House Standing Committee on Energy & Environmental Protection

Hi. Good morning, and welcome to an informational briefing of the Committee on Energy and Environmental Protection. It is Thursday, March 12, 9AM. We are in Room 325. The purpose of today's informational briefing is to hear more about the alternative fuel study produced by the Hawaii State Energy Office.

This study has been used over the past year and a half to justify the potential introduction of liquefied natural gas into Hawaii. And, many concerns have been raised about the modeling and assumptions used in this report, including whether key costs were properly accounted for in the analysis. And so today's briefing is an opportunity for the committee to understand, the methodology behind the report, to discuss some of those potential errors in more detail, and what those issues might mean for policy makers who've relied on this analysis and other decision makers. So on the agenda today, we have three presenters. We have, Mark Glick, our chief energy office from the Hawaii State Energy Office.

We've asked him to present to the committee the same report that has been presented broadly throughout the state, to socialize this idea. And followed following up on that, we have Mark Glick, who is the director of global policy research and energy innovation, who will provide us more details about his background. And then finally, we have Gary Dirks, senior director of the Global Futures Laboratory at ASU, who will also further introduce himself when it's his turn to present. So without further ado, Mark, please go ahead.

Chair Loewen, Vice Chair Perruso, and members of the committee, thank you for the opportunity to present the findings of the alternate fuels requiring energy transition study. Because of the time constraints, I'll be rushing through, 20 slides in about half a minute each. So, I'll work through that pretty quickly. Study was released online on January 25 with transparency at the White State Energy Office website in full report, technical appendices, life cycle greenhouse gas documentation, engaged model documentation, weighted analysis of greenhouse gas analysis calculations, fuels comparison summary and greenhouse gas impacts, and the summary of economic impacts and fuel data prepared by FACS Global Energy. All of that was transparently provided, allowed, people to look at that and ask questions.

Governor Green also released executive order 2501 also prepared by the Energy Office to accelerate Hawaii's energy transition to, to a 100% renewable energy on all islands except for Oahu. For Oahu, which hosts by by 2035 instead of, 2045. For Oahu, which hosts roughly 1,000,000 residents across, only 600 square miles, the executive order 2501 prioritizes immediate emissions and cost reductions while reaffirming state's commitments to decarbonizing to 2845. On the second slide, following the act 238 decarbonization pathways report and the tragedy of the Lahaina wildfires, governor Greene tasked the energy office with a plan to attract new capital into the state's economy while reducing costs and carbon emissions. Given the new financial stresses on Hawaiian Electric, investment would aim to improve reliability of the system, integrate more renewables, and finally break the electricity sector's persistence over over reliance on fuel oil.

He asked me to do this pursuant to, HRS 19672 D5. The subject to the approval of the governor, the chief energy officer shall identify market gaps and innovation opportunities, collaborate with stakeholders, and facilitate public private partnerships to develop projects, programs, and tools to encourage, public and private exploration research and development of energy resources. The study responded directly to this charge from the governor and was designed to identify what options could be economically compelling enough to attract capital. Before describing the study, I want to be perfectly clear. HSEO fully supports existing legal requirements to ship to renewable energy no later than 2045 and fully supports honoring Act 238's cost to carbonize by 02/2045.

It's an unwavering commitment that permeates our work. It's reflected in Executive Order 2006 and other recent, recent efforts to explore geothermal energy potential, expand rooftop solar, create a workplace charging program for the state, track state building energy use, replace diesel buses with electric ones, promote energy savings performance contracting, assist the counties with modernizing building and energy codes, and recognize public private sector leadership and sustainability. We believe that, new combustion power plants are necessary to achieve RPS requirements and will likely remain important for liability beyond 2045. The position on new power plants is supported by the decarbonization halfway study report, the study that followed it, and corroborated by, worked with third parties including Diversity of Hawaii. On third slide, the study found that the most favorable outcomes in terms of cost and carbon reduction and ability to attract low cost capital would result from replacing and upgrading to high efficiency power plants on Oahu and using the fuel preferred by power plant manufacturers to operate those units.

Continuing to operate power plants on on non optimal fuels include increases operation and maintenance O and M costs and reduces overall efficiency resulting in higher fuel consumption, increased operating costs, and greater emissions. The fuel choice also has impact on how effectively these plants can accommodate fluctuations in renewable energy output. As an example of increased O and M chart, costs, combined cycle turbine power plant that uses residual fuel oil must replace its impeller impellers every two years due to pitting and scaling of the impellers from improper fuel use. As such, the efficiency of power plant cannot be considered independently of fuel choice. Efficiency is inherently linked to the fuel used for operation with significant applications.

Next slide just points out the fact that in assessing the renewable, fuel mix post 2045, study makes clear that it represents an early stage assessment and significant advance, advancements in technology and further planning will be necessary to refine its feasibility. That's what the study said. However, the market for fuels like green hydrogen and ammonia is expected to fully develop in the next ten years. Should these technologies not mature or realize cost efficacy as anticipated, renewable natural gas by diesel and renewable diesel remain potential options for firm, generation and dual fuel power plants. According to HNEI, new solar and storage resources have not fully replaced the retired coal plant and with both oil and fire generation making part of the difference.

This information was presented to the Hawaii Naturalists by the, HNEI at the Hawaii Energy Conference of 25 and is referenced in our annual report. Studies stimulated deep interest and discussions in many venues among many stakeholders, leading to detailed engineering and investment proposals and agreements among interested parties. To the extent that additional laws or regulations appear necessary to ensure that these fossil fuels are permanently eliminated from the State's energy portfolio as quickly as possible and no later than 2045, HSEO looks forward to constructive dialogue with this Committee, other lawmakers and other agencies to triple down on the State's existing obligations and promises. On the next slide, just sort of pointing out the purpose of the study to assess alternatives from residual diesel fuel, providing cost savings, mitigating oil price volatility. But it's quite clear from the rust, colored graphs, particularly on Oahu, how much, oil remains in the system.

And that's what we're trying to eliminate. On the next slide, again, the seeds for the purpose of the study, unclear it came about because of the unclear total liability you might place on Hawaiian Electric and other entities stemming from the, tragic wildfires. And of course, Governor Green spoke candidly about how the electric, due to a specific demand, urgently requested the governor do all he could to keep Hawaiian Electric from bankruptcy and so on. So he tasked me with ways to find reduced cost and carbon in such a way it could attract capital to keep our energy system vital. On the next slide, this is the heart of the matter.

The fact of the matter is Hawaii's power plant efficiency is far below the national average. The primary finding of this study, is that, The US average of all fossil fuel power generation units is 40%. Power plant efficiencies of individual white power plants are located on page 27 of the life cycle greenhouse gas analysis and technical documentation. The average efficiency of power plants on Oahu Oahu collected will be as 32. So you can imagine it's, almost a 25% reduction or excess use of fuel to get the same amount of energy into these systems.

That's what we're basically saying needs to be changed. And the firm power deficit also comes from H on the excellent H inefficient power, power plants in the current Hawaiian Electric System with forced outages in the past ten years that have increased significantly. I won't elaborate on on that, but that, again, it's this car plant deficiency, that we're pointing to. On, the next slide, we're the only state in the nation that generates most of its electricity from oil fired generators. And you can see it comes from a variety of places around the world.

Again, relying on old power plants to burn the fuel oil. And last year, Voya has imported crude oil and petroleum products for power generation from Russia, Libya, Argentina, Brazil, and Alaska. Today, Libya and Argentina are the top suppliers. This next slide just gives you a a picture of where it's coming from and what that looks like. The Libya fuel depot, which has been a recent source of one third of our crude oil.

With new data, we've traced fuel imports away from the oil field level. And looking into the source fuel depots in Sarir and Masala oil fields coming from Libya, we've observed the conditions under the state, its, much of its dedicated shipments. 21% of exports from Tall Brook Port in Libya were dedicated to Hawaii in '23 and fifteen percent in '24. But you're looking at associated methane gas that's spewing out from, essentially the crude oil that couldn't be contained in the crude oil and they're, they're in open pits. On the next slide, just a reminder from the consumer advocate of the cost of, thermal generation about being a significant cost driver.

41% of the, fuel costs account for 41% of, of bill costs and purchase power costs for thermal, thermal generation at another 15%. On the next slide this also gives you a, a sense of the overall power plant efficiency and thermal generation. In addition to the thermal generation power plant deficiency, maintaining forward progress on renewable generation has been challenging for a number of factors. And really what you're looking at is the land its unit, required, the 22,000 acres. And it's very difficult again to see on the map completely but, you're seeing that really large swaths of land that would require public approval.

And you know, essentially, we we also know that solar battery capacity is so deeply needed, and it's been affected by a variety of economic impacts post Covid, Russian invasion of Ukraine and Maui wildfires. Now we also dealt with inflation, supply chain disruptions, creditworthiness of Hawaiian Electric affecting of financing of renewable projects, federal tariffs, rollback of federal tax credits, everything we're hearing from eco and independent park producers where the costs are going up. Add that to community and political backlash to renewable projects, particularly the opposition to onshore and offshore wind projects. List of near term prospects to decarbonize 68% of Waz' generation of renewable, energy grows even shorter. The headwinds are exacerbated by the Federal Government's refusal to permit offshore leases for wind, which HECO and our modeling identifies as critical to 2045 success.

The 400 megawatt capacity of offshore wind in the HECO IGP appears extremely unlikely to meet 2045 deadline. Such set setbacks on offshore wind led Hawaiian Electric to call for the addition of 2,230 gigawatt hours of renewable energy to fill the gap, prompting HSE to explore additional opportunities to reduce our excessive carbon emissions. On the next slide, this just gives you a sense of what that looks like as we move out towards 2050. The light blue is the offshore wind that we're gonna have to make up or hope later that we're able to get federal leases. On the bottom and of course the two degradations of solar rooftop solar and distributed energy, the black is the oil we burn and you can see it's still a pretty heavy sliver.

The gray is if we is the, place within we have a placeholder if we could remove that oil and put something else that was less carbon and less costly. The green is what we will still continue to have to burn from thermal generators after 2045 and we'll talk about the variety of fuels that we think that can be.

On the next slide, I'm not going to go into great detail even though that may be a topic of other speakers, but we have the environmental scientists that led our life cycle cost analysis. And of course their explicit requirements to analyze life cycle emissions for combustion projects in current law. And we went through a very exhaustive process with a base case, with a no gas transition, firm generation remains on low sulfur fuel oil.

