWS employee who worked on the project for several years before resigning in 2014, submitted a letter to the Water Board in support of LWC, which theoretically could power even more than just eight DWS pumps in the future.

“I encourage you to please hold off; take a step back and mandate that the electric power currently generated on property DWS leases from the State of Hawaii for the purpose of controlling the Power Cost Charge for its customers, be used to its maximum extent,” Myhre wrote.

There are no immediate avenues for LWC to sell excess energy elsewhere. Contracting with the utility would require HELCO go before the Public Utilities Commission in order to accept the energy, which Rolston said would take 18-24 months.

Today’s Water Board meeting is scheduled for 10 a.m. at the DWS Hilo Operations Center Conference Room, located at 889 Leilani Street.