Hu Honua Creditors Jam Hilo Court with Applications for Mechanic’s Liens

posted in: Energy, March 2014 | 0
For a few weeks in January and February, keeping up with the filings for mechanic’s liens against Hu Honua Bioenergy required almost a full-time presence in Hilo’s 3rd Circuit Court.
On February 4, an article by John Burnett in the Hawai`i Tribune-Herald noted that almost $37 million in recent liens had been sought against the company, which is trying to build a 21-megawatt biomass-fueled power plant on the coast near Pepe`ekeo, just a few miles north of Hilo. The same day the article appeared, two more companies filed for nearly $250,000 in liens.

As of mid-February, here’s how things stood:

Hawaiian Dredging Construction Co., the primary contractor, claimed that it was owed $35,166,862.50;

American Electric Co., based on Sand Island, filed for a lien in an amount just shy of $1.304 million;

Graybar Electric, Inc., a New York corporation with its headquarters in St. Louis, is seeking $48,392.64 from American Electric, Hu Honua, and Hawaiian Dredging;

General Supply & Services, Inc., also known as GEXPRO and based in Connecticut, claims Hu Honua owes it $53,268.80;

Transglobal Energy, Inc., based in Georgia, is seeking payment of $200,558.51.

T Bailey, Inc., of Seattle, says it is owed $399,474.25 for work it has done to install tanks on the site.

Altogether, at press time creditors had filed claims totaling $37.17 million in unpaid invoices and carrying costs. The amount grows each day, as interest accumulates on the balance. Also, every creditor is also asking for attorneys’ fees and other costs associated with the court filings.

Yet another lien was filed in December by Wesco, which sought $215,174.74. That was withdrawn on January 17, however.

In attachments to the court filings, unpaid invoices suggest Hu Honua began to fall in arrears last spring.

On February 7, the company released a statement announcing that it had

“engaged Performance Mechanical, Inc. (PMI) as its new general contractor for work remaining on-site.”

PMI, it went on to say, “has extensive boiler and power plant experience with utility-grade facilities, including several installations in Hawai`i. Once the contractor is on board, construction is expected to return to full staffing levels by mid-summer.”

In the face of the mounting debts, Hu Honua has managed to raise a line of credit approaching $35 million. Documents filed at the Bureau of Conveyances in mid-January show that Island Bioenergy, LLC, which is the sole member of Hu Honua, had advanced $8.772 million to Hu Honua, was pledging another $6.228 million in future loans, and was also considering an “accordion advance” of $20 million, in “the lender’s discretion,” for a total capitalization of $35 million. Signing on behalf of Hu Honua was John G. Sylvia, identified as its president and CEO.

At the same time, Island Bioenergy gave a mortgage to a Delaware entity called NIV, LLC, secured by Island Bioenergy’s claim on the Hu Honua property. That mortgage calls for NIV to provide a loan of $15 million to Island Bioenergy, in addition to “accordion advances” of up to $20 million. Signing the loan documents as manager of NIV was Jonathan Christianson, a lawyer in Roseville, California. Signing for Island Bioenergy were Harold L. Robinson IV and Peter L. Kleis, both identified as “co-chief executive officers.”

Revised SMA Permit Is Upheld

Amid the flurry of court claims, Hu Honua did have one piece of good news. On January 14, 3rd Circuit Judge Greg K. Nakamura ruled in favor of the Hawai`i County Planning Commission in a lawsuit that had challenged the commission’s award of a Special Management Area permit for the plant.

Opponents had argued that, among other things, the commission had not given due consideration to state historic preservation requirements. Nakamura remanded the case back to the Windward Planning Commission, which held an additional hearing and also required an archaeological inventory study be prepared. Once that was done, last fall, the county’s attorneys came back to Nakamura with a request for judgment in their favor.