The integrated grid plan assumptions generally apply to this larger load. YOW repowering costs were not included and that becomes a huge, element of what the real costs are going to be to the base case solution moving forward. And then build case, the only thing, primarily was gas infrastructure was added and LNG replaces the only the low sulfur fuel oil generation. The renewable energy, estimates in the, integrated grid plan prevail. Heat rates weighted average used to convert fuel price forecast to, dollars per megawatt hour.

So on the next slide, we also have again, Reed stating the explicit requirement to analyze lifecycle, emissions for combustion projects, the study applied life cycle analysis to evaluate the relative carbon intensity of various alternative fuels used for electricity generation, incorporated emissions from upstream fuel production and processing, liquefaction, transportation or gasification, distribution, and combustion. Importantly, the methodology examined emissions under both twenty year and 100 year global warming potentials, allowing the analysis to capture both the short term and long term impacts of greenhouse gas, especially methane, which is more potent over a short, global potential period. Emission factors from multiple studies including measurement based, top down, and activity and engineering or process based, bottom up, were used and weighted to derive estimated reduction in carbon intensity with emissions per kilowatt hour of electricity delivered. Extremely proud of Monique Stanves who led that effort. Really groundbreaking work.

Some of the most unique work that's been done in the country on this subject. On the next slide, the greenhouse gas evaluation. Basically the natural gas could result in a potential 38 to 44% reduction in total life cycle emissions per kilowatt hour of electricity delivered between LNG and imported oil for the twenty year and 100 year GWPs respectively.

And it compared model life cycle estimates against multiple measured measurement based and empirically derived datasets, including peer reviewed life cycle inventories and observed emissions measurements from existing natural gas and petroleum supply chains. Those comparisons were used to validate assumptions regarding upstream methane leakages, fuel processing emissions, and combustion performance.

Again, these were also, supported by, the Renewable Laboratory, the Rockies, formerly NREL, and other, other, consultants that supported this project. In the next slide, infrastructure investments and power plant replacements and upgrades. Really an extremely critical part of this. Main additional infrastructure to import LNG to Hawaii would be a floating storage regasification unit, FSRU, loaded about three miles offshore Campbell Industrial Park. It'd be subsea pipelines from the FSRU to Oahu, some of which would be directionally drilled in the subsea and a rising onshore in a pipeline easement where it'd be likely connected to mostly existing gas pipelines owned and operated by Hawaii Gas as well as one or two miles of new connecting pipelines and power plants.

And it also envisioned connecting to a new power plant. We as we did it for estimation purposes at the former AES coal plant at Barber's Point as well as well as to Campbell Industrial Park and Kaleido Partners power plants. Initially, we looked at converting or replacing selected power plants on Oahu, Maui, and Hawaii Island. The analysis was based on capacity targets from the National Renewable Energy Lab, but it indicated at the time that, delivering to all lines would not benefit ratepayers due to increased costs and storage and in airline transport. So decision made was to limit, the use of LNG to Oahu only.

Next slide. Deals with, two other, power plants which performance emissions would be significantly improved if those operate on natural gas, which were not included in the study, 99 megawatt power plant at Pearl Harbor to be built at Ameresco and the Wai'au power plant.

At the time of the study, the cost of the Hawaii Electric's proposed upgrades is six units of a revised project cost of approximately $1.55 billion represents a 36% increase from the best final offer bids price under the stage three request for proposals. Now I'm not going to elaborate into the impacts the cost impacts of that.

We didn't, cover that in the study, but we did address those concerns in the statement of position filed with the PUC on on March 9th of of this year. And, we also point you to a rebuttal by Hawaiian Electric on those comments, which was just submitted yesterday, if you want more information. But on this next slide, the build case versus base case essentially shows you the differences. And it we're basically carving out only a replacement of the fuel oil to be replaced by something else. Again, natural gas was the thing that through the comparative analysis was shown to be the only thing that could reduce cost in carbon.

But essentially, everything else is essentially the same. On the next slide, it concluded that fossil fuel reductions must remain a priority of the state to meet its constitutional responsibilities. Again, that's in the study. Another key objective was find pathways to rapidly counter Hawaii's constant exposure to high oil prices and volatility, which we can see again today, which will remain as long as petroleum based liquid fuels are a dominant power generation fuel.

Following the publication of the study, HSCO has been approached by JERA, Shell, Woodside, Samsung Heavy Industries, among few others based on their willingness to invest in the state.

I'm not gonna elaborate on the background of JERA, who has often been misaligned compared to others like, Nextera, but the fact of the matter is they do have a full decarbonization plan in their area and that's noted in my testimony.

I just wanna conclude by saying the next steps or the our objective was to identify options to attract investment to modernize the state's energy infrastructure, especially in in, especially important in the light of financial uncertainties faced by HECO following the August 8, 2023 wildfires.

HSCO deeply appreciates the discussions about the realm of possibility that have followed the study. Further, the study challenged the private sector to come up with capital plans for consideration and that goal has been achieved. The current state of play is as a desktop technical feasibility analysis and that's all this study was.

Outreach and engagement with key stakeholders and communities and regulatory or permitting agencies beyond the scope of the study are now ongoing. That's what's critical. Shipping industry demand for LNG also exists given that Matson and Pasha are currently operating container ships on LNG. As Matson CEO Matt Cox recently told Pacific Business News, the new vessels Matson is introducing use LNG fuel, which is less expensive than conventional fuels. As a result, fuel surcharges will be reduced or moderated.

Unfortunately, they aren't unable to refuel here. So they refuel on the West Coast, using US gas, come here, and then go back where they use oil in dual fuel on the ships that are dual fuel. Based on additional analysis, integrating energy stakeholders such as Hawaiian Electric, Yegas, Peixa, and others into the energy transition strategy is taking place. The next steps we expect to see following take place in the coming weeks and months are updated plans that yield significantly higher benefits than those estimated in the HSEO study and reflect broader stakeholder support and participation, two, front end, front end engineering design, and immediate commencement of critical regulatory process.

Thank you again for the opportunity to test spot on this recent work and, happy to answer any questions you may have. Great.

Thank you. Significantly different presentation than I think what we've seen from the energy office over the past year and a half, but we will maybe find out why. Matthias Fred is next, so we'll just give you a minute to get connected.

And just, go ahead when you're ready.

Well, thank you, to the chair and to other members of the committee. It's an honor to be here. My first time speaking in front of a legislature so I'm a little bit nervous but thank you for having me. So I'm gonna talk about the study that Mark was just talking about and some analysis that I did of the underlying analytical work for that spreadsheet. As my background, I'm Matthias Fripp.

I'm the director of global policy research at Energy Innovation. That's a think tank that specializes in providing good analytical support for policymakers that are considering how to successfully make a clean energy transition. Before that, I spent ten years as a professor of electrical engineering at the University of Hawaii at Manoa. And there actually, there and and for several years before and after, my work has specialized in creating the tools that utilities can use to design low cost, high renewable power systems. So really getting into the details of how do you balance a grid and keep it reliable and also low cost and avoid emissions.

As part of that, I participated in and advised on a couple of Hawaiian Electric's long term planning processes. And most recently, I was on the technical advisory panel for the integrated grid plan process pending in 2023. How I came to looking at the the LNG study from the state energy office, I had previously looked at a similar LNG proposal in 2016, and that just couldn't pencil out as cost effective when I looked at it then. And so I was surprised to hear last year that this was going ahead and being shown as being cost effective, and I wanted to know how that was possible. And Mark and Monique were kind enough to share the the underlying spreadsheets for this, which I really appreciated.

It's a it's a great level of transparency to be able to look at exactly how numbers came into the report. This is an overview of my findings. Unfortunately, they're not super positive about the report. The top line finding is that the spreadsheet the the underlying cost benefit spreadsheet that drove the main figures in the report has various mistakes. Some of them are are spreadsheet errors and some of them are more sort of judgment errors.

But collectively, they raise the apparent benefits of switching from fuel oil or LSFO to LNG by about $1,200,000,000. And if you correct those mistakes, you end up with the cost of LNG seems to be about $300,000,000 more than the benefits, mainly fuel savings that you could expect from adopting. On the other hand, and this will be the sort of last couple slides today, it's possible to have big savings by adopting solar power more quickly. So the state energy office's study, there's really kind of 33 different plans for Hawaii's power system that are in play right now. Hawaiian Electric Electric introduced two different plans as part of the integrated grid planning process.

One is what they call their preferred plan, which is actually quite oil dependent, and that's been the benchmark. That's the sort of base plan that the energy office report benchmarks against. So that's kind of looking at is LNG better than oil for that bottom slice of power in that graph. But there's also a different plan that HECO has, which was designed from the start to be cost minimizing, and that has much more solar, but but somehow became their alternate plan and not the main one. And that, we'll see at the end, it looks like it's likely to be much less expensive than either of these fossil fuel dependent ones.

a lot of scenarios in this study. I'm gonna focus particularly on number three a. That was the headline scenario that it was the only one that showed significant cost savings. As Mark was saying, it was also an improvement on the previous groups one and two, and then it had a more accurate estimate of the amount of fuel available to replace. So I would call one and two obsolete because they they replace much more fuel oil with LNG than HECO is actually planning to burn in in their high oil plan.

There are

And this is also the one that's kind of being used, it seems like, to motivate LNG investment. So it's an important one to think about. But a lot of some of the errors I'll talk about only affect scenarios three and a and b, but most of them apply across all of these. And there are some that are sort of unique to one and two, like the using too much fuel oil, displacing fuel oil that doesn't exist. Alright.

So this kind of sets the context. And it's kind of a complicated graph, but this is a version of the cost benefit graph that was shown in the report. So the far left shows a stack of benefits of switching to LNG. They're counted in billions of dollars. And so the green bar at the bottom is reportedly 1,500,000,000 in fuel savings from burning LNG instead of ozone for fuel oil.

And then there's a credit for half $1,000,000,000 of savings for being able to reuse, that's the blue bar, reuse power plants that are built for LNG later for burning hydrogen. And then about 100,000,000 at the very top there for estimated savings in operation and maintenance costs for the plant. So collectively, that's reported to be about 2.1 or $2,000,000,000 in savings, benefits from from switching, balanced against on the far right there, about 1,300,000,000. That's the today's cost of building all the infrastructure. It's actually about $2,000,000,000.

But if you sort of say how much money would I need in the bank today to be ready for that, it's about 1,300,000,000.0. So that was the that's the big finding, I think, in the executive summary that these saving these benefits outweigh costs. But what I found when I looked at it were quite a few errors. They're not showing up very well in here.

I'll see you're better on that monitor, which are these green bars. Some of them sort of artificially made LNG look worse. Some of them made it look better. Altogether, they raised the apparent benefit of LNG by about 1,200,000,000.0. So once you take those out, the benefits go away or that that chunk of the benefits disappears.

