 Okay, we're back on Monday. I'm Jay Fiedel. It's 12 o'clock rock, and of course that means it's Amina, Marco, and me on Energy in the State of Hawaii. And we have both of them, Amina Merida and Marco Mangelsorf on Skype Audio, and we are ready to discuss the next subject in our ongoing discussion of Energy in Hawaii. So welcome, welcome back to the show, Amina Merida. Hi. Thank you. Thanks to be back. You're in Kauai. Good. Everybody wants, every right-thinking person wants to be in Kauai, except for the right-thinking people who want to be on the big island in Hilo. Welcome to the show, Marco Mangelsorf. Well, and a heidi heidi ho to you, Jay. It's good to be back with my two every other Monday best buds, you and dear Amina Merida. So thanks again for having us on. More and more I'm convinced that this is an important discussion. We must continue to have it. So anyway, the title of our show is, it's about the PUC, and the question I suppose is, is the PUC being consistent? And is the PUC predisposed against the electrical utilities in the state growing, generating their own, their own electricity? And so this all springs out of, I guess, back when the PUC gave guidance to suitors of next-era energy in its decision denying disapproving that deal between next-era and Hawaiian electric. And those points of decision was in a 17-page addenda in the decision and ordered disapproving the next-era deal. We should take a look at those points and see whether the PUC is following those points now itself in dealing with these various applications that are pending before it. And there's a suggestion here in this discussion that maybe they're not being consistent. But Marco, can you review for us what those points were? What was in the famous appendix A in the decision in order giving advice to people who would be suitors to succeed and next-era energy going forward? Sure. Be happy to, Jay. So this comes from the 400 plus page decision and order, which is issued the life 15th of 2016 in terms of turning down the applicants, the applicants next-era energy out of Florida and Hawaiian electric, or electric industries in Honolulu, their application for next-era to purchase HEI without American Savings Bank. And they kindly provided their appendix A, which is a guidance, the 17 pages of guidance for any future merger or acquisition proceedings, which I just kind of thought, you know, I should go back and read that again just for the heck of it because I think it's a very telling document kind of similar in the sense to the so-called inclination papers that under MENA, the commission put out in 2014, and it listed six specific areas, as they called them, that they would be looking at if there were to be follow-on suitors for all or part of Hawaiian electric industries. And they start off with, number one, rate repair benefits, two, mitigation of risk, three, achievement of the state's clean energy goals, four, competition, five, corporate governance, and six, they describe it as the HECO company's transformation. Can you put some flesh on those bones? What does that mean exactly, those six points? Well, I'm not going to go through all six points right now, Jay, because we can talk about them kind of maybe sequentially, but the number one thing that they address with, which I think shows the importance from one to six in ranking of importance, rate repair benefits, that there needs to be the provision of rate repair benefits that are, quote, meaningful, certain, and direct in the short term, as well as the long-term benefits that are substantial and certain enough to be meaningful. These benefits, let's get more concrete benefits, can be provided in many forms, including rate reductions, rate freezes, grid improvements, improvements in safety and reliability, et cetera, but must provide, and here's kind of the money phrase, provide net positive value to customers, net positive value to customers. So I guess my point would be in looking at this first point here in their guidance, is that this is a pretty darn high bar that they are putting out there for any possible suitors, follow-on suitors to Hawaiian Electric for all or all are part of the company. So I guess the question now is we've had, we've had some decisions this year that are instructive, namely three of them. We've had Hu Honua, we've had NRG Solar, and we've had AES PV, photovoltaic project on Kauai. So can you, can you, can you or Mina, Mina, can you tell us what those three decisions were, and then we can evaluate each one to see whether the PUC advice given in the next era disapproval was followed. Okay. Well, I think, you know, I just wanted to add that in with a 10-day guidance, which means that the focus on these elements will be necessary to meet the public interest standards in any future application seeking control. So this is, this is, they set a public standard for two weeks. But going, going back to the recent decisions they've made, it is sort of back to trying to find some consistency there. You know, first of all, they approved the PSIP, but on the other hand, they approved the Hu Honua, and Hu Honua wasn't even factored into their PSIP projection. You know, and when they talk about great peer benefits, you know, one of the things about Hu Honua project, it was approved by previous commission, but in the previous commission's decision, the risk was, was on the developer, not the PSIP. And I think that's what some, that's what's troubling with the current decision, the most recent approval, all the risk was being paid on the air. And, and, and that's quite a hefty sum at that. You know, with Makua partners, Makua energy partners, that's kind of backwards because, you know, you already have this asset that's been built, that has been operated, the agreement goes, a reduction, a small reduction to repairs, and some good benefits, like being able to have some, put some flexibility on the, on the bid, and yet that got rejected. And then I think you also mentioned ASFL, I think that one was kind of simple. You know, you just look at the, the overall price, purchase price, and it's much lower