High electricity costs drain energy from local economy

LIHU‘E — The high cost of electricity is draining energy from the local economy. The problem is especially acute for Kaua‘i business owners, some of whom pay upward of $20,000 per month for electricity.

Kaua‘i’s electricity costs, often the highest in the country, have been a contributing factor in the recent departure of businesses such as the Borders Books & Music store and one of the main reasons it is difficult to attract new businesses to the island, according to commercial real estate professionals.

At the Green Workforce Summit on Kaua‘i in January, the owner of Kojima’s grocery store in Kapa‘a, Glen Kojima, said the high cost of electricity keeps him from being able to hire new employees.

He said people are dumbfounded when he tells them what he has paid monthly — more than $20,000, or 12 percent of his sales, at its peak in 2008 — to keep his small market cooled and lighted.

“We have to do something about this,” he said. “Going green doesn’t create jobs, but it has kept some.”

Scott McFarland, owner-partner of Kaua‘i Athletic Club in Lihu‘e, said his electric bill, on average, is $10,000 per month for his 16,500-square-foot facility.

Equally prohibitive, he said, is the co-op’s policy of requiring a deposit that’s equivalent to two months of average use.

For the athletic club owners, it meant handing over $20,000 just to create an account.

“Electricity and taxes after things like payroll and insurance are always at the top of the list of expenses for businesses,” Randy Francisco, president of the Kaua‘i Chamber of Commerce, said.

The chamber is establishing a Blue-Green Committee in partnership with the Blue Planet Foundation to assist and leverage existing efforts.

“Unfortunately, these costs need to be absorbed by us consumers, and this creates two significant problems: higher costs for us to live here and, ultimately, it makes some of our local businesses less competitive at a time when we can have items shipped in cheaper from stores that have less overhead than our shops on Kaua‘i,” KIUC candidate Pat Gegen said.

Most residents blame high energy costs on the high cost of oil. KIUC derives approximately 90 percent of its electricity from oil and naphtha combustion generators.

While oil prices are exceptionally high in the islands, it’s not the sole driver of high rates, which for March are nearly 43 cents per kilowatt-hour for residential accounts, almost 44 cents for small commercial customers and almost 41 cents for large commercial accounts.  

Rates have increased approximately 8 cents per kilowatt-hour since October 2010, or 19 percent.

Economic consultant for the county and KIUC candidate Ken Stokes estimates that between 2007 and 2011, electricity demand (in barrels of oil) declined by about 5 percent, while prices jumped by more than 40 percent.

According to KIUC’s financials for November 2011, fewer than 25,000 active ratepaying members spent nearly $696,976 in interest on long-term debt for the month, and nearly $8 million year-to-date.

The co-op’s debt obligation (less maturities) on Jan. 1, 2011, was $188.52 million, much of which was incurred when citizens bought the co-op from Kaua‘i Electric for hundreds of millions of dollars a decade ago.

Over the next few years, the co-op will be expanding its debt as it creates a renewable energy portfolio composed of member-owned hydroelectric and solar projects.

While such projects will help to free the island from vulnerability to wild swings in oil prices, the price of electricity is expected to remain about the same over the next few decades, according to the co-op, because it will have to service new debt incurred for capital outlays.

The estimated capital cost of the 12 megawatt Anahola Solar project is $50 million to $60 million before subsidies, the co-op said, and will be funded through a Rural Utility Services loan at 1 percent interest. The co-op is looking to develop a second 8 megawatt to 10 megawatt solar farm, as well.

The co-op has yet to disclose estimated costs for the six small-scale hydroelectric plants it is currently scoping through a contract with Free Flow Power.

Additionally, KIUC has signed power purchase agreements for approximately 20 cents per kilowatt-hour with several commerical-scale solar energy developers.

One way for businesses to reduce electricity costs is to invest in renewable energy upgrades such as solar panels. However, a large marjority of the island’s small businesses lease commercial space and therefore do not have the ability to step off the grid.

At a recent meeting of the Lihu‘e Business Association, state Sen. Ron Kouchi, D-Kaua‘i and Ni‘ihau, said senators are looking to see if there is anything that can be done legislatively about the situation.

He described the challenge as “all of these people leasing space for businesses, and businesses paying outrageous prices for power and no hope for solar unless the owner wants to invest.”

It’s the co-op’s board of directors that makes fundamental decisions about the island’s energy future and, in turn, the local economy.

Given that it’s KIUC election season, with co-op members asked to vote by ballot for three board directors, The Garden Island asked all nine candidates how businesses can reduce energy costs today — not 30 years from now — and provide the local economy some much-needed relief.

The following excerpts are from emailed responses from KIUC candidates who answered:

Economist Ken Stokes

“Many of our business people are already reducing their use and generating their own electricity. They know that energy efficiency measures can cut 20 percent or more off their bill, and that solar can deliver electricity at under 10 cents per kilowatt-hour, which is less than a quarter of the current KIUC rate. (When will they get some relief?) No time soon. There remains a strong risk of global recession, and the Kaua‘i economy may be lucky to remain flat for the foreseeable future.”

Former KIUC attorney Karen Baldwin

“Energy costs for businesses are a much larger component of their budgets than energy costs for households. KIUC needs to create a rate structure that allows businesses to control their energy costs while offering incentives for conservation.”

Energy activist Pat Gegen

“For a quick reduction in current energy prices, I think we need to get creative. What if KIUC worked with the Office of Economic Development’s energy coordinator and sustainability manager and the County Council, which has two committees focused on energy issues, and the Chamber of Commerce to create some programs that could utilize legislation and other incentives, such as demand-reduction programs like the ones KIUC did not increase the funding for, for reducing business energy needs.”  

Community organizer Joel Guy

“While working for Rep. Mina Morita, chair of the Energy and Environmental Protection Committee at the state Legislature, I gained a deep understanding of how Kaua‘i can generate and manage electricity more sustainably. And through my long time involvement with various community projects, I have also learned the importance of listening to and working with our diverse island community.

Businessman Lesther Calipjo

“For immediate results, we have to change our lifestyle and our way of thinking. We cannot continue to burn electricity like we did in the past and expect our electric bills to go down.”

Incumbent Steve Rapozo

“The quickest way to reduce the cost of energy to our residential members, as well as our businesses on Kaua‘i, would be KIUC- and member-owned hydro projects. Though hydro projects require a long lead time for permitting and studies, the benefits of a completed project will be for decades to come. Our grandchildren’s children will be able to realize the rewards.”

Incumbent Stewart Burley

“KIUC is working as fast as the state and local government lets us. We hope to see a reduction in the next two years, and I want to be involved in helping the reduction along.”