And you're left with what I think is a more accurate comparison here, which is benefits on the order of $900,000,000 balanced against costs on the order of 1,300,000,000.0. So it doesn't appear that LNG pays off as a a choice here. And I'll talk about each one and then circle back to this a bit. So the first one is the biggest, so I'll spend a little time on this. This one was a basic it it does appear to just be a spreadsheet error.

You don't have to, probably can't read this equation, but you might be able to see that it is a spreadsheet equation from Excel. This one has two halves to it. And so and and the error the big $900,000,000 error is nested in there, which is that the right side is the original version, and that this formula is designed to calculate how much money do we save for every megawatt hour, every unit of electricity that we produce from LNG instead of from fossil fuel or biodiesel. And with scenarios one and two, they just said, okay. Take the cost of LNG or the cost of burning LSFO, subtract the cost of burning LNG, and that's your benefit for every unit of power you produce.

On the left side, they forgot to subtract the cost of LNG. And so the benefit was calculated as what would it cost to buy the LSFO or biodiesel. And this is the equation that was this was added in late in the process to integrate that new GRID study for three a and b where they had a more accurate estimate of how much LSFO and biodiesel would be used. But when that was integrated into the main spreadsheet, they forgot or mistakenly failed to subtract the cost of LNG. So they effectively treated LNG as zero, and the the full cost of fuel oil became a benefit of switching to LNG.

So if you ignore the cost of of LNG, then that raises the apparent savings by this $886,000,000, the size of that gray bar there. When you take that out, you end up with a scenario that's sort of breakeven or actually slightly a loser financially. So all the savings that were reported for three a, the headline scenario in this report, vanish, when that error is corrected. And then the costs actually seem to just on that basis, exceed benefits by on the order of a $100,000,000. So that's that.

I, well, I wondered how that got through. I do think actually the energy office should have caught this. There are sensitivity studies in the report. The next graph down after the cost benefit graph that I've been showing in many cases that show, okay, if if LNG is cheaper, what does that do to the apparent benefits? If LNG is more expensive, what does that do?

And the graph that was published shows this dark blue line in the middle. So what that's showing is on the left end, we're saying what do costs or net benefits look like if LNG costs 20% less than forecasted. And on the right side, we're saying what do the benefits look like if it costs 20% more than expected. And this blue line is basically completely flat. It actually rises slightly because of the way that biodiesel prices were accidentally pegged to LNG prices.

But, overall, this basically says, if you look at it, that, the savings don't it doesn't matter what LNG costs. The savings will be the same no matter what. And to me, that was kind of a a clear sign that there was a problem with this portion of the study, that it can't be the case that your savings from switching to LNG don't depend at all on the cost of LNG. If you correct that error, this this chart looks like this. So those sort of crossing lines all drop down to the bottom and most for most costs of LNG, there's no net savings.

And also now we have this blue line sloping somewhat downward. If LNG is more expensive, you have a higher net cost. So that's that. There's two more spreadsheet errors and I'm trying to move quickly so I'm not gonna dwell on these too much, but it was sort of using the wrong forecast for LSFO, and another one or maybe three countervailing errors. All of those tended to make LNG look a little worse than it might otherwise.

So those in this waterfall graph that I'm showing you, those sort of raise the apparent benefit of LNG. I do wanna focus quite a bit on this one. So I'm I'm calling it an error. This is more a matter of judgment, I suppose. But the study includes a credit for building power plants and pipelines in 2030 or '35 that can then be used in 2045 for hydrogen.

And it says essentially, it says every dollar that we spend on building plants in those early years offsets an a a dollar plus inflation that we would have spent in 2045 to build a brand new hydrogen burning plant. And on the face of it, maybe it sort of makes sense, but it there's two real fundamental errors, I would say, in that assumption. One is this is a fairly fuel intensive plan. It's already a bad idea to be burning this much LNG or LSFO, but to switch to that much hydrogen or biodiesel at the prices that that we expect and that the state energy office expects would be just catastrophic. It's it's very expensive.

I'll show some graphs of that later. And so it's it seems very implausible that that in later years, we'd wanna burn that much hydrogen. And even HECO's low solar plan, their high oil plan, has a sort of sudden switch to solar in 2045. So even they don't plan to burn hydrogen. So first is the question, do we wanna burn hydrogen in 2045 on that scale?

And the answer is probably no. The second part is maybe it's sort of accounting errors, but there's no accounting for the fact that you're building these plants early and they're not gonna be brand new hydrogen plants in 2045. They're gonna be halfway through their useful life. So you're not getting a brand new plant, so you shouldn't give yourself credit for having a brand new plant. And also dual actual dual fuel plants don't exist.

The manufacturers are selling plants that they say will be dual fuel, but that's gonna require some kind of upgrade kit later that they don't manufacture or sell yet. So you're get you're gambling that they'll make one, and it's included with no additional cost when it's the cost of a plant. It's quite a major upgrade of the the burners and the turbines and so on to to switch fuel like that. So there's errors, a, in whether you'd want to do that with hydrogen and, b, whether the costing is credible to include. The way I described it here, I was trying to think of a sort of clear explanation is that it's kind of like if I wanna buy a gasoline powered boat today, but I can't quite justify it, I instead say, well, I think my kid is gonna really need to buy a hydrogen powered boat fifteen years from now.

And so I'll buy the boat today and give it to him, and he'll convert it at no cost to hydrogen. Then I'm gonna claim credit for giving him a brand new boat in the future, for what I need in the bank today to do that. And it just doesn't if your kid's not likely to need a hydrogen boat, it doesn't really pencil out. So I I don't think it makes sense to include these. I think the state energy office is kind of aware of that because for every case that has hydrogen, there's another case that doesn't, this credit, and I just don't think it can stand up to scrutiny.

So I'm calling that an error and that that's quite significant here. And in any cases that show, a net benefit from LNG, they're really driven the other scenarios are driven by this this hydrogen credit. There's a couple more, which don't have that big of an effect, but one is that the Pu'uloa and Wai'au Repower new thermal plants that Hawaiian Electric is proposing, were introduced a little bit later than the integrated grid plan, and they're more efficient plants. So the study assumes that all the LNG, all the oil will be burned in the inefficient steam plants that HECO has now. But in fact, HECO already has plans to build some more efficient plants.

And so there's not as much savings available because there's already more plant more efficient plants on tap, so there's less money to be saved on that. And also the the contract prices that were quoted by the contractor, Fax Global Energy, are based on buying 400,000 tons per year of oil, but the the graph that Mark showed earlier is more on the order of 200,000 tons a year of oil of of sorry, of LNG. So I think the prices are likely to be a little higher and that's that's undercuts the cost. So coming towards something like conclusions here to this part, I would say this this study does not seem suitable for making these multibillion dollar investment decisions. There's a lot of errors.

Some are kind of just random errors in in spreadsheet formulas. It ends up looking like, you know, sort of a true case of about a mill $1,000,000,000 in benefits plus 1,200,000,000.0 in error or a net of 1,200,000,000.0. It's about $2,000,000,000 in noise going up and down on top of the true number. And so you just can't trust that kind of number. And, overall, it seems to show once you've corrected for it and I I haven't hit everything in this spreadsheet.

I really focused on the ones that that affected the three a case. But once you correct the obvious errors there, it seems to show that there's, you know, about $300,000,000 more in costs to LNG than benefits. And so you could flip this around another way instead of saying it's not suitable for making big investment decisions. After corrections, it shows fairly convincingly that LNG is not a good idea. There's no scenario that where it pays off.

And so you can say, well, it kind of looked under every rock and there wasn't a way to make this pencil out. That's what this says in this in a slide. So that's it for this study. As I said at the start, this study is really comparing two fossil dependent plans. It's an LNG plan against Hawaiian Electric's oil dependent plan.

Now I wanna talk a bit about, well, are there other ways to go? If you wanna replace LFO with something, maybe it shouldn't be LNG, maybe it should be solar instead, which is is much cheaper. So this graph on the right is showing the first four are fossil are fuels that you can stick into conventional power plants and burn and and make power. It's only showing the fuel. So this is after you've built the plant.

This is what it costs to make one more kilowatt hour of power from that plant. And the far right is what does it the all in cost to build a solar farm and batteries, so you're getting close to 247 power from it, or offshore wind. This is from the State Energy Office forecasts that are in their grid study. I actually the the solar and batteries have been coming in a little higher than that, about 15¢. And offshore wind, I don't have a lot of confidence that it's gonna come in at these numbers.

But, clearly, there's some savings available. Even if you've built all these thermal plants and you've got a perfectly reliable system because you have plants for to cover your load no matter what, you'd still wanna turn them off and use solar whenever it's available just to save the cost of that fuel. It's just cheaper to take solar power than it is to buy fuel to run these plants. And so the Hawaiian Electric plan is kind of to start with this LSFO bar and stick with it more or less until 2045 or more than they should anyway and then suddenly switch to solar in the last year. The state energy office plan is to stick with LNG and then move towards hydrogen and biodiesel in 2045, which doesn't seem like a great idea.

This is what I was getting out of sort of catastrophic costs. But in principle, it should be possible instead to save some money by moving immediately towards the cheaper resources, like solar here. So I wanna spend a little time comparing Hawaiian Electric's the third plan that I talked about, which is a high solar plan. They've identified this as the alternate plan out of IGP, but it's it's actually the one that was designed from the start to minimize cost. And then they said, well, we, you know, we don't believe we can get the solar, and I think that's something worth some discussion of.

And they said they prefer this other plan that's more oil dependent. But let's look at the the alternate plan and see what that does compared to the high oil and high LNG plans. So, the left graph here is showing how the cost of these three plans compare at the prices that we've seen. The oil price is around $80 a barrel that we've seen for the last five years or so. The far left is the cost per year for the LNG plan.

There's the cost of paying for solar, the cost of paying for offshore wind. So here I'm using my own estimates roughly of what solar and wind cost. It's a little higher than the previous graph. The cost of the capital investments to build the infrastructure for LNG, the cost of the LNG fuel down at the bottom, and then the cost of oil. And so that's the LNG plan as near as I can estimate it.

It's about $1,000,000,000 a year. The high oil plan from HECO comes in a little bit cheaper than maybe 45,000,000,000 million a year cheaper than that. And then the high solar plan from HECO, I estimate comes in about 145,000,000 a year less than he than the LNG plan. And that's under current oil prices. We're seeing quite a run up in oil prices now.