than the avoided cost. So that was a 4-2 to understand. Marco, what's your sense on this? Are they remembering their own advice? I think one could, one can observe that there's perhaps an implicit bias, if not more than an implicit bias against fossil fuel generation for, I guess, understandable reasons, but you know, I kind of reiterate what Mina was saying. You know, to go back briefly over the, the Makua energy partners attempted acquisition of that company, which is named me, owned by a company in the mainland called Arclight. It was Arclight that approached Helco late 2015, seeking to sell this power plant, which has about 60 megawatts, 60 megawatts generating capacity, which is one of the largest on the island and supplies, I believe, somewhere under 20% of all megawatt hours to Hawaii electric light company customers. So in early 2016, the parties Arclight and Helco opened the docket to seeking the purchase or the chance for the ownership of this power plant for $86 million. That would be the sale price that Helco would be purchasing for this power plant. And there was a decision in order in the May of this year where the commission turned down the purchase for a number of reasons. And I read, went this morning and read, re-read it again to try to glean some more insight. And what I find kind of striking is that, and I'm reading from the decision order here, although the overall estimated savings remain marginally positive, the customer, these customer benefits are small. And in the early years after purchase, customers are expected to pay more under Helco ownership, thus under the customer value approach, not sure what that is. Under the customer value approach, the purchase can just barely be considered a positive economic. And you compare that to the recent approval of Huho Nua, which I believe is acknowledged by all or most parties, that under the first years of the Huho Nua agreement, once that PPA goes into force, once the plant is operational late next year, that the rate payers will be seeing higher bills for the first projected 11 years of the PPA before modest savings kick in. So to me, in a nutshell, not getting into all the various other details that one can get into, it seems that there is perhaps somewhat of a lack of consistency between the turn down of the purchase of humbuckle energy partners plant from Arclight and the approval of the PPA with Huho Nua. And interestingly, the state's consumer advocate suggested in the HEP docket that he, in this case, Dean Nishina, would be willing to sign off on the purchase of the HEP if the purchase price was dropped from $86 million to $60 million, which of course is a heck of a haircut, which would be in the better interest, of course, of rate payers. And the commission didn't even bite on that. They didn't even go down the path of considering that a $60 million purchase would be better for rate payers than $86 million. They just seemed to gloss over that with the concern as well that after the power purchase agreement with HEP, which is scheduled to expire in 2030, that after that point it could conceivably become a so-called stranded investment. So I've probably talked enough for right now, but it's just an interesting, perhaps, lack of consistency that kind of struck me in terms of approving Huho Nua and yet not approving HEP. And that kind of led me to the kind of meta question here is, to what extent is this commission, as well as commissions across the mainland, are they kind of biased against utilities being in the generation business? Because that's been one of the big revolutions of our time over the past decades is utilities have been getting out of generation and moving often more into transmission distribution. So, you know, that's kind of the meta interesting philosophical question. Should utilities across our unique island chain, should they be dissuaded? Which I think you could read the HEP decision to be a dissuasion for any utilities across the state to get into, to at least in this case, additional, additional fossil fuel generation. Yeah, we need to get into that. We need to get Marina, meet Marina's views of it right after this break. We'll come back and discuss exactly what the commission's bias is and whether it's appropriate. We'll be right back. This is Think Tech Hawaii, raising public awareness. Aloha, my name is Steven Philip Katz. I'm a licensed marriage and family therapist and I'm the host of Shrink Rap Hawaii where I talk to other shrinks. Did you ever want to get your head shrunk? Well, this is the best place to come to pick one. I've been doing this. We must have 60 shows with a whole bunch of shrinks that you can look at. I'm here on Tuesdays at three o'clock every other Tuesday. I hope you are too. Aloha. Hi, I'm Jay Fidel. This is Mina Merida and me on Energy in Hawaii. And we're talking about, gee, we're talking about the possible inconsistency or parent inconsistency of the advice that was given by the PUC and its decision and order on the next era case with some of the decisions they've made recently and whether built into that is a bias against allowing the utility to generate its own power. And all of that against the background of the fact that there are still other suitors out there sniffing around, seeing if they'd like to buy Hawaiian Electric in the way that next era wanted to buy Hawaiian Electric, including especially 21st century utilities who's been around for the past years just taking a look at this and maybe would be a suitor to buy Hawaiian Electric. So, Mina, what about the history of it? Where has this been going? That is the whole notion of allowing the utility to generate its own renewables. Well, I think, you know, there was always an understanding that there may be some assets that the utility has to own in order to ensure reliability. And, you know, and that's all part of the evolution of the electric utility company. But I think, you know, there's, on the other hand, you know, why not put it out to the competitive bid and have the utility participate in that competitive bid process rather than exclude them completely. And