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### Fuel Cost Screening Tool

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## Overview

This overview is intended to provide the user of this fuel cost screening tool and those interpreting outputs generated by the tool with an understanding of the sources and uses of information used within the tool, a general understanding of how the tool functions, and the component parts of the tool including location s of data/informa tion and types of data utilized within the tool



### Purpose

The purpose of this tool is to allow economic impact comparisons between differ ent electricity generation fuel types specific to a selected set of power plants operated by Maui Electric Company (“MECO”) and the Hawaiian Electric Company (“HELCO”). The tool itself is a spreadsheet

- based cost model incorporating user inputs for a range of power plant fuels from the existing "business as usual" case utilizing residual fuel oil, to lower sulfur industrial fuel oils, and ultimately distillate fuel oil.

The tool utilizes cost information as reported by MECO and HELCO, as well as publicly av ailable information regarding market capacities and prices. The screening tool incorporates historical utility fuel
and nonfuel costs and interacts those costs with user

- defined fuel price inputs to report out on a dollars per megawatt hour ($/MWh) basis t he average impact to utility consumers in both utility jurisdictions as a result of switching from the base case fuel to an alternative fuel.



### Architecture

The fuel cost screening tool is a spreadsheet model utilizing MS Excel. The tool models the costs o f generation for MECO and HELCO for both the targeted generation units as well as all other utility plants on those islands. The tool also takes into account all costs of purchased power for the two utilities. The spreadsheet contains multiple tabs ident ified within the printed documentation here and discussed in general below and in more detail in the Methodology section:

 Dashboard

- the operator interface panel and results posting area

o Calculations

- sheets utilizing tables and data to populate results in the Dashboard

 Tables

- sheets consisting of summarized data used than necessary for the

calculations

Data

- sheets consisting of individual data points, such as a specific
market price observation for a given year, month, etc.

Fuel Input Optionality

The dashboard within the screening tool is the user interface for creating comparisons between the base case fuel cost and alternative cases. Within the dashboard, the user is provided with alternatives for each individual targeted power plant relative an alt ernative fuel type and price point. More discussion on this matter can be found in the Methodology & Application section below.

Fuel Premium Approach The screening tool utilizes publicly available fuel data to calculate fuel price premiums between the b ase case fuel (medium sulfur fuel oil, or MSFO) and the alternative fuels selected by the user. In each case,2

the screening tool compares historical low, mid, and high price for MSFO with similarly low, mid, and high alternative fuel prices. The difference between historical low, mid, and high MSFO and the
alternative fuel is the incremental fuel cost

- adjusted for heat content

- that the screening tool uses to determine electricity rate impacts.

Utility Rate Impact Estimation Electricity rate impact modeling within the screening tool is accomplished by modifying the cost of production for the targeted electricity generating plants. In alternative fuel scenarios that do not require additional capital infrastructure in order to a ccommodate a fuel switch from MSFO, the screening tool assumes that the affected plants and their fuel supply temperature sure/costs are not impacted. Additional information is provided below in the Methodology & Applications section.

“Targeted” Utility P lants The screening tool and this report focus on a subset of all the generation resources operated by MECO and HELCO and refer to those units as the “targeted” plants. That designation refers to the power plant units operated by each utility that current ly consume residual fuel oil (RFO) and which are within the review of EPA’s work for purposes of addressing rulemaking regarding visibility under Regional Haze regulations. The targeted plants are indicated in the following table:3



## Methodology & Appli cation

The following discussion addresses in detail the methodology employed in the fuel cost screening tool and how that methodology is applied using available data and information. This discussion is aimed at documenting in detail the logic utilized in the model and providing a more complete understanding of the data sources, calculations, estimates, and outputs.

The ultimate modeling output of the methodology employed in the fuel cost screening tool is the incremental cost impact to average electric u tility rates for each of the two utilities, MECO and HELCO. The following diagram illustrates at a high level the flow of information through the fuel tool that results in the impact to electric utility rates driven by the alternative fuel selected.



