Palm oil salesmen

http://www.mauitime.com/Articles-i-2008-10-16-186213.112113_Palm_oil_salesmen.html

Palm oil salesmen

An update on Hawaiian Electric's misguided plans to import palm oil
by Rob Parsons October 16, 2008

The Hawaii Public Utilities Commission (PUC) heard two days of testimony last week in a contested case docket to consider a proposed contract between Hawaiian Electric Company, Inc. (HECO) and Imperium Renewables to import palm oil biodiesel for electrical generation. Life of the Land, a community-based environmental group founded in 1970, has actively challenged the presumption that palm oil may provide a sustainable, renewable source of power production for Hawaii.

Two days of evidentiary hearings last week in downtown Honolulu revealed the extent to which HECO’s palm oil-biodiesel proposal is floundering. Two out of three PUC commissioners spent much of the two days dissecting the facts brought forward by HECO, picking up on many of the main themes questioned by Life of the Land’s Executive Director, Henry Curtis.

The thrust of the PUC docket was a request from HECO to approve a three-year contract with Imperium Renewables of Seattle to import biodiesel for fueling the 110-megawatt power generation facility under construction in Oahu’s Campbell Industrial Park, scheduled to go online in July 2009.

But all the pieces have not fallen into place since HECO announced its proposal to fuel the Oahu facility with 100 percent biodiesel, purportedly to reduce greenhouse gas emissions and cut our dependence on imported fuels. Nevertheless, HECO seems hell bent on a strategy to institute palm oil imports, despite economic and environmental red flags.

Despite efforts to spin the issue by industry groups like the Malaysian Palm Oil Council (MPOC), the ecological devastation wreaked by the palm oil industry on the rainforest ecosystems of Malaysia and Indonesia is well documented.

The Hawaii Agricultural Research Center (HARC) conducted a study of the viability of growing a variety of biofuel crops throughout the islands. The conclusions revealed that even if all available agricultural lands in Hawaii were utilized, they would be insufficient to replace the amount of petroleum fuels currently used for electrical generation and transportation.

For example, Maui Electric Company (MECO) consumed in excess of 76 million gallons of diesel and high-sulfur residual oils in their generation units at Ma`alaea, Kahului, and Hana. That’s equivalent to nearly 1.5 million gallons a week.

Even if 10,000 acres were planted tomorrow in jatropha curcas—a drought-tolerant, fairly high yielding oil plant at 300-400 gallons per acre annually—at maturity in 5-8 years it would only produce 3-4 million gallons, or only enough to fuel MECO for two to three weeks.

HECO has claimed that the local biofuel industry would be kick-started by the Campbell Industrial Park generation site requirement for biodiesel and by plans to build large biodiesel refineries on Oahu and Maui. BlueEarth Biodiesel LLC announced in February 2007 their intentions to partner with MECO to construct a 120 million-gallon/year facility on Maui.

Imperium received approvals to build a 100-mgy refinery on state land at Kalaeloa Harbor late last year. But soon after they withdrew an Initial Public Offering that would have raised funds to finance construction of three facilities in all. Plans to build in Hawaii have been scrapped, and Imperium’s local office has closed, its phone disconnected.

Meanwhile, production of biodiesel at Imperium’s Seattle plant halted suddenly last April, according to shipping records and testimony before the PUC. In August, the company lost a major contract to supply some 18 million gallons of biodiesel yearly to Royal Caribbean Cruises.

The cruise line also pulled out its investment in the Seattle company. Imperium went through a financial restructuring last month in order to satisfy obligations to project lenders. Production at the plant, however, is still shut down. Commission Chair Carlito Caliboso asked HECO’s Robbie Alm, Executive Vice President of Public Affairs, about Imperium’s financial health and status.

Were there risks, and did the utility have a contingency plan? Alm replied that the biofuel markets have been tough on all participants. He said that even though Imperium had changed their plans to build in Hawaii, they still were assuring HECO they would have access to supplies of palm oil to meet the sustainability criteria set forth by HECO and the Natural Resources Defense Council last year.

HECO’s next witness, Ronald Cox, Manager of the Power Supply Division, said Imperium was given until October 30 to provide a contingency plan if they are unable to meet the terms of the contract. He said that even while they are hoping Imperium call fulfill the contract terms, they are also doing due diligence to see if there are other possible providers.