if they offer a price that no one else can be, then, you know, they should be able to build the asset. Well, you know, that kind of process seems to me to be a little bit troublesome in the sense that the utility can take a look at what's coming down the pike from third-party bidders and knowing what it knows can outbid them every time. I mean, is there a procedure by which the utility would be stopped from doing that? No. And I think if you look at the KIUC process in them acquiring new purchase agreements, you know, they set the price and they basically said, this is our price. And if you can beat our price, you know, we're going to award you a contract. And that hasn't happened on the HECO side. Yeah. Mark, what do you think? Is this workable? Can we do this? Can we have the utility bidding against third-party bidders? I'm sorry. You're asking me? Yeah. No, I think it's a fair game. I think there's enough transparency in our state to allow for a meaningful and fair bidding process. And I think, you know, there's a mix of at least looking at Oahu, you have Hawaiian Electric that is, of course, going forward with several projects within RG to the tune of 110 megawatts. And that PPA was approved recently. And at the same time, they're, you know, after a very, very long time of kind of sitting on the fence, they are moving forward with, from what I understand, owning a PV generation in this, I believe it is 20 megawatt or so deal they'll be doing with the military on, I believe, on the windward side. So I think there's an openness for all the utilities here, the HECO companies as well as KIUC to look at alternatives or look at the two alternatives of both owning the generating assets, developing the projects, doing the capital expenditures necessary to do it, but also giving major players like NRG and the previous them sonnets and the opportunity to bid because that's been, I think, in the benefit of the repairs as well. It will be, I say, once these projects go online at between 10, 11, 12 cents, 14 cents a kilowatt hour. Yeah. And in the end, I agree with you. In the end, the PUC is going to see all this information. And it's going to, it's going to see that who's, who's providing the best price and terms. But Mina, you know, you said that historically, you know, the, the, the utility has been, there's a good public policy reason to allow the utility to do its own generation in order to have the reliability where a particular generating asset would, would create reliability. But what about in all cases? It seems to me, the utility has been, you know, building assets to generate electricity from the beginning of time back in the early 20th century. Why, would you limit it to assets that, that provide reliability or would you include all assets? And you know, I think, I, I, I think that's the question that part of the evolution of the utility business model. You know, there was a lot of discussion in the 90s about sort of deregulation and going to a market-based system for electricity. And, you know, we, we saw in many cases where that fails. So I need to approach this subject gingerly as, as we talk about a new business model for the utility and mainly because of the advancement of technology being, you know, where there's a whole lot more visibility on the system and where there are services that we can put out to market. But, but again, you know, that's in general of the utility, the electricity sector. I mean, we really need to be concerned on what works on our islands and how we can protest our islands reliably and cost-effectively and also meet our social goals of fighting poverty to all customers as we provide this, this essential commodity. And you think that could be achieved by allowing the utility, by allowing the utility to participate in the bidding process and to create its own electricity on, for all assets, not only the ones that achieve reliability, but for everything that generates electricity? Yeah. So Jay, I, can I, this is sort of on another tangent, but I'm pretty concerned that the decisions that have been coming out have a political pinch to it. You know, whether, whether to allow the utility to build these assets or even the approval of a project, which is not the rate per interest, but had a lot of politicians weighing in on this project. Yeah, that's troublesome, because we don't want politics to influence these decisions. Yeah. You know, so I guess there's two, there's two balls in play here. One is the possibility that politics have influenced the decisions where projects were approved, in the case of Hu Honua, NRG, and AEG, and where this whole notion, this bias against allowing the utility generated some electricity, influenced the decision in Hamakua Energy Partners. How do we, how do we resolve all that? How do we screen that out? How do we get it on the table and make, make rules that, that exclude these possibilities that we're worried about? Well, you know, I think one of the things is we really have to look at decisions and dissect it. You know, for example, on a Hu Honua decision, you go to page 12 of the decision and they summarize the PPA's decisions, the original PPA's price and the, and the amended new pricing in terms of 2017 dollars. You just kind of scratch your head and go, what are you thinking? Yeah, there's got to be a matrix which can compare them accurately. You know, the whole thing is, is different than what you would expect because not too many years ago, the notion was that as renewables evolved, the utility would simply become, would evolve itself into simply a transmission company. But then the technology came around and became clear that that was, that was not the best solution and that we needed to have all kinds of diversity and lots of different options and possibilities. And here we are in a place where we're considering that, but the problem is what is the matrix? What's the, what's the vocabulary? What's the language by which you can most accurately compare the proposals and indeed possibly compare them against proposals by the utility itself and follow whatever the guidelines