Would a Jones Act exemption lower the cost of electricity in Hawaii?

by Michael Hansen, Hawaii Shippers Council

Two committees of the Hawaii State Senate held a joint informational hearing on Tuesday, January 29, 2013, at the Hawaii State Capital in Honolulu.  The hearing focused on the astonishingly high electricity costs in Hawaii that are four times greater than the average U.S. residential rate.  The Senators, responding to their constituents, wanted to learn what might be done to lower electricity costs.

The Committees heard from the State’s major utilities: Hawaiian Electric Company (HECO), which is the only utility on Oahu, Maui, Molokai, and Hawaii Islands; the Kauai Island Utility Cooperative (KIUC), which is electrical utility on Kauai Island; and HawaiiGas (HIGas) the statewide gas utility.

The committees holding the joint hearing were: Water and Land Committee chaired by Senator Malama Solomon and the Energy and Environment Committee which is chaired by Senator Mike Gabbard. 

Three local publications – Civil Beat, West Hawaii Today, and the Honolulu Star Advertiser – covered the hearing extensively.

A key part of the hearing dealt with the proposed switch from petroleum fuels to Liquefied Natural Gas (LNG)-fueled electrical power production.  The joint committee explored how LNG could lower the cost of electricity in Hawaii, and how the LNG would be transported from Alaska and the U.S. West Coast to Hawaii despite the restrictions imposed by the Jones Act.  The Jones Act requires that a vessel be U.S.-built, U.S.-flag, U.S.-crewed and U.S.-owned to carry cargo between two domestic U.S. places.

The critical aspect of  Jones Act in regards to the transportation of LNG is the US-build requirement.  Constructing deep draft oceangoing ships in the U.S. is far more expensive – approximately 3 to 4 times greater depending on the type of ship – compared to building the same ships in one of  the major shipbuilding yards in Japan, South Korea and China.  These countries build more than 90% of the large oceangoing ships in the world today. 

The type of ship needed to transport LNG is a highly-specialized kind of tanker ship known as an LNG Carrier, none of which have been built in the U.S. since the mid-1970’s.

The U.S. Government Accountability Office (GAO) reported on February 27, 2004, after assessing the Hawaii Cruise Ship Exemption, that “no large new cruise ships have been built in the United States since 1958. This use of foreign-built ships is largely due to the higher costs anticipated when building a ship in the United States, rather than in shipyards in Italy, Germany, and elsewhere that have the infrastructure, expertise, and economies of scale for this segment of the market.”   Although this GAO evaluation was about large passenger ships, the same conclusion can be drawn for other ships especially other highly specialized ones such as LNG Carriers.

The adoption of LNG to fuel electric generation on Oahu Island, where the main population center is located in Honolulu, will lower utility and consumer costs.  It could also lower electricity costs on the neighbor islands of Kauai, Molokai, Maui and Hawaii (Big Island).

The best way to remove the Jones Act impediment to lower energy costs in Hawaii is to adopt the Hawaii Shippers’ Council (HSC)’s noncontiguous trades Jones Act reform proposal that in a nutshell would exempt the noncontiguous trades – Alaska, Guam, Hawaii and Puerto Rico – from the U.S. build requirement of the Jones Act for large oceangoing ships.

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