The opponents had also argued that the use of the land for a power plant violated the public trust. In his ruling, Nakamura disposed of that argument, noting that under state law, the public trust doctrine applies generally to water resources but not to land, unless the state has title.

“This case deals with land,” he wrote. “It appears that in order for land to be considered a natural resource subject to the public trust doctrine, the state must have title… Moreover, there is an insufficient basis to find or conclude that the land itself has such significance as a natural resource that it can be considered a public natural resource.”

Another positive note came in late December, when the state Public Utilities Commission approved the power-purchase agreement between the Hawai`i Electric Light Co. (HELCO) and Hu Honua. The 20-year agreement sets a price of $253 per megawatt-hour for 20 years. In the same order, the PUC approved the construction of five high-voltage power lines connecting the plant to HELCO lines.

EPA Ruling on Air Permit

On February 7, the administrator of the U.S. Environmental Protection Agency released a decision in the appeal of the clean-air permit that the state Department of Health had granted to Hu Honua in 2011.

The administrator, Gina McCarthy, found in favor of the group that filed the appeal, Preserve Pepe`ekeo Health and Environment (PPHE), on three of the 13 objections the group raised to the covered-source permit. The three objections that McCarthy supported are:

That the permit does not ensure that the plant will comply with emission limits for certain so-called criteria air pollutants;

That the permit does not ensure that the plant will comply with emission limits for hazardous air pollutants;

And that the permit record does not adequately explain an exemption to an emission limit that applies during start-up and shut-down procedures.

The Department of Health has 90 days – until early May – to revise the permit in a manner that will address the EPA’s objections.

The permit that the state issued was a minor source permit, available to facilities that produce less than 250 tons per year of pollutants. According to documents that Hu Honua submitted in its permit application, the plant would generate just under that amount – 246.4 tons per year.

PPHE argued that the formula Hu Honua used to estimate emissions of carbon dioxide, one of the criteria pollutants, during start-up times was based on limited and low-quality data. If more accurate data had been used, the group argued, the plant would most likely be deemed a major source – and have to be permitted accordingly. It also claimed that the permit contained no enforceable condition that would ensure that emissions of CO and other criteria pollutants, including nitrogen oxides, would not exceed the threshold for a major source permit.

In its arguments that the permit (and Hu Honua) under-estimated hazardous air pollutant (HAP) emissions, the opponents noted that Hu Honua had calculated emissions based on a chemical analysis of the eucalyptus wood that would be burned: “[t]he permit limits are based on chlorine concentration of 0.03 percent, when an average of the 6 eucalyptus samples included in [the appendix] showed an average chlorine concentration of 0.12 percent, and a high of 0.434 percent in rose gum bark…. Hu Honua skewed the chlorine concentration of project feedstock and emissions by omitting the highest concentration feedstock – rose gum bark – and including the lowest concentration – rose gum without bark – even though the [permit] includes bark in the boiler’s feedstock.” Had an emission factor more representative of the actual wood to be burned been used, they argued, the outcome would probably have pushed the calculated emissions over the threshold of 25 tons per year for HAPs.

Even using these estimates, Hu Honua calculated that its HAP emissions would come to 23.8 tons per year – once again, very close to the threshold for a major source.

The EPA administrator generally found the arguments on this point convincing and instructed the Department of Health to revise the permit to ensure that the limits on hazardous air pollutants are enforceable.

Other Troubles

As Environment Hawai`i reported in our December issue, Hu Honua is being sued by Maukaloa Farms, LLC, the company that owns the roughly 25 acres on which the power plant is sited. Maukaloa Farms claims that Hu Honua is in violation of its lease since it did not seek advance approval for major improvements nor had it complied with bonding requirements. In an initial response to the filing, Hu Honua attorney Gary Grimmer argues the claims lack merit; the improvements Hu Honua is making will actually increase the percentage rent that the company pays to Maukaloa Farms, he says, so the landowner has suffered no injury whatsoever.

 

Volume 24, Number 9 March 2014

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