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NATURAL ENERGY LABORATORY AUTHORITY OF HAWAII 2019-21 Strategic Financial Plan

INTRODUCTION

This Strategic Financial Plan covers the three upcoming fiscal years 2019, and the next fiscal biennium covering the period from July 1, 2019 to June 30, 2021. It is based on a 5-year review of historical actual revenues and expenditures for the fiscal years 2014, 2015, 2016 and 2017 and planned revenues and expenditures for fiscal year 2018. The NELHA vision paper, master plan, strategic plan, and distributed energy resources plan were used as a basis to prepare this plan. Revenue streams used in this plan include: seawater system, lease rent, percentage rent, royalties, electrical and freshwater reimbursements, and miscellaneous income. Expenditure streams include: seawater system, utilities, maintenance and security, environmental monitoring, beach park maintenance, administrative expenses, and assessments from other State agencies such as OHA, B&F and DBEDT. This plan also includes a summary of potential requests for additional new CIP funding. A summary of projects for the next fiscal biennium is listed. In addition, a listing of potential projects for the next five years (FY2022 to FY 2026) is listed.

MISSION CRITICAL CHALLENGES

Plans We need to continue to update our plans on a regular basis. For example, the master plan should be updated every 10 years. The master plan was last updated in 2012 and the update process should begin in 2020. We will use this plan to continually develop and update our vision, strategic plan, leasing policy, biosecurity policy. Additional plans and key studies on the horizon include an updated EIS, Special Management Area permit and sub-division approvals (County).

New Revenue Streams

It is unlikely that we will be able to receive general funds. Becoming self-sufficient by raising lease and water rates is not a viable strategy for the long-term health of NELHA. We need to develop additional revenue streams to distribute our operating costs over a broader base of clients. We must continually generate additional revenue to cover our costs and make necessary improvements to our facilities and infrastructure. We should also continue to review our non-performing assets and realize the revenue potential they afford.

Customer Service

We want to provide consistent customer service. To provide consistent customer service we need to identify standards of performance, provide proper training

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and certification to staff, and monitor performance on a regular basis. We should provide regular feedback to staff on customer service and solicit input from our NELHA users.

‘Re-brand’ NELHA

We want to position ourselves as the leading premier ocean science, aquaculture and advanced energy technology parks in the world. Besides the sale of seawater property leasing, we want to begin to offer additional services and facilities to support “incubation – accelerator – proof of concept” type facilities and programs and other laboratory services as well especially in the field of global aquaculture innovation. In this regard, we need to continue to develop the strategy to establish an aquaculture proof of concept center at NELHA. We particularly want to be seen as the place for innovation of global aquaculture technologies.

Seawater System

The NELHA seawater system is the largest and most advanced in the world. We need to continue our efforts to improve efficiency, stabilize energy costs, maintain adequate reserve fund, upgrade monitoring devices, remote controls, and pump station security, and achieve 99.99 percent uptime.

Fresh Water System

This has been a significant constraint in the past for preventing the use of existing parcels and the sub-division of land to provide additional parcels for lease. We need to continue to work with our partners at State, HHFDC and County to increase the fresh water allocation to allow for expansion. Additional options for developing other sources of non-potable water for aquaculture should continue to be explored.

Work Environment

We want to make NELHA a better place to work. To do this, we need to clarify work responsibilities by making Position Descriptions current, provide regular workplace training, provide quarterly feedback on work performance (JPRs), and find ways to creatively reward our employees.

Roads The road system needs upgrading, and additional new roads are required within HOST Park to access additional parcels.

Energy The main goal of the advanced energy initiative is to learn about nascent renewable technologies and grid modernization that will reduce our carbon footprint. Our stretch goal is to reduce this to zero by 2022. Main initiatives include: 1) Establish an energy storage testbed; 2) Develop an integrated energy district or microgrid; 3) Reduce our carbon footprint by adding renewable energy from solar photovoltaic (PV) panels; 4) Work with the University of Hawaii and US Department of Energy to develop a testbed for hydrogen technologies; 5) Expand efforts to assist the private sector in commercialization of OTEC; and, 6) Expand our relationships with the national laboratories and other key players in Hawaii’s energy field such as the Hawaii Natural Energy Institute and the utilities.

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SPECIFIC GOALS/PROJECTS/PROGRAMS

Leases • Update lease policy in 2020. • Evaluate and draft if necessary a policy for bulk water and salt

royalties. • Complete audits of information provided in conjunction with

royalty and percentage rent payments.

OTEC • With the largest deep and surface seawater distribution system

in the world, NELHA has a comparative advantage in this space and it needs to be exploited.

