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A local biofuels company whose contract was just rejected by state regulators says it may take its business to the mainland.

called the Hawaii Public Utilities Commission‘s rejection of a $350 million contract with Hawaiian Electric Co. short-sighted. The company said the ruling flaunts energy mandates, effectively killed any future biofuels program in Hawaii and furthered the state’s reputation as a difficult place to do business.

Last month’s PUC said the cost of Aina Koa Pono’s fuel was “excessive, not cost-effective, and thus, is unreasonable and inconsistent with the public interest.”

The contract is the first of several local biofuels projects to be reviewed by the PUC. Hawaiian Electric’s recent push to use biofuels in its generators to meet state clean energy mandates has attracted controversy for the cost it could entail for Hawaii residents who already pay the highest rates for electricity in the country. Critics argue that cheaper renewable sources, such as solar, wind and geothermal, should take precedence.

In light of the decision, Aina Koa Pono is negotiating with a mainland buyer for the fuel it plans to produce from a proposed biofuels plant in the Kau region of the Big Island, according to Kenton Eldridge, co-founder of the company. Aina Koa Pono hopes to use feedstocks, such as sweet sorghum, to produce the biofuels.

PUC commissioners did not immediately respond to a request for comment for this story.

In a document given to Civil Beat on Monday by the company, Aina Koa Pono mounts a defense of its project and criticizes the PUC for not taking into account what it views as the multiple benefits of the biofuels project for Hawaii. The company plans to distribute the document more broadly in coming days.

The document lists 12 benefits, including keeping money spent on foreign oil in the local economy, creating local jobs, increasing Hawaii’s energy security and aiding Hawaii’s reputation “as an innovative center in (the) Asia-Pacific region.”

In a unanimous ruling, the three PUC commissioners said they dismissed any contention that they are “anti-biofuels” or “anti-renewables” because they turned down the contract. Commissioners also said that the decision doesn’t mean that in the future they won’t support biofuels as a potential source for the electric utilities. Hawaii’s electric utilities must meet certain benchmarks or face fines. By 2015, 15 percent of utility sales must come from renewable sources, 25 percent in 2020, and 40 percent in 2030. Now, about 10 percent statewide comes from renewables.

But Aina Koa Pono says the decision to reject the contract is anti-biofuels. At the same time, the company acknowledges that biofuels are unlikely to be cheaper than oil.

The decision “will likely foreclose any future long-term, large-scale biofuels projects in Hawaii to supply Hawaii’s electric utilities, since there is the inherent unpredictability of the PUC’s response to electric utilities’ applications for approval of long-term biodiesel supply contracts, and it is doubtful that biofuel pricing over the long-term can ever be shown to be less than projected costs of the fossil fuel imported into Hawaii,” according to the document.

The company also said that out of all proposals submitted to Hawaiian Electric in response to its quest for local biofuels, Aina Koa Pono’s proposal was the best. The contract was the first to be announced by the utility.

Aina Koa Pono criticized the argument that the cost of its fuel was excessive, saying the total cost over the 20-year contract would only add as much as $2 a month to the average consumer utility bill.

Critics, however, have argued that in addition to the premium for biofuels, there are added costs in complying with environmental regulations, additional capital investments, the costs of fuel infrastructure and possible operation and maintenance costs.

Aina Koa Pono criticized the PUC for not taking into account broader policy goals in their ruling.

“The rejection of this agreement is short sighted and contrary to the legislative mandate to develop a robust domestic biofuels industry, in order to reduce our state’s dependency on foreign oil,” Eldridge wrote in an email to Civil Beat. “The PUC has ignored both the benefits of domestic production, which will produce hundreds of local jobs and will infuse millions of dollars into our economy and the realities of the global market for high quality biofuels.”

The PUC ruling said that there were broader policy issues that were being considered, such as the potential of biofuels to curtail more economical renewable energy sources. Commissioners also said that they planned to do “a more comprehensive evaluation of the option,” suggesting that there will be more guidance in the future about what is acceptable in a biofuels contract.

Eldridge said that the price for the fuel currently being negotiated with a company on the mainland was higher than the contract price for Hawaii Electric Light Co., Hawaiian Electric’s subsidiary on the Big Island. He said that he couldn’t disclose further information about the potential buyer at this time.

He told Civil Beat that he had had no contact with Hawaiian Electric officials since the ruling, and with the contract being turned down, they had to look at other options.

But Peter Rosegg, a spokesman for Hawaiian Electric, said the utility has been talking with Aina Koa Pono. “We are still very committed to biofuels and we are talking very seriously to our partners at AKP to decide what could be done to move forward,” he said.

On Monday, Hawaiian Electric filed a request with the PUC asking that a deadline be extended by a month to decide whether to contest the ruling.

“We’re taking the long view and although this is a disappointment we are not just going to curl up and die,” Rosegg said.

Consumer Advocate Jeffrey Ono, whose job it is to protect ratepayers’ interests, gave his approval to the contract prior to the PUC ruing, which Aina Koa Pono points out in its document.

On Tuesday, Ono filed a with the commission asking it to clarify its ruling and provide greater guidance for the future review of biofuels contracts. Three more biofuels contracts are currently awaiting PUC decisions.