Hawaii Auditor Critical of Natural Energy Lab

NELHA

The Natural Energy Laboratory of Hawaii is under fire from the state auditor's office for poor management and lack of transparency.

A 50-page audit released Wednesday by State Auditor Marion Higa says that after 40 years, the ocean-research and commercial facility on the Big Island has failed to live up to its potential and struggles to justify its worth. It also has a poor record when it comes to complying with the state Sunshine Law.

"In the absence of clearly reported progress and while continuing to struggle with the basics of open government, NELHA has had difficulty convincing legislators, taxpayers, and potential tenants of its worth and successes," the audit begins.

Located at Keahole Point in the Kailua-Kona region, the sprawling 870-acre facility serves as a tech park for more than 40 businesses, including some of the state's most cutting-edge renewable energy and aquaculture projects. It houses Sopogy's solar thermal energy project, Cellana's pilot project aimed at turning algae into fuel and Big Island Abalone Corporation's 10-acre aquafarm with 5.5 million shellfish.

NELHA's businesses create about 600 jobs in Hawaii and generate more than $80 million in annual revenue for the economy, according to the most recent data from NELHA. The lab has also operated without any state funding during the past few years. It brings in about half of its operating budget by leasing land and charging for its seawater distribution system. The rest comes from federal funds.

But auditors found a host of administrative deficiencies with NELHA.

The audit was sparked by tenants' concerns that NELHA wasn't being transparent when it came to rates for seawater, which is used to cool buildings, supply aquaculture operations and support ocean technology projects. The lab also has a desalination plant. But the report had little to say on this matter, other than that tenant costs could be more clear. NELHA passes its cost to distribute seawater on to its tenants and doesn't take a profit.

Most of the criticism focused on the agency's administrative functions, rather than significant fiscal mismanagement or violations of state law.

The audit, which covers the period from 1990 through mid-2011, found NELHA to be operating without a financial or master plan. Administrative rules drafted in 1998 had never been completed and its policy manual hadn't been updated since it was first published in 1995. A master plan was finally completed in 2011, according to the audit.

The report also said that NELHA didn't do a good job of recording and posting meeting notes and that many board members didn't make it to meetings, sending surrogates instead. And it criticized NELHA's website as being "outdated and incomplete."

The audit also found that the agency has a high turnover rate, going through 21 executive directors in 37 years. It lost 32 board members in the past five years, when the board ranged in size from 11 to 13 people.

State officials were positive, at least tepidly, about one thing — NELHAs new executive director Gregory Barbour, who took over in June 2011. The report said that marketing has since resumed after years of inactivity, tenant relations are improving and the NELHA was pursuing alternative revenue streams.

"Since taking up duties in mid-2011, the new executive director has made noticeable progress in a number of areas," the report says.

In an interview with Civil Beat, Barbour noted that it's rare in Hawaii to have a state agency that doesn't rely on state taxpayer funding. And he said the lab has had a host of commercial successes, in addition to hosting leading research in energy technologies, such as ocean thermal energy conversion.

"Seventy percent of the state's aquaculture is produced here. How can anyone say we haven't achieved our mission? That's a big thing," he said.

And then there's NELHA's desalinated, bottled water operation.

"Water — that's the state's biggest export. Give me a break," said Barbour, pointing out that much of the state's $40 million in water exports to Japan last year came from NELHA.

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