And in fact, in 2022, we saw prices that were about a $121 a barrel on average in today's dollars, so accounting for inflation. And under those conditions, if you had a year like that, all the plans go up a little in price, but the the HECO plan goes up the most. That black bar gets taller by 50%. The LNG plan also goes up by 50%. The the contract price for LNG is actually indexed to Brent Crude oil.

So if Brent Crude doubles, so does the LNG fuel price. So that goes up a little, but not quite as much because it's a smaller component of the overall cost. And the solar plan goes up a little, but much less because it has this sort of residual portion of oil in it. Overall, you end up saving about a $191,000,000. So the savings have gotten bigger under high oil prices, and so you're getting more insulation from from world oil prices by committing to solar.

And and that's actually one of the attractive things in solar. The contracts are in the ones I've seen recently are in fixed nominal dollars. So you commit to pay 15¢a kilowatt hour now. You're paying that for thirty years with no inflation. So thirty years from now, that looks pretty good.

Alright. So the conclusion just kind of restates what I've been saying. There seem to be errors in the proposal in the the analysis underlying the proposal or the study that overstate the savings by about $1,200,000,000. After corrections, none of the LNG scenarios seem to pan out, but there are potentially big savings possible by switching to solar more quickly. And that's that's what I've seen over and over in my analysis since 2012.

It's always been the case that the faster you can switch to solar, the cheaper power will be. So I'll leave it there. Thank you.

Thank you. And then I think on Zoom, we're also joined by Gary Dirks who will also further introduce himself, and this will be a little bit shorter presentation, and then we'll move to questions from the committee members. So, Gary, if you're there, please go ahead.

Thank you. I I am here. Let me see if I can share. Are you seeing my screen?

Not yet. There it is. Yes. We are.

Okay. Very good. Well, my name is Gary Dirks. I'm the senior director of the Global Futures Laboratory at Arizona State University, and I play a few other roles at the university, particularly with respect to our energy programs here. And then I'm also the principal investigator a direct a DOE direct air capture hub.

In the context of this meeting, though, I suspect I can be most helpful to this committee in the context of a former role that I had, which was as president of BP Asia Pacific and president of BP China. During the time period that I was the president, we undertook, several projects, gas related projects, a a major pipeline and gas field development in Vietnam that we completed in 2002. The Guangdong Dapeng LNG terminal and pipeline project in China, which we completed in 2006. And I'll come back and speak specifically to that. And then the Tangu LNG Bintuni Bay Indonesia project that we completed in 2009.

I'm gonna be very brief because, frankly, I think this committee probably needs to spend more time processing what doctor, Fripp just said as opposed to what I'm gonna say. I think I can be most helpful perhaps addressing questions with respect to, big big LNG projects as opposed to speaking directly to your project. So returning then to the Guangdong Dapang project, this was China's first LNG terminal. It was not a floating terminal of the type you're describing, it was onshore. The original project, which was expanded upon a few years ago, had three storage containers.

You can now see the fourth added below there. But the rest of this infrastructure was pretty much the same as you're seeing it here. There were some similarities to what you're proposing. This was this project was a partnership. It included BP, but it also had the China National Offshore Oil Company and a number of Chinese utilities as part of the core partners.

The Chinese first took an interest in this project and LNG more generally in the mid nineteen nineties. They undertook a very extensive and meticulous planning process that took them to about 2001 before they put the project out for a competitive bid. And the bidding included three different parts. One was to be the strategic partner to help with finance, but also help with the technology and with oversight of the construction and then ultimately to be a partner in operating. That's the part that BP bid on.

There were about a half a dozen other multinationals that participated in the bidding and VP was awarded the contract. They separately bid bid the supply contract. We were partners in two well, actually, partnering the second one. We did not win that, but the partnership that we were part of was Australia. They did win.

And then the EPC was separately bid. I'm not gonna go through all these details. It's a much bigger project than what you're suggesting for, for Oahu. This was about a 4,000,000 ton per annum regasification capacity. It had a trunk line project, which was about 400 kilometers.

But I think there's there's elements of this that are instructive in the in the what you're looking at. One was the way these partnerships was were constructed. The other was they they had a very forward looking plan that, like I said earlier, was very meticulously developed because they envisage this part of Southern China, which sits between Hong Kong and Guangzhou, if you're familiar with the Southern part of China. And they envisage that as being a major manufacturing area in the future. So it was planned that there could be significant expansion of energy, capacity for that area.

The the trunk line and terminal itself was about a $900,000,000 project. There were about four gigawatts of power plant capacity that was also planned for the project. So in total, it was north of about $33,000,000,000. And here's an a bit of an overview. I don't know if you can see my cursor. Is it visible to you?

Yes. Vaguely.

Yes. So if you look over here at the bottom left, when we started this project, virtually none of this infrastructure was there. The the terminal, the Dapong Terminal down here in the corner that I, hopefully, you can see right here is the terminal that we constructed, and then the pipeline is this black line going along up over to Foshan. So that was the project. I think, again, given given the earlier comments, I won't go through the phenology to the Vietnam project or to the Indonesian project, and rather I'll just stop there and, be willing to take any questions about these kinds of projects that might be helpful.

Okay. Thank you very much. I appreciate that. We'll definitely come back to you for questions, but I think we'll probably have a few first for our earlier presenters. Okay. Thank you very much. I appreciate that. We'll definitely come back to you for questions, but I think we'll probably have a few first for our earlier presenters.

I mean, I think that kind of a very aptly presented in a very calm way new information here that's really surprising is the fact that the fuel costs were omitted from the analysis.

So, I guess, energy office, if you could come up to the podium. I mean, you are acknowledging this this error, I assume, just by the fact that that your presentation has shifted from talking about the benefits of, the cost savings associated with this to customers now to a a different focus in your report. But, I mean, I think my question for you is, you know, were you aware of these errors in the in the analysis?

Well, first of all, I don't agree with that assessment. I don't believe I don't actually have

Were the fuel costs included in the analysis or not? Absolutely.

They worked.

Okay.

In fact, I think it's important. I think there were a number of things that were obvious errors in what I heard Matthias said. For example, the Hawaiian Electric's plan is not to replace low sulfur fuel oil.

We're asking we're we're asking questions here, not asking. Okay. So could we stick to what we're talking about? Oh. May I think I'm

trying to answer the question.

You've seen the errors in the in the spreadsheet language. Can you explain to us how the fuel costs were included?

The fuel costs I'm I'm going to ask the person that actually loaded the data, since we are asking modeling questions, because I actually didn't load the information. So I'm gonna ask Monique Zanfes to talk a little bit about how the modeling occurred and who we work with on that modeling.

Sure. Morning, chair and vice chair. So the life cycle cost analysis was completed by our consultant, HDR, and overseen by by me. And, you know, essentially, what it did is it looked at the fuel forecast of low sulfur fuel oil out

to Can you speak up because our mics are different mics are now in Yes. To hear if you don't.

It looked at forecasts out to 2045 of both low sulfur fuel oil and liquefied natural gas. Fuel costs for the low sulfur fuel oil were sourced from Hawaiian Electric's IGP. Fuel costs for the liquefied natural gas were sourced from our consultant, Vax Global Energy. Looked at the life cycle cost analysis, so discounted it over time. And the two charts that are in our presentation, the benefit is from the fuel cost savings.

The costs are from the in infrastructure associated with LNG. So the benefit is is a different and as from the fuel cost savings itself, whereas the cost analysis was just a capital and operational expenditures regarding the 500,000,000 for hydrogen infrastructure. That's a amortization assumption, so it's simply saying we are going to be using the components of the

I understand that. I understand that aspect of it, and Sorry. I also have concerns with the assumption. But but that aside, I think we're talking about the spreadsheet errors that I think were pretty clearly identified. I mean, actually, Matisse, if you'd like to come up and respond, I'm just curious to sort this out because it's kind of the crux of the

So the matter here. May I also say something? And I wanna preface this in the way that this is transpiring. We opened up our data and our spreadsheets as they have been from the beginning. We received no ability to even look and understand what the differences are because we're being delivered this in real time.

That's not my understanding. But

Oh, well, that is the truth. We have never been

Well, if

you're being delivered in in real time, how can you say so definitively that that you're sure that this is not correct? I mean, you either

We know that we have calculated

whether it is.

we calculated the fuel elements of this correctly. We know that You know

We know

that you calculated them correctly or you know that you intended to?

Well

I mean, are you positive there these errors that have been identified are are not there? Because you're what you're telling me now is that you had no heads up on this and you're just learning about it now.

Well, in terms of being able to compare exactly what the what the actual analysis is, and maybe there's a, again, a different perspective. This is dealing with, you know, a particular part of the modeling and this is dealing with another part. So maybe they're talking over each other. So we would just I

mean, this is not trivial. None none of these errors are trivial, in fact. But this in particular is pretty much wipes out all the cost benefits you've been talking about for the last year and a half. Is

Well, one of the cost errors that were stated had to do with, our use of essentially, what was called, which is not in the study, a hydrogen benefit. We're talking

about the cost of LNG fuel. We'll get to the hydrogen benefit later.

So all all we're saying is if you implement, you know, 2,000,000,000 which is a huge price tag. I fully recognize that, but it's just simply demonstrating that over time, the fuel cost differential between ultra low sulfur diesel, low sulfur fuel oil, and LNG over the fifteen years pays for a portion.

So the fuel cost savings were a benefit. And if you look at our graphics in the alternative fuels study as presented here, it's a benefit the fuel cost savings are presented as a benefit over time in comparison to the overall costs of the infrastructure.

It pays back a portion. K. And what doctor Fripp is saying is that there was a mass portion of Okay. Can we hear from doctor Fripp, please?

So I guess I'll say that, I mean, spreadsheets are complicated. This spreadsheet, I think, became increasingly complicated over time and took a lot of unpacking to figure out what what's going on here. When I came across that error and was fairly sure that it was an error, I emailed Mark and Monique about it about three weeks ago, and they said they'd get back to me. And I haven't heard back since. I guess I could have followed up on that to to see where things were going.

So I knew I was going out. I mean, I'm sticking out my neck saying this is an error. I don't wanna come out and say there's this big error and then it turns out to be nonsense. I have some professional pride on the line as well. And so I investigated, you know, as far as I possibly could.

I talked to other people who said, yeah, this does look like an error. I looked closely at this equation. But for me, the most compelling thing was I, the process I went through was I first verified, okay, this spreadsheet does show that it has a version of the cost benefit graph that's identical to the one in the report, and a version of the sensitivity graph that's identical. So I was pretty confident that I was getting what had gone into the report. And then I said, okay, if I'm right, I could change the cost of LNG to anything and it won't affect this the graph will still look the same.

