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Consumer Costs Likely to Rise as Grid Fills Up

Ten electric “McNuggets” to ponder.

January 10, 2013
Susan Halas - Senior Contributing Writer (wailukusue@gmail.com) , The Maui Weekly

This is a consumer story with strong policy overtones.

The policy questions are: Does a for-profit electrical monopoly utility best serve the needs of the existing and future consumers? At what point do the interests of Hawaiian Electric Industries (HEI) and its local arm, Maui Electric Company (MECO), override the benefits provided to a largely captive population?

That's the nut. It looks easy, but it's not as simple as it looks. The second you open that box, the air swirls with mind-numbing detail.

Do you care about net metering agreements? Have you ever read Rule 12? Do you think it would be fascinating to have an in-depth discussion on capital investment in large-scale batteries and other energy storage devices?

Do you advocate a new business model for the company that splits it into two parts--one for transmission and the other for generation?

How about their stock? It's cheap and historically pays a good steady dividend; however, some see it as "neutral" and others claim the earnings future is "not so hot."

Our guess is you haven't had time to think about any of those questions. Most consumers just want to get the service and pay a reasonable price, and their eyes glaze over at the specifics.

But if you're a local electricity customer who is reviewing your stack of electric bills for last year, you have probably noticed the steady upward creep of your costs.

In reaction to those expenses in recent years, Maui residents installed photovoltaic (PV) home systems in unprecedented numbers. For those who took that route, monthly costs can be as low as $18. But for most of us, those checks to MECO are getting bigger and the bet is they will keep growing.

If you aren't quite ready to contemplate the whole beast, here are a ten little "Electric McNuggets" that might help you get ready to think about the bigger picture.

1.Maui is one of the best places in the world to showcase the success of alternative energy. It's No.1 in the U.S. for PV systems installed last year.

No place in world better suited to alternative energy than here. Maui is a showcase and early pioneer not only in solar, but also wind, bio-fuels, thermal, ocean, and other permutations and combinations. Early adopters, some of them entirely off grid, cut the cord to MECO long ago. But most consumers, even if they are credited for the energy they generate via PV, are still tied to MECO transmission lines for backup generation.

For the record, Maui led the nation last year in PV installation per 1,000-customer-base. According to MECO, in 2011 it hooked up more PV than the prior decade combined. The number in 2012 was even bigger.

2.Hawai'i is No. 1 in U.S. electricity cost

Despite such abundant resources, Maui and the state have some of the priciest kilowatts in America. Hawai'i is ranked as the most expensive place to buy electricity in the U.S. Consumers on Maui currently pay an estimated 41 cents per kilowatt-hour (kwh). Compare that with an average 13 cents/kwh on the Mainland. Even looking at selected markets where costs are higher, (such as LA, where electricity cost 21 cents per kwh in Nov 2012), it costs more here--a lot more (www.bls.gov/ro9/cpilosa_energy.htm).

3.Recent PV adoption rates astronomical; grid capacity near saturation.

But on Maui, grid saturation for PV is near. According to MECO and verified by many PV installers, the circuits in almost every local residential area are nearing their limits. There are new barriers in costs, time and paperwork to add new systems.

4.Everybody agrees there has to be a backup. The backup is still powered by diesel.

Electricity generated by the utility is called "firm" because it's reliable and stable. It flows at a constant rate.

Electricity generated by other means is called "soft" because it only flows when there's sunshine or wind. When a cloud passes by or the wind stops blowing, in order to prevent dips, the utility kicks in and provides power. This energy is generated by diesel fuel. The backup capacity must be sufficient to power the entire system in the event that there are short or long periods when the soft energy is not being produced. The utility also provides the technology that modulates the spikes.

5.There are excesses on both sides.

The PV installers sell on commission, and not surprisingly, they have sold up. They encouraged customers to reserve capacity they may not have actually needed. In years past, they have broken single household systems into multi-part components to qualify several times for incentives. The people who were early PV adopters had no problem in connecting to the grid and received financial benefits that were heavily subsidized by state and federal tax credits, and in some cases, actual cash rebates.

MECO knows it is reaching its saturation point for PV hookups. It also knows it's the only electric company on the island. It sees its consumer base eroding. At the same time, it wants to comply with state goals for energy self sufficiency by 2030.

Consumers who want to hook up PV systems to the MECO grid are now often told their area circuit is full. If the consumers persist, they are told they can pay thousands of dollars for a "study" to see if really the company couldn't squeeze one more system onto their grid.

So while early adopters have obtained the benefits. Those coming later have a more complicated maze to run. It takes longer. It costs more. What criteria is used or how it is being applied is not easily understood.

The PUC writes the rules, but the parent company, HEI, is a big help in drafting them. HEI is good at suggesting what would be appropriate and in bird-dogging its own interests.

6.Think hard about batteries.

If you are an electricity consumer thinking of PV at a home level, this is the squeeze year. Either get on now or expect to be shut out and to pay more, perhaps a lot more, in the future.

There are some benefits to being a late adopter. One is you get more recent technology. You need no crystal ball to see that billions of dollars and some of the best minds in science and investment are focused on batteries (or whatever we're going to call the next breakthrough in electrical storage).

One of the best informed people who spoke with the Maui Weekly suggested that a consumer faced with the option of paying $3,000 for a "study" to determine if his/her PV system could be squeezed onto the existing circuit, would do well to think about spending the money on batteries and forgetting about MECO entirely.

While realistically this may be a little premature, it is definitely not far-fetched. The data on how many are making that choice is little tracked.

7.Realize a new two-tier system has resulted.

Those who were able to afford the initial cost and take advantage of the subsidized incentives when the grid wasn't full now have electric bills that are substantially lower. They now create their own electricity and are credited for it by the utility. Their cost can be as low as $18/month.

While that's good for those consumers, the costs to operate MECO/HEI are shifted to those who now cannot hook up and will pay increasingly higher rates.

8.The cost direction is still up.

Despite what the advertising says, the cost of electricity on Maui is not going down soon for most people.

9.Mum's the word.

The Maui Weekly has seldom written a story where so many sources wanted to be "off the record."

The Maui Weekly talked mostly to "experts." These were electrical and other engineers, solar and PV installers of home and commercial systems, energy consultants, business people who were leaders in other forms of energy. The one thing they all had in common is they didn't want to talk for attribution.

Some of them said it was because they didn't want to draw attention to themselves; but more often the reason was that because they needed to maintain their relationship with MECO, and were unwilling to make any comment that might be seen as threatening to the company and the status quo.

Most informed sources think there is validity to the MECO position.

"Yes," they say, "it is the only electrical company we have, and if the grid were to become unstable through overload, there is no Plan B." Unanimously they said it is in the best interest of all to maintain the viability of the existing grid.

But when it came to overall veracity and transparency, most of them had caveats regarding the motives and leadership provided by HEI and MECO.

To a person they doubted anything would change soon or that there was anything the average consumer could do about it.

10.Watch the stock--neutral to no so hot.

Here's what an analyst featured on Yahoo Finance had to say about the HEI stock:

"Hawaiian Electric is progressing smoothly to comply with the Hawai'i Clean Energy Initiative (HCEI), which calls for generating 70 percent of its energy needs from renewable sources by 2030."

For more information, visit finance.yahoo.com/news/hawaiian-electric-neutral-lane-211857537.html and www.fool.com/investing/general/2012/12/20/why-hawaiian-electric-industriess-earnings-may-no.aspx.)

But whatever happens to the stock, electricity is sure to be a hot topic this year.

 
 
 

 

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