By Don C. Brunell
Normally, you wouldn’t think the cost of electricity would clobber ranchers, but in Hawaii, high power rates are the central competitiveness issue. In fact, the owners of the mammoth Parker Ranch on Hawaii’s Big Island have calculated their “per cow” electricity costs.
Much of the famed ranch’s 130,000 acres is rich grazing land on a high plateau between Hawaii’s twin 13,000-foot volcanos. Parker Ranch is one of the nation’s largest beef producers, with much of its product sent to the mainland. The ranch has an extensive water system with large reservoirs, water tanks and troughs, but much of the water must be pumped.
That’s where the electricity costs come in. Parker’s electricity cost per calf is $40 per year and rising, compared to $12 for its competitors. Parker runs about 17,000 head of cattle on its ranch, meaning their annual electric bill is about $680,000.
In Waimea, the small town where the Parker Ranch is headquartered, the electric bill for the town’s 33-bed community hospital was $1.2 million last year, compared to an average $350,000 on the mainland.
The Hawaiian Electric Company (HEC) predicts that Hawaiians, who currently pay $160 per month, will pay $300 a month by 2020 and $1,200 per month by 2040 unless things change.
In 2009, more than 90 percent of Hawaii’s electricity was generated by imported oil that is then distributed to refineries and power plants on the island chain by boat, barge and truck because, unlike other U.S. states, Hawaii has no pipelines or railroads. Not surprisingly, electricity costs in Hawaii are the nation’s highest, while we in Washington enjoy some of the lowest.
Today, Hawaii is making a concerted effort to install solar panels and wind turbines and tap into the volcanoes’ geothermal potential. Even with this emphasis on renewables, HEC reports that, over the next decade, more than half of Hawaii’s electricity will come from oil or perhaps liquified natural gas, if that is allowed as a replacement fuel.
Writing in a local newspaper last fall, Parker Ranch chief executive officer Neil “Dutch” Kuyper noted, “We’ve analyzed the local food and local beef situation and it is clear that success depends on an energy decision. For the ranch, energy is our single most volatile cost and it hinders our ability to be competitive. Energy costs squeeze our margins. We also discovered that increases in energy costs for residents in our region outstrip their incomes and force them to make cutbacks and tradeoffs.”
In other words, the price of electricity is getting so high in Hawaii that residents are forced to cut household spending in order to pay their electric bills.
What the Parker Ranch is experiencing illustrates the importance of the low-cost, abundant, reliable electricity that we are blessed with in Washington because of our extensive hydroelectric system. Our electricity costs are well below the national average, which keeps our industries and businesses competitive and provides affordable energy to homes, schools and hospitals – and many of our farmers and ranchers pump water to irrigate their land and maintain their livestock. Abundant water and low-cost power is our state’s gold nugget.
As our elected officials look to the future and work to expand our economy, grow our tax base and create jobs, they need to be mindful that energy costs are a major expense. Unfortunately, we really don’t know the impact of those costs, because in 2008, our government stopped including the cost of food and electricity in the Consumer Price Index.
But if you consider what is happening in Hawaii, it doesn’t take a rocket scientist to see that the cost of electricity is a key cost driver for all of us.
Don C. Brunell is a business analyst, writer and columnist. He recently retired as president of the Association of Washington Business