And so I went into the place where the LNG forecasts are, and I multiplied them by, like, a 100 or something. So some insane amount of of money per kilowatt hour of power, and the the graph was unchanged. And so that gave me a lot of confidence to say this this scenario, it's it's only three a. It's an error in the way that the plexus data was incorporated into the spreadsheet just for three a. This didn't affect one and two.

But it gave me a lot of confidence that those number three cases were just completely nonresponsive to the price of oil. So regardless of where the error was, it was clear you could do whatever you wanted with the price of LNG and it wouldn't affect the reported savings, which just couldn't be true. And then I said, wait a minute. There's actually a graph of this exact sensitivity test in the report. And I went to look at that, which was the one I showed you earlier, and it was flat lined as well.

So it just said LNG could be 20% cheaper, 20% more. It doesn't affect the benefits. And so then I was like, yeah. I'm pretty sure they were using the spreadsheet I'm looking at because it's a

and that This one on page 60 page 60 of the report.

Yeah. I don't know the page number, but it would say something like sensitivity of three a to Yeah. Different prices.

Figure 19 sensitivity analysis alternative three a.

Yeah.

It basically has a flat line for the cost of LNG.

Yeah. So at that point I felt confident enough to come forward. I would have liked to hear for sure that that it was an error, but but that seemed enough to me to that that I

I guess, in your kind of forensic analysis, like, because you got the spreadsheet so you can kind of see some of the work that that went into it. I mean, what was your impression of of that?

It wasn't great. It was a strange mix that there's there's fairly advanced spreadsheet techniques in there, cross referencing and lookups that you tend to see from people who use spreadsheets a lot. But then on the other hand, the way that the grid was the energy information was treated and the financial analysis over time was treated didn't look to me like the way that anyone who studies power systems or sort of corporate project finance, financial analysis would do it. There was kind of strange treatments of the cost of capital that it was sort of using Hawaiian Electric's allowed cost of capital as a as a time value of money effect, which wouldn't get any use in any of this kind of analysis. Normally, you'd use the mix of debt and equity that that Hawaiian Electric has, and that would also only be used for their own internal analysis.

And for public policy, you'd use a different lower discount rate. So that kind of thing is obvious to people who work a lot with utility finance, but just seemed wrong to me. There wasn't much sort of grid analysis in the main spreadsheets either. No sort of readjustment of how the existing plants would be operated when new plants came available, which is tends to be front of mind for people who are planning the operation of the grid that you say, well, when we put in this new more efficient plant, then that other one older one that's still online is gonna run less and that kind of thing. So it didn't it didn't seem like it was something that an electric utility would put together or someone who at the PUC say, someone who works a lot with grid planning would do.

Yeah. And the yeah.

Okay. So just to follow-up or get further clarification, when you were seeking to verify or kind of solidify your assessment, who specifically did you talk to? Do you speak to other scholars in this field who work on similar kinds of issues? Or

I talked to a couple of others. I talked to Michael Roberts, who's in economics at University of Hawaii, who we actually work together and and were asked passed together for the the information from the energy office. He, I don't think, had time to dive very deep in it, but thought it looked about right on the face of it. I talked with Jay Griffin who's at the regulatory assistant project and formally a commissioner here. He also didn't have time to go through the whole spreadsheet.

But from looking at that part, he agreed that it did look like a mistake there. But it is tough. Like, it's it's a complex formula. In some ways, it's not surprising that it stayed there for so long because I had to really unpack. Like, I was backtracking from the final answers.

I was sort of what what numbers come into the final answer and what come into those and sort of taking apart the equations and see making sure I understood every part of it. And that's that's how I came across it. So it would be easy to overlook.

And then you talked a little bit about, how you tested your assumptions. Mhmm. And I guess I'm curious as to whether you have example or you have, you know, some evidence of that testing. If you could maybe send that to the committee. So show us how when you modeled and or input different values, how there was no change. Because that would be helpful for us to be able to verify that, actually, you know, your, you know, analysis is correct.

Yeah. I'd I'd be happy to do that. Okay. It's just a matter of putting in putting in a really big number But for us, like,

we're not we're not, you know, we don't have access to that kind of framework for doing that kind of work.

So Sure. Yeah.

I could do that.

Thanks. I guess in reviewing the spreadsheets, did it seem like there was an effort to reach a specific outcome?

I would say my impression was that there was. It's it's hard to say definitively. It's more a kind of intuitive sense. But, in all the work, there was there were multiple rounds of work, a lot of which didn't end up might be described in the the report, but didn't actually end up driving the final figures and numbers that were shown in the report. So there was some work with NREL's engage model and then a customized version of that.

None of those numbers seem to go into the final analysis. And then even in the spreadsheet, there were the sort of scenarios one well, there was some other stuff that I didn't really dive into that was trying to build up a a a more complete production cost estimate, most of which didn't go into the final analysis. And then there were these scenarios one and two and three and all the a's, b's, and c's. And it just seemed to me like if you're trying to make a good faith effort to assess it does LNG pencil out or not, and you're willing to take either answer, you'd sort of sit down. You'd work out what are all the things I need to do to get this right.

You'd run your analysis. You'd get your answer, and that would be it. They didn't really get to that point until the last scenario. And it's kind of like if you'd done the last scenario, you wouldn't have needed one or two because they became obsolete. So it's like it seems like there were constantly more scenarios being added until a pro LNG number came out, and then the the effort sort of stopped there.

At least that that was my impression was, like, by accident, three a showed a big benefit to to LNG. And then lo and behold, okay, we'll stop there and not not look this too look at it too closely. And that's that's always a danger in this work. It's much easier to trust numbers that match your expectation or the the answer you want. You don't tend to go looking for errors there, but or or changes to to kind of keep making this as the result more complex.

I guess connected to that, it seems like this alternative fuel cities did not I mean, based on your analysis, did not use HECO's, least cost, approach, which is based on, you know, solar and batteries and demand response. And I'm wondering then if that kind of, prevented renewables from actually competing with LNG, in this analysis in the first place. So, and so it kind of goes to Cheri's question, as to, you know, if the study was actually, you know, in an academic space, would be considered a legitimate intellectual endeavor, intellectually honest in the sense that it's seeking truth rather than one specific outcome. And I am curious about your thoughts about whether and I guess, from your presentation, you suggest that, that clear comparison, was not made possible in this alternative fuel study. And, I guess my question is, do you think that and and I also kind of heard you say that to chair that, you know, if they had started with the least cost scenario, then we might not even be having this conversation.

Yeah. So the the analysis really was framed as comparing LNG to what's described as the base case or the the what you might call a business as usual case. But the only base case that was ever considered was the one that HECO has identified as their preferred case, but it is quite a high oil one. I think if if you publish this in an accurate so what it shows is that LNG well, attempts to show is that LNG is cheaper than oil, but there's no comparison to solar on costs. I think if you publish this in an in an academic journal, one of the reviewers would probably pick up on that.

Yeah. And they would say, well, be very careful of your language. You can't just say there's savings from LNG. You have to narrow the language to say, well, LNG appears to be cheaper than fuel oil, but we haven't compared other things. Or they might require you to compare it to other things.

So there'd be a requirement to do some caveat in to say this isn't the end the final word on whether LNG is the cheapest. It just says it's cheaper than oil fuel oil, potentially. And so, yeah, I think you'd you'd anyone who was aware that solar comes in cheaper than buying oil would say, well, how about that for comparison? And that that doesn't seem to have been done.

And I think you mentioned in your presentation, like, this is not just a matter of intellectual rigor, but it's also a matter of this being the basis for, you know, multibillion dollar investment, potentially. So that has frightening policy implications. So that's really I I am very concerned about, not just the errors, the potential errors in terms of zeroing out or making, you know, immutable the cost of LNG, but then also, like, there's it seems to me there's multiple reasons to question this study. And I I am deeply appreciative of you kind of pointing out some of those, and I hope we can talk about some more of them.

But on that note, let's, I mean, I think we still have to resolve this matter of the the fuel cost being excluded.

So I have more questions about that. But but before that, I think the other big kind of chunk there that tracks from the the benefit side of the cost benefit analysis is these assumptions that have been made about hydrogen. And I think in your presentation, you kind of approach it like you're accepting the assumption that hydrogen will be, like, available, viable resource at all, and you're just talking about whether it's fair to deduct this cost of infrastructure in the present as a credit to infrastructure in the future. But in fact, I think there's maybe you can speak to this. There's just a lot of I have a lot of uncertainty and questions about even that base assumption that hydrogen will be a viable option, clean hydrogen, in any kind of cost effective way, but if it's even available.

Yeah.

And and and I would follow that up by saying if we're comparing if we're discounting or writing off the, like, high solar alternative because energy office will make arguments it's not viable for x y z reasons or potential geothermal because it's not viable for whatever reason they propose. I mean, any of those it just seems like there's they're we're allowing for a lot of speculation about the new tech advances in new technology for some fuel sources or technologies and completely looking with a pessimistic eye at other types of energy resources. So if you can speak to that.

Yeah. There's there's a lot there. The I my impression was this is a very fuel centric study. It it takes as a given that that HECO will continue to burn a lot of oil, which they have said is their preferred plan, but they haven't tried to get well, frustratingly, they don't have to get investments past the PUC to go ahead with that. They actually the the this high solar plan is just the preferred plan plus a bunch of solar.

And if they don't bring it to the PUC, it's very hard to get that solar. But it would certainly be a good idea to have that solar. So this kind of takes as its jumping off point an assumption we're gonna burn a lot of oil and replaces it with LNG in the near term and then some other fuel. It's a kind of identified as hydrogen, but also possibly biodiesel as a backstop. And it it doesn't get to the question of, like, should we move away from fuel?

And on that hydrogen credit, there's a sort of certain circularity there that says, well, we can justify LNG now by the fact that we're gonna want hydrogen later even though it's much more it forecast to be much more expensive than LNG. So it's like, if it doesn't make sense on its own to do LNG now, it's not gonna make sense to do hydrogen later. So that that assumption that we'll do it is should stand on its own. And there was never any actual analysis of whether you'd, you know post 2045, would you rather be burning hydrogen or biodiesel or switching over to solar? And that should have been part of it as well.

If you're gonna claim credit for this hydrogen infrastructure, you should look at whether you'd want hydrogen after 2045, and it's very unlikely that you would. On the question of and hydrogen, you know, there is no international shipping of hydrogen right now, so that is somewhat speculative. I think that's what you're getting at is, like, presuming it'll come. There is some shipping of biodiesel, so you can kind of squint and imagine that you could get biodiesel in.