• NELHA must “keep its eye on the ball” and advance OTEC using the existing infrastructure in conjunction with a power purchase agreement for a small OTEC Pilot Project.

• Complete RFP process to enter into a PPA if viable. • Work towards supporting the development of a 5mW offshore

OTEC facility within the Research Corridor in the mid to late 2020s.

Research Campus

Improvements

• Complete grading of non-graded areas to make additional open space available for lease.

• Install Fire Hydrants. • Upgrade electrical distribution system and switchgear including

Farm Compound. • Repave roads and parking areas. • Replace Hale Wai Ono Roof. • Install additional security systems including access controls.

Gateway Center

Research Campus

• This facility is a $4M asset and has significant potential to generate additional revenue stream for NELHA.

• Construct and pave additional access road and utilities in the Gateway Center to open up a new second research campus.

New Small Business

Center

• All of the small lots in the lower elevations of HOST Park are leased and there continues to be a strong demand for lots of approximately 1 acre.

• Develop plans to construct new utility and access road into the six acre graded site on Makako Bay Drive.

• This will provide five additional 1-acre site for new emerging businesses.

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Ocean Centerpiece

• We need to continue efforts to “tee-up” this 80A site for long term lease.

• Concession law has been adjusted to allow for a long-term lease. Access road has been completed and water allocation issues have been resolved. Site visits to similar sites have been completed to provide examples of how to proceed.

• Continue efforts to execute lease with Mats4 LLC for the 1.3A commercial development.

• Complete procurement to securing a consultant to assist with issuing an RFP for long term lease proposals.

Aquaculture Proof of Concept

Center

• We need to continue to work with HSDC, HTDC, DOA, UH, NOAA, County of Hawaii and the private sector to demonstrate the State’s commitment to developing Hawaii’s commercial aquaculture industry.

• Secure additional funding from the Legislature, other State agencies and the private sector too develop a proof of concept center.

• Repurpose existing structures at HOST to create a facility and a program that supports innovative companies by helping them commercialize their product or service and secure financing for their growth.

Ocean Research

Corridor and EIS Update

• The current EIS is in excess of 20 years old and needs to be updated.

• EIS will be dependent upon the direction taken as a result of the new 2022 Master Plan especially with respect to the Ocean Research Corridor.

• EIS should account for possibilities for a fuller use of that resource for research and economic activities such as: an ocean instrumentation platform; offshore OTEC test-bed; moorings for instrumentation testing; and, aquaculture.

Archaeological Sites

• The archeological inventory survey was updated recently, and we need to continue to work with DLNR Historic Preservation Division to complete a burial treatment and management plan for the Hoona site.

Marketing Plan

• We need to continue to ensure that our marketing plan is up to date to ensure that it reinforces the ‘NELHA Brand’ as a premier advanced energy, aquaculture and ocean science technology park. We want to own this space and be recognized as the place to go to for renewable energy and ocean science activity.

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• Develop a public relations plan to promote NELHA. Review all points of contacts between our organization and the public to make sure we are providing a consistent image

• Maintain close relationships with our clients. • Maintain relationships with Hawaii County, Kona-Kohala and Hilo

Chambers of commerce and the Hawaii Island Economic Development Board.

• Develop a plan to market NELHA at key conferences and trade shows especially in the area of global aquaculture and advanced energy.

Roads • We need to continue construction of new roads and upgrading

of existing roads. This includes in order of priority: 1) Kahilihili Street extension to the south; 2) Pohakala Way; 3) Aholehole Street; 4) Paoo Street, and, 5) Unualoha Point Drive.

• Resurface Makako Bay Drive and other improvements. • Resurface Ilikai Place.

Seawater System

• We need to continue to upgrade pumps, control systems and related devices to stabilize seawater costs.

• Develop plan to retrieve or abandon in place the old abandoned deep seawater pipelines installed by Ocean Farms Hawaii on ocean floor.

• Current ability to remotely control pumps exists but continue development of remote communications and control loop signals in the Research Campus to increase reliability and safety.

• Upgrade control software to increase user friendly for data viewing and analysis and provide additional software training to implement advanced features.

• Add fiber communication along Makako Bay Drive and add SCADA work stations to the pump rooms.

• Evaluate and financial viability to add PLC system as an interface between the ClearSCADA and the variable frequency drives.

• Add duplicate pressure signals in the system for all pump stations as a backup.

• Increase security at pump stations with access controls and video monitoring.

• Repair 24” intake pipe near shore. • Replace zinc anodes protecting nearshore pipeline hardware. It’s

probably too expensive to do this in deep water.

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PV, ESS and Transmission

Infrastructure

• We need to continue to add photovoltaic solar panels and energy storage systems.

