Oahu Businesses Face Energy Cost Uncertainty Amid Legislative Fight Over LNG Ban

The legislative session on Oahu is currently debating a significant policy shift that could impact the island's energy future, directly affecting businesses reliant on stable and predictable electricity costs.

The Change

Governor Josh Green's administration had proposed an interim energy strategy to utilize Liquefied Natural Gas (LNG) as a bridge fuel for electricity generation on Oahu, aiming to phase out more polluting oil. However, a legislative push-back, spearheaded by concerns about environmental impact and long-term energy solutions, is now challenging this plan. A bill is progressing that seeks to ban the use of LNG for electricity generation, potentially forcing a return to older, more carbon-intensive oil-fired power plants or accelerating the need for new renewable energy infrastructure without a defined interim step.

This legislative challenge introduces considerable uncertainty into Oahu's energy transition, as the outcome will dictate the primary fuel source for electricity in the short to medium term, with potential implications of volatile pricing and supply.

Who's Affected

Small Business Operators (Restaurant Owners, Retail Shops, Service Businesses, Local Franchises):

Businesses on Oahu are particularly vulnerable to fluctuations in electricity costs, which are a substantial component of operating expenses. A return to oil-fired plants, or delays in securing stable, cost-effective energy sources, could lead to price hikes that must either be absorbed (eroding margins) or passed on to consumers (risking reduced demand). The uncertainty makes long-term budgeting and cost control more challenging.

Real Estate Owners (Property Owners, Developers, Landlords, Property Managers):

Stable energy infrastructure is crucial for property viability. If the LNG plan is rejected and older, less efficient plants remain operational or face premature retirement without adequate replacements, it could lead to higher grid maintenance costs and transmission charges. For developers, this instability can influence the feasibility and attractiveness of new projects, as well as the operational costs for tenants.

Tourism Operators (Hotels, Tour Companies, Vacation Rentals, Hospitality Businesses):

Hotels and other hospitality businesses are significant energy consumers. Increased electricity rates directly translate into higher operating costs, potentially impacting profitability. This could also indirectly affect the island's attractiveness as a tourist destination if operational costs lead to higher prices for accommodations and services.

Entrepreneurs & Startups (Startup Founders, Growth-Stage Companies, Tech Entrepreneurs):

For startups and growing businesses, predictable operational costs are essential for scaling. High or volatile energy expenses can strain limited capital, divert funds from research and development or market expansion, and potentially hinder growth trajectories. Access to reliable and affordable power is a foundational requirement for many tech-dependent businesses.

Agriculture & Food Producers (Farmers, Ranchers, Food Producers, Aquaculture Operators):

Agricultural operations often rely on electricity for irrigation, processing, refrigeration, and lighting. Increased energy costs can significantly inflate production expenses, potentially making locally produced goods less competitive against imports. This could exacerbate existing challenges related to imported food costs and supply chain vulnerabilities.

Second-Order Effects

The legislative debate over LNG has the potential to create a cascade of economic impacts across Oahu's constrained island economy. If the ban on LNG proceeds and leads to a prolonged reliance on older oil-fired plants, the immediate consequence could be higher electricity prices due to fuel costs and potentially increased maintenance on aging infrastructure, directly impacting Small Business Operators and Tourism Operators through increased operating expenses. This, in turn, could lead to higher consumer prices for goods and services, contributing to inflation and raising the cost of living for residents. Concurrently, if new renewable energy projects face delays due to the loss of LNG as an interim solution, it could prolong Oahu's dependence on fossil fuels and slow progress towards climate goals. This slower transition could also impact Hawaii's efforts to attract green tourism and impact the viability of businesses focused on sustainability.

What to Do

Given the ongoing legislative process and the uncertainty surrounding Oahu's interim energy strategy, businesses should adopt a WATCH approach. The primary focus should be on monitoring developments and preparing for potential shifts in energy costs.

For Small Business Operators, Tourism Operators, Entrepreneurs & Startups:

• Monitor: Closely follow legislative votes on the proposed LNG ban and any subsequent announcements from the Hawaiian Electric Company (HECO) regarding future energy generation plans and rate adjustments. Pay attention to any new energy policies or mandates that emerge.
• Review: Assess current energy consumption patterns and identify opportunities for efficiency improvements, such as upgrading to LED lighting, optimizing HVAC systems, or investing in energy-efficient equipment. Examine contracts with HECO for any flexibility or clauses related to rate changes.
• Contingency Planning: Develop cost-management strategies that account for potential increases in electricity expenses. This could involve adjusting pricing models, seeking alternative suppliers for other operational inputs to offset energy cost rises, or exploring on-site renewable energy solutions if feasible.

For Real Estate Owners:

• Monitor: Track legislative outcomes and HECO's infrastructure plans. Understand how energy cost volatility might affect tenant operating costs and lease negotiations.
• Assess: Evaluate the long-term energy resilience of properties. For new developments, factor in potential ongoing energy cost fluctuations into financial projections.

For Agriculture & Food Producers:

• Monitor: Stay informed on energy policy shifts and their potential impact on HECO rates. Observe any changes in the cost of electricity impacting irrigation, processing, and refrigeration.
• Evaluate: Review long-term production cost models to incorporate potential energy price increases. Explore grants or incentives for energy efficiency or on-site renewable energy generation to mitigate rising operational expenses.

Action Details:

Monitor legislative committee reports and floor votes pertaining to Bill [Specific Bill Number, if known] and any related energy policy statements from the Governor's office or the Public Utilities Commission. If the LNG ban passes and Hawaiian Electric signals significant anticipated rate increases exceeding 10% within the next fiscal year, begin implementing energy conservation measures and investigate on-site renewable energy feasibility studies.