And all quite pricey. Right? I mean, when we're talking about clean hydrogen

Yeah. Biodiesel is the most expensive fuel that's burned on Oahu now. Hydrogen, I mean, you just can't buy it as a fuel, but in the forecasts that are shown here, which I showed up there, it's on the order of double the cost of fuel oil or or LNG. And those are pretty optimistic forecasts of the $20.40 $20.45 price for it. It's it's mean, there's lots of technological progress, so that's always a challenge in this work.

You can there's solar keeps getting cheaper every year. Wind gets cheaper. Offshore wind, there's a lot of hope that it'll get cheaper, but, you know, nobody's really done large scale floating offshore wind yet. So could be 25¢a kilowatt hour. It could be 8¢a kilowatt hour.

I think there's two ways to approach that. One is you make your best estimate of what these are gonna be. And as as far as I know, what I showed on that graph are the the state energy office's best estimate. I pulled those out of their plexus spreadsheet, and you move ahead with that. And then the second part is the the assumptions that are important.

You you test and you say, well, how important is this, and what do we do if it doesn't work out? And so you might say, well, we really don't know the cost of hydrogen. It could be half as much or twice as much, and you you put that in and say, well, here's the range. And you're you're looking until you find a solution that's, like, reliably effective. And I I suspect if you did that with solar, you'd find that under any plausible cost for fuel oil or biodiesel or hydrogen, it's you're still gonna wanna use solar as much as you can.

And then if you had an alternative case, like the high solar case that was included in the study, you're presumably making making assumptions about future technology advances for all of the above that that could change the landscape as well.

Yeah. But you don't have to make many, honestly. Like, those final drafts I showed were with today's today's solar and battery price, which is rapidly getting cheaper and much cheaper, like, at half or a quarter as much in the rest of the world already. My best estimate for offshore wind, but that was, like, 25¢a kilowatt hour. And then the the state energy office's forecast.

So, yeah, so you you kind of look for some progress. But, also, these are the high solar case is not a very complicated case, really. It's you build enough what are called thermal plants, the kind that burn fuel and make electricity. You build enough to meet your peak load or something close to that, so you're always ready if it on it for a day that's low sun and low wind. But then you say, well, I don't wanna buy that expensive hydrogen.

So you put in enough wind and solar to get up to, like, 95% of your load. So most of the time, you don't have to buy a fuel, and you're kind of even if you're using an expensive fuel like biodiesel as your backup, you're not using it very much, so it doesn't drive costs very much. And so that's the strategy. That's that's a simple strategy that could be done now is put in wind and solar up to 95% and do the last 5% with biodiesel. And it's it's known to be reliable because it's the it's the same power plants in the high like, the the high renewable case is all the same as the high oil case plus some solar, so it can't possibly be less reliable.

You're just saving money by using solar instead of fuel.

Can I ask another question about the study? Can I ask another question about the study?

So this is another question about the study and, the modeling. So I have questions about the demand forecast assumptions because the data that I've seen, the historical data shows a decline in demand, on Oahu, and we are talking about mostly Oahu. And I'm wondering how sensitive this analysis of, LNG economics is to that kind of demand forecasting because the the the forecast or the assumptions that they made was pretty significantly higher demand over time, which would buck the historical trend. So maybe could you speak to that? Like, what does that do to the outcomes or the analysis in the study?

Yeah. So you're talking about a very particular case, which is what if we took the 3A case, which had what I considered a fairly realistic estimate of of oil and biodiesel use and had a little bit more load growth. Would that make LNG pencil out? And on the margin, it might make it look a little more attractive, not enough to, like, be in the sort of it might move to break even instead of a...

But that's not really what I'm asking actually. What I'm asking is, I see the these assumptions around demand as being inflated.

Yeah.

So does that, and they're they shape the outcomes of the model.

Yeah.

How do those assumptions or or that kind of, you know had the model been changed so that those assumptions were not input in the same way, would we have a different kind of analysis?

Yeah. So there I, I maybe I jumped too fast to case 3. So.

Yeah.

The scenarios one and two do have quite a high load forecast, higher than I think is realistic. I think that, actually, HECO's IGP load forecast is a pretty accurate estimate of, like, flat loads, some shift to customer solar, and electrification, there's enough room in there for electrification of all vehicles and all natural gas use for cooking and water heating by 2050.

So maybe you could move some of the load growth a little earlier than IGP, but it's it's pretty close to right. The scenarios one and two used I don't actually know what load forecast. It wasn't it wasn't the one from IGP. And not just used a very high load forecast for those middle years. This critical time year is sort of 2030 to 2045.

They used a high load forecast, but they also, this is why I call them obsolete, they just assumed that, like, everything under that that wasn't required to be renewable by the RPS would instead be LNG. And that's you take those two so that's, like, 70% fuel or up to the 400,000 tons a year limit from the the facility up to 2040 and then 30% LNG up to 2045.

And that's much more fuel than HECO actually expects to burn. And so, yeah, if you use those, you end up with something like I think it was 30% or 40% more LNG than there is oil to displace in in the IGP plan. And that is driven by these very high load forecasts.

And is that?

And this this weird assumption that we're gonna go to the wall against the RPS instead of using the renewables that

Is that even accounting for price variability where there could be, I mean there would be higher would there be higher costs of LNG at lower volume?

It doesn't seem like a huge effect. There's a tricky bit about around the uncertainty here. Like, when once you sign an LNG contract, it's a take or pay arrangement. Like, you're gonna take those tons, you might be able to shift them a few months, but if you don't take them, you're still gonna pay for them.

And so you're having to write a contract where you you know what you're gonna consume and then you lock it in, which is hard to be sure of in advance. But you could lock in a certain chunk. And, you know, once you've decided how much you're gonna get, higher or lower volume seems to move price a little bit, but not

But not enough to negotiate it.

Not enough to make or break.

I mean, that would assume you would be signing a long term contract to be locked in.

Yeah.

To a certain volume commitment.

And if you needed a lower volume commitment in order to make a project pencil out, if you are committed to that path, then presumably it would increase the cost at some at some level.

Yeah.

Yeah. As I understand it, I mean, I, I think the the folks from the energy office would be better to talk to about those details. But yeah. But yeah. So there's, the the high forecast is important in scenarios one and two, but I I just they seem to have moved away from those scenarios and over to the PLEXOS study, which uses at least through 2040 or so.

It has a more realistic load forecast to my mind. It does jump up a bit in the last five years higher than I would consider plausible, but that's not really what's driving the findings in that case. So.

Okay. Thank you.

Thank you. I guess because, like, so much of the talk we've heard over the past, year and a half has been about how this plan will be cheaper for customers. I mean, in your analysis, when you kind of subtract out the benefit that has been credited due to those errors that you identified, would you say your analysis shows that actually it would be higher cost to to go this path?

I mean, assuming it against the base case even and the base case being continuing to burn burn oil, but presumably having more flexibility to to ramp that down, I guess. I mean, even against just the straight base analysis.

Yeah. I would say so. I haven't done my own independent one. So all I'm working with is, like, the the cost benefit spreadsheet that I got from the Energy Office with these corrections. But when I do that, it looks like, as I said, LNG would would cost about $300,000,000 of money today.

It's a it's a higher number in in the actual years when it occurs. Then sticking with LSFO, it looked like it was on the order of $50,000,000 a year in that that final comparison that I did. And that seems kind of plausible.

Like, there's there's some room for savings because LNG is a cheaper fuel, but on the other hand, you're investing hundreds of millions of dollars in in the regasification unit and these new power plants that that you wouldn't necessarily build. Like, Hawaiian Electric has already designed a reliable power system for 2045, so these are in addition to that.

And so almost by definition, they're plants that Hawaiian Electric didn't think were worth building when they did their grid plan. So you've got all these fixed costs that you have to bet that you have to pay no matter what balanced against a little bit of savings on the fuel. So there's.

And has there been any kind of back of the envelope analysis of the savings to customers on the high solar scenario? Or is that you'd have to, it would be too too soon to say?

It's too soon to say. I mean, my my very rough estimate there was this kind of $145,000,000 a year. That was first LNG, I think about a 100,000,000 versus the high, the HECO plan. That's I should say that's for HECO's high solar plan, which is not actually a great plan to my mind. Like, I would prefer to see the offshore wind moved out and more solar in it.

And I'd prefer I used what I considered a fairly high solar cost. I think if they were more efficient in contracting, they could be getting solar and batteries in for 30% less than what I assumed there. But from what I assumed with these fairly conservative assumptions, it was about a $100,000,000 a year for ratepayers on Oahu. So you're talking $200 per household or something like that per year. So it's kind of getting maybe one free utility bill a year.

Can I ask a question?

Of course.

So I have a question, kind of building off Chair's question about cost to repairs. And I've been really concerned since learning this summer that, the shareholders, usually benefit actually from investments in large infrastructure projects.

Even in Hawaii, where we have passed legislation, when we have extraordinarily expensive infrastructure projects, then the shareholders actually get a guaranteed return on their investment, while the rate payers will end up paying through their bills for the cost of that infrastructure.

So I, I am wondering, like, I don't see any of that kind of analysis in this study, and maybe it was never intended to, like, really help us understand how it would impact the consumers. But it seems to me that a a big part of the problem around LNG is the massive infrastructure investments that are required.

And, I'm wondering if you could speak to that a little bit, if that if you've seen that I know that this is the work that you do, not just in Hawaii, but elsewhere. But, if you could talk about that a little bit.

Yeah. I, I would say there was some effort to to turn it into bill impacts. That that was always the sort of next thing after the total cost benefit graph in the report. To that extent that.

I didn't see, what I didn't see in that impact analysis was how shareholders would benefit from the infrastructure investment and rate payers would pay.

Yeah. That gets to, I mean, it's deep in the weeds, but it's this area of weighted cost of capital and discount rates and stuff. But that, I would say, was not done particularly well in the report. So there was, I mentioned earlier, there's two different ways that we treat the time value of money. One is you build a, you build a piece of infrastructure, and you've got to pay for that and the utility pays for it over time.

They don't, they don't, if they build something in 2030, they don't take it out of everyone's bill in 2030. They spread it over the life of the asset. And that is amortization. You basically take out a mortgage on the asset. So the utility puts in maybe 40% equity.

That's the shareholder money that they get paid these these returns, which I would say are excessive, 99.3% guaranteed return on that part of the investment. But then the rest is debt, which is much cheaper, and it works out at 7% maybe. So you have sort of a mortgage or a cost recovery that's needed at about 7% a year over the life of the asset. And the spreadsheet didn't spread the costs over time that way. It just did them as lump sums in the year they were built, which is odd but kind of works out.

