HCR167

WHEREAS, the principal purpose of the Natural Energy Laboratory of Hawaii Authority (NELHA) is to provide services and resources to tenant companies engaged in ocean-related research, education, and products; and

WHEREAS, the largest operating cost that NELHA has is the provision of seawater to its tenants, all of whom are located at NELHA because they need the seawater NELHA is capable of providing in order to make their businesses viable; and

WHEREAS, the NELHA Board of Directors, following the directive of then Governor Cayetano in 1995, to become self-sufficient, began raising the price of the seawater delivered to tenants by twenty per cent a year until the operating cost of that seawater delivery was actually being paid by the tenants; and

WHEREAS, in 2005, NELHA reviewed the actual cost to deliver the water, as part of the preparation for the next rate increase, and found that the previous year's twenty per cent price increase did not cover the increased cost of the electricity needed to pump the water; and

WHEREAS, the NELHA Annual Report for Fiscal Year 2006 states that more than ninety per cent of the approximately 14,500 gallons per minute of produced seawater is used by aquaculture tenants at a price of $0.1728 per thousand gallons (Kgals), purchases that are subsidized by NELHA from its own funds; and

WHEREAS, the balance of the water produced is purchased by water bottling companies who pay $0.60 per Kgal and a charter high school that pays the actual operating cost of producing the water; and

WHEREAS, the 2006 report further states that NELHA has the capability (with increased pump and motor capacity that would cost approximately $5,000,000) to deliver 97,900 gallons of seawater per minute, 58,100 gallons of surface seawater, and 39,800 gallons of deep seawater; and

WHEREAS, in February 2007 testimony on Senate Bill No. 853 (2007), NELHA stated that by 2007, investments in the water system at NELHA totaled nearly $40,000,000, with no provisions for repair or replacement of the system; and

WHEREAS, the system is unique in the entire world, with two pipelines that reach down 2,000 feet into the sea and one that reaches 3,000 feet; and

WHEREAS, including replacement costs or the provision of depreciation reserves for the seawater systems, the cost of the water would be substantially more than $0.1728 per kgal, with estimates as high as the $1.00 to $2.00 per kgal range; and

WHEREAS, the current and future cost associated with seawater pumping, while significant, is only one component in the operating costs of the NELHA facility; and

WHEREAS, other facility costs, personnel costs, the required transfers of ceded lands revenues to the Office of Hawaiian Affairs, and the NELHA self-sufficiency mandate of 1995, all have a profound effect on the determination of water rates for tenants; now, therefore,

BE IT RESOLVED by the House of Representatives of the Twenty-fourth Legislature of the State of Hawaii, Regular Session of 2008, the Senate concurring, that the Auditor is requested to conduct a financial and management audit of the Natural Energy Laboratory of Hawaii Authority, including but not limited to:

(1) An evaluation of overall operating costs, including facility costs, personnel costs, and the required transfers of ceded lands revenues to the Office of Hawaiian Affairs, as well as any pending or proposed capital improvement project costs;

(2) An evaluation of the operating costs for pumped seawater, the relationship of these costs to the past and current tenant rate structure for pumped sea water, as well as any pending or proposed capital improvement project costs for the pumped seawater systems;

(3) The impact of the NELHA self-sufficiency mandate of 1995, particularly its effect on the determination of water rates for tenants;

(4) Based on the information from (1) to (3), a determination of a reasonable rate structure for pumped sea water and what costs the tenants should assume, operating only, or operating and repair and replacement costs; and

(5) Any other considerations that the Auditor or NELHA may deem relevant; and

BE IT FURTHER RESOLVED that the Auditor is requested to submit a report of the findings and recommendations to the Legislature no later than twenty days prior to the convening of the Regular Session of 2009; and

BE IT FURTHER RESOLVED that NELHA is requested to freeze the rate that it charges for pumped sea water at the level in effect on the adoption of this Concurrent Resolution, until the Auditor completes the audit and reports to the Legislature, and the Legislature acts upon any recommendations by the Auditor; and

BE IT FURTHER RESOLVED that certified copies of this Concurrent Resolution be transmitted to the Auditor, the Chair of the NELHA Board of Directors, and the NELHA Tenants Association.

	OFFERED BY:	_____________________________

Report Title:

NELHA; Auditor; Deep Seawater Pumping; Audit

HOUSE OF REPRESENTATIVES	H.C.R. NO.	167
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII