The Hawai`i Electric Light Company says it needs to expand its Keahole generating plant to meet the power requirements of the Big Island. It has announced plans to install two 20-megawatt combustion turbines, CT-4 and CT-5, by the end of 1998. An 18-MW steam turbine, ST-7, which is powered by waste heat from CT-4 and CT-5, won’t be installed, however, until 2006, according to HELCO’s latest schedule. Altogether, the cost of the expansion will come to well over $100 million.
But whether HELCO will even be allowed to operate CT-4 and CT-5 is not yet settled. Apart from the ongoing litigation over HELCO’s Conservation District Use Permit for the Keahole expansion, there remains the need to obtain PUC approval before the new capacity can be brought on line.
At the heart of the matter is whether HELCO can satisfy the PUC that the Keahole expansion is justified, especially in light of an agreement that the utility has reached with Enserch Development Co., an independent power producer in Hamakua. That agreement requires HELCO to buy as much power from Enserch as HELCO was proposing to install at Keahole.
But only one such generating unit was called for in HELCO’s long-term energy planning guide, approved by the PUC in 1996. Whether HELCO will be able to operate the turbines it plans to install at Keahole is an issue that remains to be decided.
The Long-Term Plan
In 1994, HELCO prepared a 20-year forecast for future energy needs of the Big Island. The forecast was part of its Integrated Resources Plan, which the PUC approved in 1996. At the time, HELCO predicted it would need an additional 79 megawatts of capacity to meet demand in 2013. In 1997, HELCO’s annual evaluation report of its IRP contained revised forecasts, based on assumptions of slower economic growth. Instead of 79 added megawatts of capacity, now just 65 megawatts over what was available in 1994 are expected to be required by the year 2013.
To meet future demand, HELCO intends to install new generators at its own facilities as well as to purchase power from independent, non-utility generators (NUGs, as they are sometimes called).
For years, two such non-utility generators, Enserch Development Corporation and Kawaihae Cogeneration Partners, have been attempting to work out power-purchase agreements with HELCO. Last year, under pressure from the PUC, HELCO and Enserch reached a settlement, but KCP and HELCO have yet to come to terms. According to Albert Hee, an officer of KCP, HELCO has “stonewalled” KCP for more than a year.
The PUC approved the Enserch-HELCO settlement last August, but not under the conditions HELCO had proposed. Among other things, HELCO wanted to tie the PUC’s approval of the Enserch settlement to an approval of the Keahole expansion.
The state consumer advocate had harsh words for HELCO’s settlement offer. In issuing its approval of the settlement, the PUC heeded the consumer advocate’s advice and stopped short of giving HELCO the assurances it had sought for the Keahole expansion.
“We concur with the Consumer Advocate’s observation that the proposed PPA [power purchase agreement] appears to be a cost-effective resource acquisition for HELCO as its next generation unit,” the commissioners wrote.
Next Generation Unit
But HELCO also requested the PUC to determine that “it is prudent for HELCO to enter into the PPA and interconnection agreement with Encogen [Enserch’s affiliated company], while continuing to pursue the installation of its own combustion turbines (CT-4 and CT-5) at Keahole.” On this, the commission balked. “This request is ambiguous,” the PUC found. “If HELCO intends to continue to pursue its Keahole project in the context of parallel planning to safeguard against failure or inability of EDC to construct its facility at Hamakua … then, of course, it is prudent for HELCO to enter into a PPA and interconnection agreement while pursuing the Keahole project.”
The PUC continued: “We expressed many times before our concern about the lack of sufficient generation on the island of Hawai`i. In light of the acuteness of the need for additional generation, we declared indifference as to who builds that additional generation facility. Our primary consideration has long been to have the next generation unit on line as quickly as possible. To that end, we encouraged HELCO to pursue various options in parallel with one another. We, thus, pressed HELCO to continue negotiating a PPA with EDC as well as with Kawaihae Cogeneration Partners, and … we approved HELCO’s pursuit of its own generation unit (CT-5 and ST-7) at Keahole. Our expectation was that one of these options would lead to the installation of the next unit.”
The “parallel planning” process, the PUC explained, “entails preparation to install HELCO’s unit, not the actual installation of it. But HELCO’s intention appears to be the construction of the Keahole project as the next unit after EDC’s Hamakua project, assuming the Hamakua project is built. Thus, HELCO’s request for a ruling on the prudence of continuing to pursue the Keahole project is made in a context that is beyond parallel planning….
“In authorizing HELCO to proceed with the Keahole project, we did not contemplate that project to be the unit to be constructed after the next generation unit. Rather, we contemplated that the Keahole project would be the next unit, if it turns out that that option would be the one that could most expeditiously be put in place. We have made no decision as to what unit should follow the next immediate unit, and we are unable to make that decision at this time, at least not in this docket and not without considering pertinent facts and options.”
Race to the Finish
Whether Enserch or HELCO is the first to bring on line the next large increment to Big Island power is a matter of no small consequence to HELCO. It has already purchased CT-4 and CT-5, at a cost of approximately $85 million, according to filings it has made with the PUC.
But until the PUC finds that CT-4 and CT-5 are “used and useful,” HELCO cannot include these costs in its rate base. To be “used and useful,” the turbines must be installed. If Enserch — or Kawaihae Cogeneration Partners — is able to build its own generating units and bring them on line ahead of HELCO, HELCO risks being saddled with the so-called “stranded costs” of CT-4 and CT-5.
In one of the most recent filings HELCO has made with the PUC — a January 30, 1998, letter from HELCO President Warren Lee reporting on the adequacy of HELCO capacity to meet demand for the next three years — the anticipated installation date of CT-4 and CT-5 is December 1998. The first Enserch generating unit is not anticipated to be brought on line until April 1999, at the earliest.
(According to Enserch spokeswoman Jody Allione, the first phase of the Enserch project could be installed eight to 10 months after final PUC approval is obtained of the power-purchase agreement. That approval is expected no later than the end of 1998.)
— Patricia Tummons
Volume 8, Number 11 May 1998
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