Hawaiian Electric Co.'s new $137 million generator at Campbell Industrial Park has been completed, but won't be providing electricity to HECO customers until the utility can find a new supplier for the renewable biodiesel it will burn.

The utility is having to seek new bids from bio-fuels producers after having its proposed contract with a Seattle-based company rejected by the state Public Utilities Commission yesterday. HECO spokes- man Peter Rosegg said the utility is moving as expeditiously as possible.

"It's an unfortunate delay, but it's not the end of the world," Rosegg said.

"It's a bump, not an obstacle."

The PUC rejected HECO's request, saying a proposed biodiesel supply contract with Seattle-based Imperium Renewables carried too many risks and possible costs to be born by the utility's customers. The commission also rejected a proposed storage terminal and trucking delivery contract with Aloha Petroleum Ltd.

"The commission has an obligation to ensure that in obtaining that biofuel, HECO negotiates pricing and terms that are reasonable and in the public interest," the PUC said in its ruling.

Hawaiian Electric built the 110-megawatt combustion generator and related transmission lines to help handle peak loads and manage the O'ahu electrical demand reliably in the short term, Rosegg said. The plant has been designed as the utility's first generator to run on biofuel as part of its commitment to renewable energy.

The plant was finished recently, and the generator is being tested by its manufacturer. There also will be a period during which HECO must qualify for an air quality permit from the state before it can begin generating electricity for customers.

PLANS FALL APART

HECO chose Imperium Renewables as the biofuel provider after reviewing seven proposals. Imperium said it would build a $91 million biodiesel refinery at Campbell Industrial Park that would have a pipeline connected to HECO's new generator.

But those plans fell apart because of financing troubles, and Imperium asked HECO to renegotiate the contract calling for 5 million to 12 million gallons of biodiesel annually.

The new contract had higher prices for the fuel and limited Imperium's liability if HECO was forced to find another supplier, the PUC ruling said. It also changed the delivery location to Kalaeloa Harbor, and required HECO to seek a contract with Aloha Petroleum to store and then truck the biodiesel to the generator.

The PUC ruled HECO had agreed to the contract changes with Imperium without a competitive bidding process, and that there was no need for the contract with Aloha for transportation and storage at present.

The request for new biofuel proposals could take months to execute, and PUC approval of a contract would be required, Rosegg said. He said, however, that the utility will be discussing what can be done in the interim with the commission and the state consumer advocate.

"We need to talk to the PUC and the consumer advocate on how to move forward," he said.

'UP A CREEK'

It remains to be seen whether the PUC will allow HECO to operate the refinery on a short-term interim biodiesel contract or whether the facility will sit idle until a new supply contract is approved.

"They're sort of up a creek until they come up with a new idea how to power the plant," said Henry Curtis, executive director of Life of the Land, an environmental and community action group that intervened in the PUC proceedings.

Curtis said it may be that HECO will turn to Malaysian palm oil suppliers for the biofuel, since it meets the sustainability requirements set by the Natural Resources Defense Council that the utility has pledged to abide by.

Curtis opposes use of palm oil on a number of grounds, saying its cultivation displaces natural communities and is destructive to the planet.

But he said ratepayers may also object to it because the sustainable palm oil HECO seeks costs more than ordinary palm oil, which in turn costs more than ordinary fuel oil.

The PUC said its decision should not be construed to reflect unfavorably on biodiesel, and that its decision was based on its obligation to make sure that pricing and terms are reasonable and in the public interest.

"The commission remains strongly supportive of biofuels and other renewable energy resources, and in fact, the commission has required the use of biofuels in this new generating unit," said PUC Chairman Carlito Caliboso.