### Base Case I nputs, C alculations & O utputs

The Base Case represents the costs and volumes associated with the MECO and HELCO utility systems during calendar year 2009. The fuel screening tool defines the Base Case year in terms of the fuel volumes consumed and fuel costs incurred, reported energy production and power plant unit capacity factors that occurred during 2009.

Unlike the Alternative Cases which are discussed below, the Base Case includes the “business as usual”
fuel costs as well as all non

- fuel costs . As required for calculating th e economic impact of alternative
fuel cases to overall electric rates, the Base Case incorporates all costs for 2009, including general administrative, electrical distribution, transmission, and electric supply costs including all sources of electricity en ergy generated at the targeted generating facilities , energy from non

- targeted plants, and energy purchased by the utilities

.
The screening tool calculates the average utility rate for both MECO and HELCO individually by dividing the total costs reported i n Base Case year by the energy sales during the base case year. The resulting unit cost of energy ($/kWh) is compared to the Alternative Case unit cost to determine the incremental impact of the selected alternative fuel.



### Alternative Case I nputs, C alculat ions & O utputs

The Alternative Case is compared against the Base Case and represents the costs and volumes associated with the MECO and HELCO utility system s during a calendar year after adjusting fuel cost inputs (and volume inputs in the case where dies el fuel is the alternative fuel). The Alternative Case selection drives the calculation of a “fuel premium” between the Base Case fuel and Alternative Case fuel, and applies that premium to all the fuel burns at the targeted plants only, for each utility. The screening tool allows the user to select one of the following as the Alternative Case Base Case fuel

volumes & costs Alternative Case fuel

volumes & costs Incremental impact

to overall electric
rates by utility4

Diesel (includes capital costs associated with retrofitting burners & fuel handling as well as adjustment to burned volumes due to the lower heat content of diesel compared to MSFO ) Lower Sulfur Industrial Fuel Oil (LSIFO) @ 0.5% sulfur content Lower Sulfur Industrial Fuel Oil (LSIFO) @ 1.0% sulfur content

In recognition that forward fuel prices are difficult to predict, and In order to represent a range of
Alternati ve Case fuel prices that represent the price volatility of each alternative fuel choice, the screening model allows the user to select from a range of fuel premiums

– based on historical cost reporting from each utility

– and also allows the user to input their own fuel premium to test sensitivities. Therefore, i n addition to selection of a fuel type as discussed above , the model allows the user to create an Alternative Case based on the following four pricing scenarios, individually defined as:

1. Low Case: Where fuel prices for the Alternative Case are calculated as the minimum difference
between monthly reported MSFO prices for each utility and the monthly reported a lternative
fuel price s , where the historical fuel prices c over the six year period of Janua ry 2006 through
December 2011.

2. Mid Case: Where fuel prices for the Alternative Case are calculated as the average difference between monthly reported MSFO prices for each utility and the monthly reported alternative fuel price s , where the historical fuel prices cover the six year period of January 2006 through
December 2011.

3. High Case: Where fuel prices for the Alternative Case are calculated as the maximum difference between monthly reported MSFO prices for each utility and the monthly reported alterna tive fuel price, where the historical fuel prices cover the six year period of January 2006 through
December 2011.

4. User Defined: Where fuel prices for the Alternative Case are calculated as the maximum difference between monthly reported MSFO prices for each utility and the monthly reported alternative fuel price, where the historical fuel prices cover the six year period of January 2006 through December 2011.

Non

- fuel costs for the non

- targeted plants, as well as purchased power costs, are kept at the same volumes and costs. The screening tool calculates the average utility rate for both MECO and HELCO individually by dividing the total costs reported in the Alternative Case by the energy sales during the Base Case year. The resulting unit cost of ene rgy ($/kWh) is compared to the Base Case unit cost to determine the incremental impact of the selected alternative fuel.