Commissioner Les Kondo asked how fast HECO could execute a contract with a substitute supplier. Cox answered that their first choice would be a company that could “take assignment” of the contract. Otherwise, releasing a new Request for Proposals for competitive bidding could be a lengthy process.

Kondo asked if Imperium was in compliance, or in breach of their contract. Cox stated that “default” and “breach” are legal terms open to scrutiny and interpretation, but agreed they are not currently in “full compliance.”“Is it your company’s position this is still in the public interest and prudent to approve this three-year contract?” Kondo asked. Cox said, yes, it was.

PUC staff legal counsel Stacey Kawasaki Djou inquired whether once approved, HECO could assign the contract to another entity without commission review. Cox replied, yes, they could. “So the new supplier wouldn’t necessarily be sustainable, and the commission wouldn’t be able to evaluate that?” Djou asked. Cox replied that their representatives had worked with the palm oil industry, and that reporting would be done in an annual audit. He said that he would be traveling to Malaysia in November for the annual Roundtable for Sustainable Palm Oil meeting, and that they would discuss things with potential suppliers then.

During a break in the proceedings, Life of the Land’s Curtis told me this approach was an astonishing lack of due diligence by the public utility to satisfy the basic requirements of the contract and its providers. He noted that the first RSPO principle is “transparency,” a word that is absent in HECO-NRDC criteria.

Curtis asked David Waller, HECO’s Vice President of Customer Solutions, about the difference between the RSPO and the HECO/NRDC sustainability criteria. “Our criteria goes beyond that of RSPO,” said Waller. “Fire is not to have been used for any clearings or plantings after 2005.

We’re striving for a balance between sustainability and the practicality to provide electricity.”“Mr. Waller, you spoke of balance,” Curtis redirected. “Can you explain how sustainability could not be practical?”Kondo asked Waller how the date 2005 was chosen.

“How is the impact different if you said no clearing for plantations within the last ten years?”Satellite imagery has shown thousands of fires in the Borneo and Sumatra regions over the past ten years due to clearing rainforest and peat lands for new plantations. Malaysia—where nearly four million acres of forest have been lost since 1990—leads all countries of the world with more than 1,000 threatened or endangered species of birds, plants, trees, mammals, amphibians and reptiles.

Even as the first two plantations in Malaysia received RSPO certification within the past two weeks, an October 8 report by Friends of the Earth titled “Green Gold or Green Wash” refuted claims of sustainability. The report exposes plans to double palm oil plantation acreage by 2010.

It claims that burning has released millions of tons of greenhouse gases and says indigenous communities are still threatened, despite government promises to protect them. David Leonard, who was employed by Imperium until earlier this year, appeared as a HECO consultant and witness.

He testified that he traveled to Malaysia three times in the past two years. One of those trips also included state legislators Sen. Ron Menor and Rep. Mina Morita, each of whom reported in excess of $3,000 paid for their airfare, food and lodging on annual spending reports.

The tab was picked up by industry cheerleader the Malaysian Palm Oil Council. Leonard testified he visited two plantations operated by Sime-Darby, the world’s largest supplier with 6-8 percent of the total production. He said he believes they could fulfill the 15 million gallons annually specified in the HECO contract.

Curtis countered that the demand for certified palm oil far exceeds the supply, and that prices would likely continue to rise. Corporate cosmetic giant Unilever was the target of European protests by Greenpeace earlier this year, and agreed that greater steps are needed to protect rainforests and their inhabitants.

Unilever purchased 382 million US gallons of palm oil last year, and is now leading a coalition of multinational companies, including Nestle, Cadbury and Proctor & Gamble, to tackle the issue of sustainability. Curtis noted that HECO paid $155 per barrel of diesel fuel in April of this year, and guesstimated biodiesel at $232 per barrel.

It is estimated that “certified” biodiesel could be at least 10 percent more expensive. HECO’s PUC filing includes a request to pass the costs of biodiesel along to its customers as an “energy cost adjustment,” or fuel surcharge. Considering Hawaii’s abundance of locally available energy sources—solar, wind and ocean thermal, to name a fewseems to be an extraordinary price for ratepayers to endure, especially considering the environmental price paid to produce palm oil.

The PUC will receive Findings of Fact and Conclusions of Law from all parties in the case, and may issue a final decision by the end of the year. MTW