On Oct. 20, between campaign trips, Linda Lingle took up her spot alongside Ted Liu to make another announcement about energy. The fanfare was to roll out a previously undisclosed renewable energy agreement between the state (including DBEDT and the consumer advocate) and HECO.

The 50-page agreement they signed is not simple, and must have taken months to negotiate. It calls for major changes in energy policy, with major rule changes at the Public Utilities Commission. It has huge implications for our economy. Should we react in awe, or in concern?

DEVIL IN THE DETAIL

The agreement is conceptual only and does not carry the force of law. The details, including what it will cost us, need to be worked out and implemented by the PUC and the Legislature.

The most expensive part is an undersea cable connecting Maui, Lana'i, Moloka'i and O'ahu. HECO says it will cost $500 million to $800 million. It would be operated by HECO but controlled by DBEDT. Yes, DBEDT. Besides rail, it would be the biggest project ever undertaken in Hawai'i and opens the door to all those procurement issues we've had to grapple with. It'll have to be watched.

Lingle could not say how the cable will be funded. The agreement says that HECO has no obligation to fund it. But somebody's going to have to pay for it, and that'll probably be us. It will be hard to fund, whether from federal funding, state bonds, we the taxpayers, we the ratepayers, or a combination thereof. HECO says it'll take 3 to 5 years to build. But given the funding challenges, it may be longer.

The agreement ushers in a new business model for HECO. HECO is moving way from generating power, but is preserving its monopoly on selling and buying power. It does not adopt the "Wheeling" model used in other states, where renewable producers can sell over the grid. On the other hand, it's focused on encouraging growth of the renewables industry, and that's good, although the administration's moratorium on approving renewable energy deals under Act 221 is depriving that industry of investment capital.

O'ahu uses 1,200 megawatts of a statewide total of 1,800 megawatts, for which we pay HECO $2.1 billion annually. O'ahu doesn't have sufficient renewables for its own demand. Under the agreement, the cable would bring 400 megawatts of new wind power from Maui to O'ahu, and that would be a great step forward. But what will happen if that power is not ready by the time the cable is ready? Who will bear the carrying costs?

RENEWABLES RESHUFFLE

Starting next summer, we'll have "revenue decoupling" with new rates based not on HECO's operating expenses or "rate base" investment but on third-party price or commodity indices. This new paradigm is intended to improve HECO'S energy conservation and efficiency and will incentivize it to "make more by selling less." It must be approved by the PUC.

There will also be a "feed-in tariff" to make it easier for small producers to sell renewables to HECO. This is being done in Europe. For example, HECO would announce it wanted 20 megawatts of a given renewable at a price of say 20 cents per kilowatt hour for a given period. The first "x" producers that respond get to sell power to HECO on those terms, first-come first-served. This must also be approved by the PUC.

The pressure is on. The agreement gives HECO and the consumer advocate only until Dec. 23 to jointly propose details to the PUC. The PUC has agreed to "fast-track" an approval. But is the PUC obligated to approve it? The PUC should not be a rubber stamp — it should not accept any proposal as fait accompli. A careful track, with open access to public intervention, is more important.

We must rely on the consumer advocate, Catherine Awakuni. She represents the consumers of Hawai'i, but she is also an administration official. She is a party to the agreement and has found it to be in the best interests of the consumers. But how independent is she on this, and how much latitude does she have now? She has a huge responsibility to the public.

PEERING INTO FUTURE

Robbie Alm, executive vice president of HECO, predicts that by 2015 we will have a lot more wind and solar power, that research in marine algae and OTEC will have paid off, that we will have renewables from locally grown biofuels and wave energy projects, that the cable will be operating and that electric cars will be running off the grid. He estimates that in 2030 our power will be 40 percent renewable. This is four times today's renewables, but less than the 70 percent Lingle wants.

Going to renewables will ultimately take HECO out of the generating business and make it a transmission company. It will then only need to maintain the infrastructure necessary to keep the grid stable, and will not have to make the large capital investments required for generation. HECO should do well under the agreement, and that is undoubtedly part of what brought it to the table.

The agreement requires HECO to give preference to local renewables companies, and pay them a premium over market. We absolutely need to build a local renewables industry, or we will trade the experience of paying large sums to foreign oil companies with that of paying large sums to foreign renewables companies. Let's keep it at home.

A legislative outline is being circulated among stakeholders, but the parties to the agreement hope that most of these changes can be implemented at the PUC rather than the Legislature. Mind you, the agreement would give DBEDT unprecedented control of an $800 million project, and some say it's an end-run on the procurement code. Will the Legislature go along?

Consumer rates will probably go up when this goes forward, and that's saying something since HECO's current base rates are the highest in the country. To that, the agreement adds a Clean Energy Infrastructure Surcharge to reimburse HECO for the infrastructure costs to support the move to renewables. Once we have a grid driven by renewables, rates are likely to go down relative to oil, but we will still have to deal with the surcharge.

Connie Lau, CEO of HECO's holding company HEI, compares the agreement to a wedding, where you hope you're doing the right thing. Can we resolve these economic issues equitably and make sure the costs are fairly distributed? This is going to involve billions, you know, and after a while that adds up to real money.