• Write grant application to US Department of Energy to install at least one grid scale storage device in the research campus.

• Develop microgrid transmission and control infrastructure to be able to stabilize energy costs.

Puna Site • We need to develop a plan for the long-term use of this parcel or

inform DLNR that we are no longer interested this lease.

Waste Water Monitoring

• We need to continue to work with the Department of Health Wastewater Branch to monitor tenant effluent to be in compliance with new regulations.

Fresh Water System

• We need to continue to work with the County of Hawaii and execute a formal written MOU for water credits allocation.

• Complete exploratory Ota well with HHFDC. • Initiate development phase of Ota well with HHFDC. • Explore other sources of non-potable water.

Personnel • Update and formalize Organization Chart and Position

Descriptions. • Personnel Performance reviews: These need to be current and

conducted on a regular basis. • Operations Personnel: All employees need to obtain the proper

training and certification. • Complete Administrative Rules.

Make NELHA Lands More

User Friendly and Safe

• Improve highway entrances for NELHA by updating signage and landscaping.

• Improve on general appearance of NELHA along main roadways to improve marketability.

• Develop projects to support community use of NELHA assets. Possible projects include: cleaning up the beach park, plan for a “path” for runners and bikers; covered picnic pavilions with BBQ pits along the jogging path and beach park; and, sponsorship of a summer reading program for renewable energy and ocean science issues.

• Continue to work closely with Friends of NELHA. • Update safety and security plans, including emergency

evacuation plans for NELHA.

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Information Technology

• Purchase and install new file and backup servers and server software in 2022.

• Purchase and install new network security devices in 2022. • Purchase and install new line conditioners and battery backup

devices for servers in 2022.

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Assumptions and Planning Scenarios Costs Revenue Assumptions

• 1.3A commercial lease begins generating revenue in July 2020. Beginning at $150,000 per month and rising to 250,000 per month at the end of the planning period.

• HDMI sold in October 2018 (3.0Mn, 25% down, 20-year mortgage for remaining principal).

• Percent rent increases at 2%, 4% and 6%. • RC Office space – stable until July 2020 then 3 percent annually. • RC Open space - $110,000 at beginning of planning period rising to $150,000 by

end of planning period. • Seawater revenue increase by 5% annually (electricity costs and use). • The lease for Ocean Centerpiece is not executed within this planning period. • Increases in grant revenues are not shown in this plan as the success of the

application is difficult to predict and normally do not have a substantial impact on net revenue.

SF Expenditures (Non-recurring)

• Consultant to assist with Ocean Centerpiece RFP process. ($350,000) FY2019. • Cleaning and grading of lands in Research Campus. ($100,000) FY2019. • Replace zinc anodes protecting nearshore pipeline hardware. ($100,000 in

FY2019 and $200,000 in FY2021). • Research Campus Security Systems. ($100,000) FY2020. • Replace roofing on Hale Wai Ono. ($80,000) FY2020. • Pump Station Security Systems. ($100,000) FY2021. • DSW 12” pipeline extension from along Kahilihili Street from Makako Bay Drive

to Kaiminani Drive. ($100,000) FY2021. • Replace and repair fencing around several discharge trenches. ($50,000) FY2021.

Short-Term CIP Requests (FY 2020 and FY 2021)

• Research Campus water main upgrades – including fire hydrants. ($350,000) FY2020.

• Abandoned Deep Seawater Pipeline Safety Project. ($10,000,000) FY2020. • Construction of Kahilihili Street extension (to South boundary of HOST Park) and

Pohakala Way. ($3,000,000) FY2020. • Small business compound at old Savers site. Planning and design for access and

utilities. ($1,000,000) FY2020. • Resurfacing of Gateway parking lot. ($250,000) FY2020. • Update Master Plan. ($300,000) FY2021. • Gateway Research Campus. Planning and design for access and utilities.

($1,000,000) FY2021.

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• Upgrade switchgear, ducts and repaving in Research Campus and Farm Compound. We are in the process of initiating the planning and design phase for this project and should be complete in mid-2019. ($1,000,000) FY2021.

Long-Term CIP Requests (FY 2022 to 2026)

• Updated EIS for the entire property and Ocean Research Corridor. ($750,000). • Ota Potable Water Well development phase. ($12,000,000). • Makako Bay Drive improvements including walk and bike paths. ($10,000,000). • Construction of Aholehole Street and Paoo Street. ($7,500,000). • Deep seawater pipeline 24” extension along Makako Bay Drive to provide service

to Ocean Centerpiece. ($500,000). • Improvements to Ilikai Place. ($500,000).

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