But the other part was you take future money and you say, what would I need in the bank today to to pay for that in the future, or what would I be willing to pay now to get the benefits in the future? And for that, if you're looking from a sort of society perspective, which this report is, it's it's done by a state agency and on behalf of customers, you should be using a rate somewhere around 3%.

That's sort of how much money grows in society over time. And so that tells you, you know, you need quite a bit money now to have a lot in the future. This report used the utilities allowed return on equity as the discount rate to convert future costs into present costs, which is 9.3%.

It's way too high, and so it tends to ignore too much of the future costs. It treats them as too small because of that heavy discounting to today. So all of that to my mind was like that that gave me a lot of misgivings about the the analysis, but it also. That's a very long answer to your question, which is there there was no attempt, I don't think, to parcel out, like, who's getting how much return from this, how much does it help the utility.

But there is I mean, there's a lot potentially for I, I can't, I wouldn't say that it's written to benefit Hawaiian Electric per se. Like, the some of the plants are on Hawaiian Electric land and would presumably be owned by Hawaiian Electric.

Some are not on their land. The pipeline, I was assuming, might be owned by HECO, and they'd have a fuel supply agreement, so they'd like to have that. You know, the more assets they have, the more their shareholders get. But I heard today that the idea is it would be using Hawaii Gas's pipeline so they potentially get a return on that. So there's a lot for them to like, but I haven't heard them come forward and say that that we want this.

But it's this issue that you talk about has always been super frustrating to me because like I said for the last, you know, fifteen years almost, every time I look at it, wind and solar are the best choice. And every time Hawaiian Electric makes a plan, it doesn't have much wind and solar.

And maybe we should talk solar because wind is kind of a nonstarter. And I do really worry that part of that is because Hawaiian Electric is in a position where they, by and large, they own some thermal plants already. They seem to be able to own new plants.

At least they're proposing, like, this Waiau repower on their own land, so they would own that. And so they're they're in this position where they kind of know all this they're not gonna own any of this solar. That's gonna be a power purchase agreement from some third party.

And so they're having to choose between sort of they're running a horse race between their own asset and these competing assets, and we're asking them to choose the competing asset over their own, and they never do. Performance based rate making was supposed to stop that, but it it doesn't quite seem to have.

And I, I worry that they think there's ways, you know, they could ask for maybe extra cost recovery for Waiau and kind of be keep, keep playing the old game. And that the challenge with these inflated returns and that shareholder ratepayer sort of conflict is it's not as much paying HECO 9% on equity. Like, that's actually a small part of the bill. It's the fact that it drives them potentially. And they, they say it doesn't drive them this way, and they've, they've gotten mad at me when I claim that it does.

But, certainly, we would reward them for going in the wrong direction. So it's the tail that wags the dog where there's, like, 1 extra penny per kilowatt hour in it for HECO, but they make a plan that costs 5 pen 5 or 10¢ extra for customers. And so it's it just it and I don't know if that's why they do it. I just know over and over they don't choose solar to the extent that they could, and it's incredibly frustrating to see.

Thank you. Thanks.

I guess, just I was going back to the the prior question about comparing the cost of the base case versus the LNG case versus the case that wasn't really part of this analysis necessarily.

But, I would assume the global volatility, you know, instability that we've seen lately that's contributed to the volatility of both oil and gas prices had would also improve the case that much further. And I think you did touch on this a bit in your presentation, but if you wanna elaborate on what kind of additional savings to rate payers from being protected from that volatility.

Yeah. We did some work on that in 2016. I worked with the Ulupono Initiative and did testimony in the power supply improvement plan docket at the PUC around the LNG proposal then. And we said, well, how much extra would you have to pay, like, to lock in the LNG price? Like, what would you have to pay to have a a fixed guaranteed cost for LNG in the same way that it is for solar?

And it, as far as we could estimate, it was really big. So that's one approach is you say, well, how much would you have to pay in the financial markets to hedge it? And it's very expensive. I don't, I don't remember the numbers, but it was a lot. It was more nobody ever does it.

They just pass the cost through to customers. And so that's a different perspective. It's like, okay. Realistically, if you, if you buy into LNG or as we you know, the state has been bought into LSFO for a long time, you're gonna have volatility in bills as oil prices go up and down. And so you can look at it and say, how much I'm not sure which choice is right to make here.

I could do solar. I could stick with oil. I could do LNG. But then you can say, well, suppose I did each of these, and then we move into a low oil price regime or a high oil price regime or a high gas regime. Which one would give me the least regret in the sense that, like, when we get unexpected conditions, I'm still close to the best possible you know, if I had had perfect foresight, what I would have done?

How, which ones go very far from that and which get close? And in that case, we were able to show that renewables are are a very low regret solution that you're very unlikely to have a case where you say, oh, dang. I wish I'd stuck with oil, because there's just there's so little room on the downside for oil. Oil's right now at sort of the lowest it's ever gonna be. You can't pump shale.

We've had a renaissance of oil in the last few years with shale production, but that costs $60 per barrel to produce. And so you can't see oil prices below $60 and still have it produced. And so we're never really gonna see very cheap oil, but we could. I mean, we're headed we're, we just crossed a $100 a barrel. So you could have years where you where you say, gosh. I really wish I had gone to solar five years ago.

Yeah. And by committing to the LNG pathway, we're committing to keep burning fossil fuels for quite a long time.

Yeah. And you can, and you can put a number. There there's Wall Street equations that are, like, how do you value volatility and add that on, but, like, I'm not sure anyone trusts those enough to say that, like, just the volatility alone is equivalent to 5 cents a kilowatt hour or something.

Alright. I have a question for the Energy Office again, and then we can't forget Gary is patiently, I assume, still meeting on Zoom. Okay. To be clear, you are not acknowledging the error or you say you need time to look at it and you're not acknowledging that you were emailed.

We were certainly, we've been communicating.

Oh, okay. So now you do say you've had prior notice of it.

No, No. We have been communicating.

Okay.

But on this issue, on this specific assertion, we had no discuss, I mean, we had no follow-up discussion on it. In fact.

You had no follow-up discussion. So you did get his email pointing it out or no?

We've had

see Monique nodding. So.

We have been open with everyone who's come to us with questions. So we have had discussions with, a number of people, including with us.

Like, a few minutes ago, you said you did not get advance notice of the.

On this specific assertion about this being a flaw. We didn't have I think.

What Matthias said was that he emailed you about it. Did you not see the email?

I did see the email. Yes. And I got overwhelmed. I didn't follow-up. He did not follow-up. So

Okay. So you did get the email but didn't follow-up.

I was looking into it.

And we were

Yeah. It was

Okay. So I guess let, let me cut you the chase then. I think TBD, Energy Office confirming whether this identified error that dramatically changes what the outcomes of the report would have been in terms of the reported benefits of this alternative Sorry. I forgot the number. I don't know.

The preferred alternative. If the preferred error. If that error turns out to be correct, would the energy office what what would the response then be? I mean, if that if that error turns out to be correct, would you still be pushing forward? And based on what?

So we will obviously investigate, the assertions that were made here, and we will report back to the committee because they were profound and.

Very profound.

And there are a number that we already know are unsubstantiated, you know, like this whole hydrogen issue. The the whole cost of this program, we know, is, appropriately born in the models that we have and that there's no such thing as a hydrogen discount or credit. What there is is an acknowledgment.

I mean, that's not what's in your report. So if you're, I mean, I would say that the language in the report.

Can I finish what I'm saying?

Sure.

I'm explaining it. So what I'm saying is that, what we clearly pointed out in the report is that the end game that, that those thermal generators will be operating on a fuel after and it doesn't necessarily have to be hydrogen. They will continue operating on a renewable fuel after 2045.

And so, therefore, the amortization of that can go on for a longer period of time. So that that's a valid assessment, and it's not based on suddenly having hydrogen. It could be hydrogen, it could be biofuels. It could be whatever the law prescribes. But the law prescribes a renewable energy.

Not the question that I asked. So I mean. I would let you finish your sentence.

They were being challenged.

If you're not ask answering the questions I ask, I can't promise I won't interrupt. But, I mean, I think that the way that I read your report and I did read it, it was very clear that part of the the, that the recommendation to support that alternative hinged upon being able to reuse that infrastructure post 2045. That was, that it was not did not pencil out if that infrastructure was not used post 2045 for a different type of fuel. And that is what's in the report.

Has it changed since then? Okay.

That is correct.

There's an assumption that inertia is necessary after 2045. Some people don't believe inertia is necessary where they can be provided in different ways through batteries and so on. But all of the other analysis, in fact, the one that drives what the commission has allowed to move forward does show that a certain amount of inertia is necessary in the system to be able to support renewable energy, intermittent renewable energy, and that it can't be all intermittent.

Yes. Then presumably, that would still be the case with any repowering or if this wasn't on the table, so it's not like an additive component of it..

That's right.

So, but but the question more to the point is just that if the analysis that Doctor Fripp did turns out to be correct, which now you're saying you need to, you know, reassess, and basically wipes out the potential savings that you have been talking about for quite a while about LNG. I mean, would you agree that at that point, we need to go back and reevaluate whether we can rely on this report at all or the recommendations that that you've made regarding it that you know, about LNG that are very clearly based on the results of this report.

And this is the information that you've provided to legislators, to the governor, to chambers of commerce, and businesses and community groups throughout the state, very publicly with a lot of energy behind it, much more than I've seen the Energy Office put into other alternative pathways. I mean, what are you gonna do if this turns out to be correct and those savings that you've been talking about aren't there? How are you gonna address it?

So we, we will do two things. First of all, we will take a a look at allegations and assertions and review them and then basically, respond to that. And once we understand what that is, we will issue appropriate commentary about that. I can tell you the second thing, though, is that I do have to correct your assertion that the study is the plan and that that plan, if it is not, you know, demonstrated to be, a, positive benefit in terms of cost and carbon, is, is what decisions will be based on. It'll be based on what the what the study said.

There needs to be further analysis with all of the appropriate cost modeling and everything.

Absolutely. I think this analysis, this analysis done is not.

It was a desktop analysis.

Well, they're saying that now, but it's been used for.

It's what we described it from the very beginning. It's in the report.

You have been using this to drive significant state policy and to present to the public a narrative that implies that this is worthy.

It should be worth discussing.

Of billions of dollars of investments. You do not just.

It's worth discussing.

It's not what we've seen, and that is out there, many verifiable sources, so I would just contest that assertion that this wasn't meant to be a decision making tool for these billions of dollars of investments.

It's not meant to be a decision making tool.

Because other people, I think would have come away with a different impression, including potentially the governor based on this report. And now you're not standing saying you're not standing behind it for that.

