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Wasting energy? : Water Board pushes decision on DWS obligation to purchase wind power

KAILUA-KONA – The Hawaii County Water Board voted Tuesday to raise the power cost charge to ratepayers, while choosing to defer action in a power purchase agreement dispute between the Department of Water Supply and Lalamilo Wind Company.

Board members were unanimous in their support of a power cost charge hike from $1.88 to $1.94 per 1,000 gallons. DWS cited increased electricity costs from Hawaii Electric Light Co. (HELCO) as the basis for its increase request.

As for a decision on what boils down to a contract dispute between DWS and LWC, the Board chose to lean on its lawyers.

“We’ll be continuing to work with the corporation counsel to take a look at the purchase power agreement that was signed by Lalamilo and the department,” said Craig Takamine, Water Board chairman. “We’re relying heavily on (counsel) to provide guidance on what that contract actually states.”

The agreement was signed in 2013 and was born of a request for proposal administered through the county that sought a private company to construct and operate a wind farm to power eight deep wells at the DWS Lalamilo-Parker Well Sites in South Kohala.

Site Constructors, which won the bid, formed LWC as a special purpose entity to run the project. LWC subsequently invested $15 million and built a wind farm that went to full-operational status in September.

Since then, DWS has purchased between only half and two-thirds of the clean energy LWC produces, said Richard Hardin, member/manager at LWC.

Hardin explained that DWS, his company’s only customer, must purchase a minimum of 8,000 megawatt hours (Mwh) annually to keep the project financially viable. That equates to roughly $180,000 in energy purchased per month.

However, DWS hasn’t met that purchase pace, or even come close, in any month since LWC went fully operational. Instead, they’ve made up the difference by purchasing nonrenewable energy from HELCO at 41 cents per kilowatt. LWC charges a fixed rate of 27 cents per kilowatt for its renewable product.

The strain has put the company in default with its lender and threatens a major source of renewable energy on Hawaii Island. Hardin said the Water Board’s decision to push a decision for the second consecutive month adds that much more peril to LWC’s financial situation.

DWS is the largest energy consumer in the county and the eight wells LWC services gobble up about 25 percent of total departmental consumption.

Representatives from LWC went in front of the Water Board at its meeting in June and asked the Board mandate DWS purchase at least the 8,000 Mwh annually.

According to LWC, the department made a commitment to do exactly that in the power purchase agreement. That DWS isn’t following through constitutes a breach of contract, the company says.

Will Rolston, former Hawaii County energy coordinator and a member of the panel that oversaw the RFP, agrees entirely with LWC. Rolston worked on the first ever power purchase agreement in West Hawaii for the West Hawaii Civic Center and was central in the development of the wind farm in question.

He said no company would ever have taken the bid without a guarantee from DWS that it would purchase at least 8,000 Mwh annually.

Rolston attended Tuesday’s meeting, where DWS disputed it had any obligation to purchase power from LWC.

DWS didn’t respond to request for comment by press time Tuesday, so Rolston offered an explanation of the argument the department laid out before its board.

“They’re relying on a very small item in the power purchase agreement that says they’ll take energy from the wind farm when they need it,” Rolston said.

He added, however, there are clauses all over the contract that stipulate DWS must use wind energy first and HELCO energy second, and that DWS must maximize wind energy.

He also noted a clause, outlined in section 4.5.1 of the agreement, which states DWS is liable to purchase energy it has committed to buying even in the event of an unscheduled outage – meaning if its pumps are down and it doesn’t have a need for the minimum energy purchase, the department has to buy that energy anyway.

DWS did not respond Monday or Tuesday to inquiries from West Hawaii Today as to why it’s chosen to purchase more expensive, nonrenewable energy from HELCO instead of buying from LWC.

However, four of the eight deep wells in question were down for an extended period of time. DWS returned one of those four to service this month.

Rolston said he believes the lack of service, and potentially logistical issues with the more complicated management of storage and usage of wind power, have contributed to smaller purchases.

Hardin said LWC, at its own expense, has created a computer program to help DWS coordinate a rotation and synchronization plan with LWC’s own computerized operations that should help manage logistical problems.

Still, Rolston said he sees apprehension on the part of DWS, which he added baffles him.

“For me, the disappointment is these guys aren’t champing at the bit to take the maximum energy, which is why we did the project,” Rolston said after Tuesday’s meeting concluded. “We did this project not just to get 8,000 Mwh, we did this project to get 13,000 and crowd out as much fossil fuel energy HELCO is providing (as possible).”

Takamine said the dispute will be on the agenda for discussion and possible action at the Water Board’s August meeting.