are, especially including those six points in the 17-page addendum that was written in the decision in order for the next era case that Marco was talking about. So Marco, you know, what do you think about this? How do we make a matrix that we can all understand, that we can be able to evaluate all these proposals as against those points or other points so we know exactly what we're getting by any bidder who comes along? Well, that's a great challenge, Jay, in terms of coming up with said matrix and I think it's beyond my feeble brain and pay grade at this point to come up with the master plan. But one of the things that strikes me, you know, in all the hullabaloo supposedly shooting for, not supposedly, but shooting for 100% renewable generation by 2045 is I think the lack of recognition that at least for the foreseeable future or at least the near term, near term, midterm, that we are the utility companies on each island will have to maintain a certain level of combustion generation. In other words, we are not at the point where it could just be batteries, batteries, batteries, solar and batteries, wind and batteries, this and batteries. And just for comparison, and that got to thinking after the commission approved Huho Noah, okay, so that's a 21 megawatt, 21 megawatt power plant with the possibility of adding additional megawatts after their operational. So if you multiply 21 megawatts times 24 hours in the day, which it is, of course, you come up with a nice clean even number of 500 megawatt hours. So potentially there are 500 megawatt hours available from Huho Noah burning eucalyptus trees that are being cultivated supposedly nearby along the Homecua coast. What would you need an equivalent solar PV and battery storage in order to match a power plant that's putting reliably 500 megawatt hours a day in terms of power generation? And I ran it by a couple of utility friends of mine, both HECO and KIUC, and they were remarkably on the same page even though they weren't talking to each other. And that came out to roughly 75-80 megawatts worth of a solar farm, megawatts in terms of direct current DC. And by the way, there's not any such PV plant of that size anywhere in the whole state right now. So it would be the largest. So 80 megawatts worth of solar and about 375 megawatt hours of storage. And by comparison, the KIUC project with Tesla and SolarCity, if I remember correctly, was about 50, 50 megawatt hours. So the takeaway is that in order to replace the output from Huho Noah, which is considered green and renewable, with commensurate solar and storage, is really something that we and the industry can't do yet in a cost-effective manner. There is no project in the country that I'm aware of, let alone perhaps the world, where you have 75-80 megawatts of solar paired with somewhere close to 400 megawatt hours worth of storage. Now are we going in that direction? Absolutely. But those who compare Huho Noah to, oh, you can just replace it with solar, well, yes, in theory you can, but nobody's really done it yet nor done it cost-effectively. So that's an important thing that I kind of reiterating. I think what I heard me to say which is the importance of maintaining a certain level for the foreseeable future in terms of combustion generation. And that's one of the points regarding HEP that the consumer advocate made, which I'm just going to read to you this couple sentences, which I think is very telling. The consumer advocate acknowledges that under the right circumstances, utility ownership of a generation asset such as the Hohamaku Energy Plant Facility may be desirable provided the conditions are in place to balance the potential benefits and risks. Okay, all that makes sense. For example, the consumer advocate notes that the Helco ownership of the HEP facility would permit Helco, number one, greater flexibility in dispatching the HEP facility, which could facilitate the inclusion of increased levels of renewable energy, could facilitate the inclusion of increased levels of renewable energy. But again, given the fact that the commission ruled against that purchase, they weren't persuaded by that particular argument. Well, it sounds like we ought to get that out on the table if there's a bias against utility running its own. But I think we all three agree there's a need for a certain amount of fossil fuel going forward. But I put this question to you, Mina. So as time goes by, the problem that Marco described and maybe was central in the HEP decision is that the technology will change. And soon enough, we'll find that we can use a combination of solar and batteries to achieve cheaper rates, maybe as cheap as fossil fuels. And this means that if you want to put in 86 million or 80 million or 75 or 60 million, you may wind up with stranded assets, essentially, over the price that's too high, relatively speaking, when solar and batteries go down in price. So how do you handle that going forward? Right. And that's the importance of a no regret that, you know, this is a time we make minimal investments and really increase productivity and efficiency of our existing assets. You know, so, you know, how do we do that? You know, what scares me is that every decision that has come up so far has a real serious impact on equal rate payers. You know, we're not offering any kind of relief here. All we're seeing is increase in pricing right now. Yeah, we should do better. Marco, we're out of time, but I'll let you close. What would you leave our listeners with? It's pretty head spinning, I think, Jay. I mean, I think the three of us three so well, I think we're reasonably educated people. But I mean, trying to, like you said earlier, put together this matrix for which to make sense and kind of some grand master cheat sheet is a challenge. There are truly so many moving parts and so many aspects to consider and it's almost kind of a full time job. Well, we can do it part time here every two weeks on Meena, Marco and me. Okay. Thank you so much, Meena Marina, Marco Mangostorf. We'll see you two weeks hence for more of the same discussion on energy in Hawaii. Aloha.