I'm standing behind the report as what it was.

Okay. Alright.

Totally. Yeah. I think it achieved its objectives. And we are getting the data now to support, further decisions. It's not based on the specific, scenarios. Because we actually demonstrated a number of scenarios were not net positive. And if you look at the graphs, we have a range of savings. And some of them, it shows some of it is not savings. So we made it clear under certain conditions, it.

Before we talk about the other scenarios I have in savings, we need to verify whether the one you've been talking about has any savings. So.

Okay.

I think Rep. Perruso has a question. So go ahead.

I do. So I am, just, curious as to how we got here. And, you know, I think it's widely known because it's been reported publicly that Paul Yonamine was you know, introduced JERA to the governor's office, and he create like, helped create those discussions around LNG. He stood behind the governor at the signing of the October 2025 memorandum.

And he serves as or he has served as the chairman of a firm that specializes in cross border financial transactions and advisory services. He also is on the board of two Japanese banks, and he, also plays a significant role in the governor's campaign infrastructure. So I'm wondering to your knowledge, because it seems to me that the origin story of this conversation is important for understanding the motivations behind and and the impetus behind the study.

That's right.

So I'm wondering if any, did, did the administration conduct any formal formal ethics or conflict of interest analysis or review to determine whether his involvement, Paul Yonamine 's involvement, created any potential conflicts of interest or financial conflicts related to this LNG partnership. And this is a yes or no question.

Was there a review conducted or was there no ethics review conducted?

By the Energy Office?

By the Administration

I'm not aware.

To your knowledge, no.

To my knowledge, no.

Thank you.

Okay. I think I have a few questions for Gary online as well, if you're still there. Yes.

I am indeed.

Hello.

Hello.

I guess I'm just curious, like, with your private sector experience and, you know, kinda working with these big companies, would you and I I assume you've had a reviewed the report or at least had a chance to look through the conclusions. Would you consider it, like, a investment grade quality study? Can you comment on that?

No. It it isn't. And based on the conversation of just a moment ago with with Mr. Glick, it doesn't sound like he's presenting it as an investment grade plan either. And especially given some of the commentary from Doctor Fripp, it would seem that there's some pretty fundamental questions that have to still be resolved. So, no, it isn't.

And I guess since you've had and I guess also set stepping back, I mean, just based on your past experience when you first heard about this proposal for LNG in Hawaii, which is a relatively small market. I mean, what was your kind of gut level reaction to it or what questions did that raise or or, you know, what from your past experience, could, could you, I think, offer to us to help us understand?

Well, when I, when, I first, let, first let me just say that, I approach electric power and the way it's generated from a very neutral standpoint. So I don't typically come in with any particular preference for one energy form or another because circumstances are so different. But I was a bit surprised that LNG was being put forward as a a preferred avenue, in part because these kinds of projects tend to get their favorable economics from, from economies of scale.

And this project was gonna be on the lower end of the spectrum. You saw you saw the things that I I pointed at that were 34 times, the the DaPeng project now is, is almost 7,000,000 tons a year. So they, you're on the low end of the spectrum.

So there were definite I mean, in in your best, knowledge of these things, we would assume I mean, we haven't sort of alluded to in the report, but not, necessarily been affirmed in hearings like these, that there would most likely, these kind of contracts would include, volumetric requirements or some floor at least of, you know, what kind of what amount of LNG would be off taken in order to justify the investment in infrastructure.

And that's one question. And then second question kind of related is, I've heard people say or or people, certain people I've talked to have the impression or I think it's been said that there have been fixed cost contracts. There's been this term fixed costs used, and I think people are maybe conflating that with the way that we have actual fixed cost contracts for solar with our PPAs. But my understanding is almost all LNG contracts are tied to the cost of oil, and I would anticipate that if a contract was considered here, there would be an expectation that it that it would be the same.

I mean, you've dealt with companies like JERA, who, of course, has been the only company we've realistically heard talked about that's gonna come in and do this. I mean, can you envision a scenario where there would not be a volumetric commitment or or there would be an actual fixed cost contract?

So going through that starting with volumetric offtake, as I said earlier, the economies of something like an LNG terminal depend very much on being able to get throughput. So, we, for example, in BP would have wanted very substantial confidence of what the throughput would be. And in fact, we had a number of contracts that were take or pay just because of that.

So you do wanna get the throughput right without a doubt. It isn't, in my experience, common to get fixed fixed cost pricing for something like LNG because it is sufficiently volatile that somebody is gonna take quite a lot of risk when you do that. And so it is quite common to peg the LNG to some other indicator, and it's not uncommon that that is crude oil. And then I, remind me of the third question.

Well, I think it I think you answered it. It was more about the the fixed cost contract. But, again.

A follow-up would be have you have you dealt directly with this particular company with with JERA in your dealings? And, like, I guess, what would you what kind of contracts have you seen them enter into, and what would be your observations and or advice to the state, I guess?

Fixed cost.

Yes. So I have not dealt directly with JERA. They came along after I retired from BP, but we did have dealings with with, Tokyo Electric Power, TEPCO. And JERA is, as I understand it, a a joint venture between Chubu and and TEPCO, I believe. So they came along later.

They are one of the biggest LNG players in the world. They rate right up there with a number of the big oil companies. Certainly dealing with TEPCO, they were extremely professional and very good at what they did. I have no reason to believe that JERA isn't. These are the kind of firms that when we were dealing with them, you wanted to put your very best people in the room with them because you wanted people who were very competent.

And that was in part because there's creative things you can do with the big companies like that, especially in your case where your vol volumes are relatively low in comparison to the size of JERA. There's the potential for them to be able to, get you advantageous pricing if they were inclined to wanna do that. At the same time, you need people who really do understand, what their capabilities are and the way they tend to structure deals, because you wanna really understand what you're getting yourself into.

Yeah. Okay. Let me see. I guess in the, I mean, I'm curious, and no one knows the answer to this question. But, I mean, would you think that that JERA and, you know, as in terms of if we think of them as in being one of their parent companies being TEPCO or you, you have some knowledge of them.

I mean, would they have also reviewed this alternative fuels report, or do you think they would have noticed the error or had a raised eyebrow about it? Or I mean, do you think it's something they have knowledge of and haven't mentioned or just something they haven't bothered to look at? What would be your guess?

Well, I'm, I'm gonna qualify what I say because in the sense that I'm not a 100% sure what the nature of the contractual arrangements are between the states and JERA. But if they are they are a preferred partner, I would have thought that they would know something about this report and would have read it and would have views about it.

Given what doctor Fripp said about the way that he thinks the cost of fuel had gone into this report, that would have been something that I think they would have paid particular attention to. So it does raise questions in my mind about just exactly what's going on with respect to the way fuel pricing is being handled.

Yeah. And then, I guess, also, I mean, just in your experience and seeing some of these deals happen over the years, I guess, I have questions about and you mentioned JERA as if they are the preferred partner. I mean, it appears to all of us on this side of the table that the genesis of this whole conversation was sort of driven by JERA in the first place and has have been sort of accepted by the state and the governor as preferred partner absent any real competition. So, of course, meant there is no actual contractor deal on the table, and nothing concrete has been proposed that we've been able to put eyes on.

But in terms of this kind of having your best people in the room to do tough negotiations if something did move forward so that you could have someone there who was really looking out for the interest of the state and the interest of Hawaii ratepayers, Like, I just have questions, I guess, about how the Energy Office has essentially been well, from our perspective, has been, you know, kind of all in on selling this to the public and whether that would whether that indicates a tough negotiating stance, I guess.

So you're putting that to me, I mean is your question?

Kind of.

Well, let let me see if I can extract out what I think your question is. Given that they they seem to have a special relationship and given that they seem to be pushing this, are are you asking is it is it.

I guess I'm just worried that yeah. There's not that, there's a for whatever reason for reasons that may not be just merely the best interest of rate payers, there is some or it seems, you can't verify this, but it I mean, I just worry that in terms of having the toughest negotiators at the table that there's sort of other considerations here, that there's clearly been this long established relationship in advance of us even laying eyes on, you know, what's what the numbers are, what's being talked about.

And it feels like it it and, yeah, of course, not there also has been no competition over what if there is gonna be some investment in LNG infrastructure, which we're not even clear on. There's been no discussion of any other any other company or any kind of competition over who might do it. And I, I don't know.

Is that unusual or is that not unusual? I guess I don't have context to even know the answer to that.

Well, I did emphasize in my comments that, in the case of of the Guangdong DaPeng LNG terminal, the Chinese actually structured three competitions. And as part of the bidding process, and they were ferociously competed. We we had to put together a very, very good proposal in order to win, and we thought we had put together a really good proposal, to provide the supply of LNG. And, again, they split the the contracting for the construction from the supply, and we didn't win that one. So it it was fiercely competed.

Now in this case, it it doesn't appear that that is the trajectory you're on. And I think it makes it particularly important that there's diligence by your committees and whoever the other oversight bodies are just so you can provide that kind of assurance to the public that this is a an arrangement that is in the in the public's interest.

Now I say that without implying any anything about the integrity of JERA. We didn't encounter any issues with TEPCO and the integrity of those people. And I have no reason to believe there's an issue with JERA either.

They are a very well recognized and a very large LNG supplier. In saying what I did, I wanna just emphasize you're dealing with people who are very, very good at what they do. And you really do wanna have very good people in there across the table from them having these discussions so that you do get the best deal for for your citizens.

Yeah. No. Thank you. Let's see. Do we have further questions for anyone? Gary, Matthias, our Energy Office? Alright. I would have had more questions, but I would have assumed that the Energy Office had some time to digest this information. And so we really look forward to hearing the outcome of this now very important question of what is the, what are the were the fuel costs included or not?

Let me just see. Yeah. I guess that's it then. What we will I think we just have some really serious questions that have been raised. We need to get to the bottom of it. There's a lot at stake here in terms of our future energy pathways, and we're gonna continue following up. Oh, go ahead.

Sorry. So before Chair concludes, I did wanna say that I appreciate the work that has been put forth both in the alternative fuel studies, but also the courage that Professor Fripp exhibited when coming forward and raising this very important public policy question. I, I know that it, is uncomfortable, and I really appreciate it because it serves the public interest.

Yes. I agree wholeheartedly. And, yeah, I appreciate everyone for coming here today, Doctor Fripp, Mr. Dirks, and, Energy Office. I think, yeah, we have some more work to do to get to the bottom of this. And as a committee, our responsibility as elected officials is just to ensure that we make decisions based on good analysis, and that we are pursuing the most, affordable and reliable path forward for Hawaii's residents. And with that, we will adjourn.