### Alternative Fuel Impact to Electricity Rates

The fuel screening tool utilizes the unit cost ($/kWh) outputs of both the Base Case and the Alternative Case to calculate and report the incremental rate impact of the Alternative Case fuel selection. The incremental cost is reported both in terms of the impact to fuel costs (entire utility) and the impact to overall, average utility rates (entire utility). The screening model includes several graphics that provide visualizations of the outputs for each utility individually and in comparison to each other. A sample of the graphical reporting from the screening tool is provided below.5



### Key Assumptions

The fuel screening tool operates under multiple assumptions that warrant mention and which are also identified in the documentation provided on the modeling output. Those key assumptions include the following:

The price of LSIFO is assumed to be equal to the historical price for LSFO burned on HECO . LSIFO (either 0.5% or 1.0% sulfur content) is not currently consumed by MECO or HELCO , and it not
known to be currently produced at either refiner on Oahu nor imported to the islands. T he current HECO fuel policy requires LSFO burned by the HECO plants to be at or below 0.5% sulfur

. Therefore, LSIFO that would be produced, blended, or imported by either of the Hawaii
refineries would be reasonably expected to follow similar market prici ng pressures as those that influence the low sulfur fuel oil currently burned by HECO plants. The price of LSIFO 1.0% and LSIFO 0.5% is set in the model at the same value, however, the user does have the ability to modify the price of 1% LSIFO as a percent age of 0.5% LSIFO. This approach was taken based on the assumption that historical LSFO pricing (itself at 0.5% sulfur content) as described above, would most closely represent a suitable proxy for 0.5% LSIFO. Therefore, the user has the ability to modif y the LSIFO 1% price, even though the screening tool is set initially to price 0.5% and 1.0% LSIFO the same. A switch to LSIFO from MSFO would not require any modifications to fuel handling, boiler technology, or other capital equipment at any of the targeted utility plants . The critical physical characteristics of LSIFO (pour point and heat content) are assumed to be the same as MSFO, thus all existing piping, storage, shipping, and plant unit infrastructure is assumed to be adequate t o fully utilize LSIFO.6



## Summary of Modeling Output

The screening tool’s operative and critical component parts, including detailed descriptions of calculations and data, have been reproduced in the following pages and will provide sufficient
informati on necessary to fully inform the reader as to the source, use, and outcomes of all data, calculations, and results stemming from the fuel screening tool.

The discussion that follows in this section therefore is provided as a summary to the additional and more detailed information below and it provided to summarize the results of each modeled scenario.



### Results Reported

As discussed above, the screening model allows for comparisons between average utility rate relative to the Base Case (MSFO burned at the t argeted plants) and three Alternative Cases (diesel and 0.5% and 1% LSIFO) across three historical price premiums (low, mid, and high), and a user

- selected price premium. With the exception of the user

- defined price premium option, the optionality in the screening tool results in a total of nine comparisons to the Base Case as described in the table below:

Alternative Fuel Low Mid High

Diesel

0.5% LSIFO

1.0% LSIFO

Without consideration of any user

- defined adjustment of pricing for 0.5% versus 1.0% LSIFO, the screening tool reports out a total of six cases for each utility as indicated below.

The incremental cost ($000) reported above are the result of applying the Alternative Case price premium against the kWh of generation identified in the 2009 Base Case year for the targeted plants only. Interpretation of the results in the table above are aided by information in the following table regarding the amount of ener gy supplied by the targeted plants and o ther sources for MECO and HELCO.7

The larger relative cost impacts for HELCO compared to MECO are drive by two factors; the higher percentage of the total energy supplies represented by the targeted plants and the l arger quantity of energy produced by the targeted plants compared to MECO’s targeted plants.

The “Low” price scenarios for LSIFO produce results that indicate that LSFO (as the proxy price for LSIFO) has over time been lower cost than MSFO. These negative price premiums, while not appearing to persist on a consistent basis over the time series of 2006

- 2011 evaluated in the screening tool, have
nevertheless occurred as recently as March 2010 and nearly occurred again in early 2011. T he graph
below illustra tes the LSIFO and diesel price premiums calculated from data supplied by MECO to the State of Hawaii, Department of Economic Development and Tourism for their monthly energy reporting.