Hawaiian Electric residential customers on Oahu will pay an extra $4.52 a month on a typical bill starting as early as October after the state Public Utilities Commission’s recent interim order approving an amended fuel supply contract the utility negotiated with Par Hawaii Refining.
Par Hawaii invoked a contract clause requiring Hawaiian Electric to renegotiate its existing fuel supply contract after the refinery shut down part of its refining operation, including the production of the low-sulfur fuel oil used in power plants on Oahu, because of declining demand for fuel during the pandemic. Par Hawaii said it needed to renegotiate the existing fuel supply contract to reflect the higher cost of shipping in fuel rather than producing it in Hawaii.
Hawaiian Electric estimates that had the amended contract been in effect for the period of April 2019 through March, the cost impact would have been about $54.7 million higher than under the original fuel supply contract. That equates to an electrical bill increase of $4.52 a month for a typical household using 500 kilowatt-hours of energy.
“Even though the order is retroactive to July 15, it will take some time to use up the supply bought at the old price, so the new prices won’t likely be fully reflected in bills until October or later,” Hawaiian Electric spokesman Jim Kelly said.
Kelly stressed that Hawaiian Electric has proposed no increase to its base rates and that fuel costs are adjusted monthly and passed through directly to customers.
“This is one more thing broken by the pandemic — availability of locally refined fuel oil,” Kelly said. “We know any price increase now is an additional burden for customers who may be struggling financially. If there’s any good news in this, it’s that the drop in demand for fuel has also kept prices lower than they’ve been in years.”
If the price increase went into effect today, the typical bill for an Oahu customer using 500 kilowatt-hours a month in August would go from $133.06 to $137.58, Kelly said. The typical bill in August 2019 was $160.45, or about $23 less than it would be today.
Hawaiian Electric has been working with financially strapped customers and has a notice on its website that says in response to COVID-19 that disconnections are suspended through Sept. 1. The remainder of the notice says that payment arrangement options are now available.
The PUC said in its Aug. 4 decision that there does not appear to be any other feasible source of low-sulfur fuel oil, or LSFO, readily available that is equivalent to or cheaper in cost than the proposed prices under the amended contract between Hawaiian Electric and Par Hawaii.
“While the Commission recognizes the prices for LSFO are cheaper under the Original Fuel Supply Contract, there is a significant risk that Par will attempt to terminate the Original Fuel Supply Contract should the First Amendment not be approved by the Commission,” the PUC said. “Therefore, the Commission believes that attempting to require Hawaiian Electric to continue to purchase LSFO supply under the Original Fuel Supply contract may result in reduced fuel supply security and potentially increased costs due to litigation. Thus, based on these circumstances, the Commission approves the First Amendment on an interim basis, finding that interim approval is reasonable and in the public interest.”
Par Hawaii sources crude oil from a variety of domestic and foreign markets.
“(That ensures) we get it at a price that allows us to create value for our customers,” Par Hawaii spokesman Peter Boylan said. “Different types of crude oil produce different mixes of refined product. The crude oil we purchase are the most economical and necessary to refine the specific fuel types HECO and our other Hawaii customers need.“
Boylan said the pandemic forced the company to cease operations at its Par West refinery in March, where it produced some of the low-sulfur fuel oil it sells to Hawaiian Electric for use on Oahu. The Par West refinery is the former Chevron refinery that Island Energy Services bought in 2016. The company’s existing facility in Kapolei is Par East.
“The new contract was agreed upon to account for current market conditions and to help us recover our costs of refining fuel for HECO’s Oahu operations,” Boylan said. “The new contract supports the local production of fuels, hundreds of manufacturing jobs here on Oahu, and helps secure our critical energy infrastructure in Hawaii.”
In March, Par Hawaii furloughed 29 employees at its Kapolei Par East facility and adjusted production to reflect current demand. The furloughed employees maintained full medical coverage and will receive 20% of base pay during the furlough time period.
Parent company Par Pacific Holding CEO William Pate and the company’s independent board members reduced their cash salaries by 75%, effective May 5, and the company slashed its operating expenses and logistics costs on the mainland and in Hawaii by $50 million on an annual run rate basis.
$4.52
The increase per month on a typical bill
October
The earliest the increase is expected to take effect
$137.58
Hypothetical monthly bill, based on 500 kilowatt-hours of energy
Source: Hawaiian Electric
