Star Advertiser confirms coal burning electricity contract reason for A&B losses

Demise of power-purchase deal is final blow for HC&S
By Andrew Gomes
January 10, 2016
Honolulu Star-Advertiser

Two heavy body blows and maybe a near knockout punch.

That’s what Hawaii’s only remaining sugar plantation took before its owner decided last week to throw in the towel and close the 36,000-acre Hawaiian Commercial & Sugar Co. farm on Maui by year’s end.

The body blows — low sugar production and prices — were nothing new in the sugar farming industry. But the other punch was an unusual one with a stinging impact.

Alexander & Baldwin Inc., the kamaaina owner of HC&S, said its main reasons for ending 146 years of sugar cane farming and shuttering the plantation with 675 employees was two bad years of low sugar production and prices that put a roughly $33 million dent in net income last year and had little prospect of being turned around.

But the company also lost a lucrative deal late last year to supply Maui Electric Co. with power that would have provided HC&S with $19 million in projected revenue this year and next year, according to documents filed with the state Public Utilities Commission.

HC&S generates electricity by burning the fiber known as bagasse left over from processed cane, as well as coal, in a boiler to power its sugar mill and irrigation pumps. A smaller hydroelectric system on the farm also provides power. Historically, HC&S sold extra power to Maui Electric on terms that significantly helped the agricultural operation.

For instance, Maui Electric used to pay HC&S $1.8 million a year just for its commitment to provide power.

However, Maui Electric, which once relied on HC&S for about 10 percent of its electricity supply, sought in recent years to amend the power-purchase agreement in part due to its effort to move electrical generation toward more renewable sources and reduce use of dirtier sources such as coal.

HC&S, which ships raw sugar to California on a company-owned ship, would fill the ship with coal for the return trip to Hawaii. In 2014 the company burned 57,100 tons of coal, according to A&B’s most recent annual financial report.

Efforts to amend the power-purchase agreement resulted in HC&S reducing its power supply to Maui Electric at the beginning of last year to 8 megawatts from 12 megawatts. Then in October, Maui Electric stopped buying power altogether from HC&S except in emergencies under another amendment the PUC approved in September.

A loss of millions

According to the amendment request, Maui Electric is expected to pay HC&S $323,936 this year instead of $19.5 million under the prior agreement. Next year the expected payment is $94,736 instead of $19.4 million.

A&B declined to confirm the cuts described in the Maui Electric filing but said the loss of power sales, taken together with challenging sugar production volume and anticipated prices near 30-year lows, made prospects for continued losses high.

“…

Like other plantations, HC&S used technology to reduce labor. The company’s workforce of 675 is down from 776 in 2008, 1,300 in 1985 and 3,390 in 1949.

The yearly sugar production goal for HC&S had been 225,000 tons, which was last achieved in 1999. Benjamin said the “magic number” to generate more revenue than costs is around 200,000 tons. Last year production totaled 136,000 tons, and the operating loss for A&B’s agribusiness division, mainly HC&S, was $30 million.

The year before, production was 162,100 tons, and the operating loss was $12 million.

Benjamin said he doesn’t expect the recent weather patterns to change. And on top of the production outlook, low prices and lost power sales, changing regulatory restrictions and growing community opposition to historical practices such as burning cane added to HC&S’ headaches and resulted in the decision to shut down.

Read the whole article here.

One comment

  • Ekolu

    Hawaiian Homes Commission Act:
    Section 213. Trust Fund Accounts of Hawaiians. This section governs several trust fund
    accounts, how funds can be spent and for what purposes to advance native Hawaiians. For
    example, this section states the criteria for farm loans, how interest payments are invested,
    requires 30% of state govt revenue from former sugar lands (DLNR, ADC, etc) to be deposited
    to the NHRF fund for native Hawaiians, families and homestead communities, including
    educational, economic, political, social and cultural well being.