Hu Honua Asks PUC to Reverse Denial of Power-Purchase Agreement

posted in: August 2020 | 0

Hu Honua Bioenergy has lost its effort to win Public Utilities Commission approval of its power purchase agreement with Hawaiian Electric. The PUC rejected the agreement on July 9, on the grounds that the price per kilowatt-hour was not competitive with that contained in more recent solar-battery storage deals that the agency had approved.

Technically, the agreement between Hu Honua and Hawaiian Electric was premised on obtaining a waiver from the PUC of the requirement that the utility award power purchase contracts based on competitive bidding. The denial of that waiver meant the agreement was not approved. The per kWH cost in the Hu Honua agreement was more than twice that in agreements between the utility and grid-scale solar installations.

The reason the PUC was considering the matter in the first place was because of a decision last year by the Hawai‘i Supreme Court. In 2017, the group Life of the Land had appealed a prior approval of the waiver directly to the high court, arguing the PUC had failed to consider the impact of greenhouse gas emissions that would be generated by the plant, which is designed to burn eucalyptus and other trees grown on Hawai‘i island. The Supreme Court agreed and remanded the case back to the PUC.

Hu Honua, which says it has invested some $400 million to refurbish what started out as a plantation-owned power plant that burned bagasse, has argued that the PUC’s July order went beyond the scope of the remand.

On July 20, Hu Honua asked the commission to reconsider its decision on an expedited basis and vacate its July 9 order within three weeks.

One of the points argued by Hu Honua is that from the time of the 2017 order through the Supreme Court appeal, Hu Honua’s ongoing work and investment in the plant – which it says is now 99 percent complete – was done with the blessing of the commission. Life of the Land, it stated, had asked the court to stay the PUC’s decision and order approving the plant, but the Supreme Court denied the request. “Given the denial of the stay, under Hawai‘i law, the 2017 [decision and order] was still effective and Hu Honua was still obligated to comply with the commission’s directive to ‘make all reasonable attempts to complete the project’ in a timely manner.’ Hu Honua did just that.”

A Set-Up by the PUC?

Another argument raised in Hu Honua’s request for reconsideration hypothesizes that the PUC set Hu Honua up for a negative decision.

The hypothesis goes like this: while the Supreme Court decision was pend- ing, the PUC “orchestrated and accelerated new renewable projects to be solicited for Hawai‘i island,” write the company’s attorneys, Dean Yamamoto, who has been representing the company for years, and Bruce Voss, who was brought on board last month.

The Big Island utility, HELCO, was ordered to “expedite the request for proposals for new variable energy projects … in two separate phases,” they write. The commission “even incentivized HELCO with a significant money kickback … if HELCO were able to solicit these projects, enter into [power purchase agreement] contracts, and submit to the commission for approval by the end of 2018.” These first-phase projects were undertaken with the expectation that they would be “complementary, or in addition, to Hu Honua’s 24/7 firm renewable energy.”

The second phase projects were solicited as “a possible replacement for Hu Honua and/or PGV.” (PGV, or Puna Geothermal Venture, was pulled out of service following the eruption in the East Rift Zone of Kilauea volcano in May 2018. It planned to restart operations in early 2020, but that schedule has been pushed back.)

“In hindsight,” Hu Honua argues, “it appears the commission had been setting the stage for accelerating these new … renewable projects on Hawai‘i Island in order to possibly replace Hu Honua with these projects or use them as a basis to deny Hu Honua’s [amended and restated power purchase agreement] should the Supreme Court remand the 2017 [decision and order]. However, at no time … did the commission recommend to Hu Honua that it should stop or hold off on construction despite knowing that Hu Honua was continuing to construct and was obligated to continue to construct pursuant to its 2017 [deci- sion and order] during the pendency of the appeal.”

Violating the Court Order?

The Supreme Court remand found that the commission had failed to consider greenhouse gas emissions as required by law. The PUC “shall give explicit consideration to the reduction of [greenhouse gas] emissions in determining whether to approve” the power purchase agreement, the court ordered. The commission was also instructed to hold an evidentiary hearing on the subject “that complies with procedural due process.”

In reopening the hearing on the Hu Honua power purchase agreement, the commission not only ordered that the subject of Hu Honua’s greenhouse gas emissions now be made a part of the proceedings, but it also opened up for further briefing the changes in the energy market on the Big Island over the last two years.

Hu Honua cries foul on this point. “The commission’s Order Revoking Waiver mistakenly, unreasonably, un- lawfully, and erroneously frames the commission’s decision as a decision to deny HELCO’s request for a waiver from the competitive bidding framework… [T]his is an inaccurate and misleading characterization as the commission had already granted a waiver … in its 2017 [decision and order], which was not at issue in In re HELCO” – the Supreme Court case – “and not impacted by that decision on remand. Accordingly, there was no renewed request for a waiver by HELCO pending before the commission for the commission to deny. The commission’s Order Revoking Waiver was a unilateral revocation of Hu Honua’s waiver from the competitive bidding framework sua sponte by the commission, and it ignores the Hawai‘i Supreme Court’s remand.”

Political Pressure

The proceedings of the Public Utilities Commission are arcane and formal. While the commission does hold public hearings on rate requests, the actual deliberations are conducted mainly through exchanges of information requests, briefings on highly specific subjects, and written memoranda. When the commission does hold hearings and arguments in the course of its deliberations, those are public – but it’s the rare hearing that is attended by anyone other than the parties involved.

The Hu Honua documentary record, on the other hand, is filled with letters and emails, most of them submitted by its employees and their relatives and friends, logged in the docket as “public comment.”

On July 20, however, the efforts of Hu Honua to put political pressure on the PUC became evident in a docket entry described as “public comment (the Senate, State of Hawai‘i).”

The comment was from state Senator Glenn Wakai. A covering email he sent was addressed to commission chair James Griffin. “We talked earlier this year about the important role the PUC can play in expediting energy projects, so we can get our neighbors working,” Wakai wrote. “It came as a shock to me that the PUC did just the opposite on July 9. Hu Honua had an obligation to ensure its facility would not add to GHG emissions, but no one thought the project would be sent to the ‘back of the line.’”

In the letter proper that he submitted, Wakai, who represents a Senate district stretching from Kalihi to Salt Lake on O‘ahu, says he was “stunned by your decision to close the Hu Honua … ap- plication on July 9. On numerous occasions in the past two years, the developers updated me on the status of the project. I was always impressed with their desire to create energy out of an old sugar mill and provide quality jobs for the residents of Hawai‘i Island.”

“I understand the 2019 Supreme Court decision on greenhouse gases remanded the case back to you for that specific issue. What I don’t understand is how your order on July 9 did not even consider the GHG that you were ordered to contemplate. Instead you shut down the project which would have replanted trees to create a carbon negative operation. In addition, the plant will deliver green energy baseload power at a lower rate than costlier intermittent solar.”

Wakai warned that the decision “creates significant liability and exposure for the state. … This pulls back the red carpet Hawai‘i rolled out to lure offshore investments. State gaffes have already killed the Superferry and the TMT. Let’s not add Hu Honua to the list of failures.”

The company is also attempting to gin up community support, holding a rally of sorts for its employees and their families and supporters on the same day the motion for reconsideration was filed.

“We are not going to accept a ruling from a state commission whose members – I believe – do not know or care about our island, our community, or our people,” Warren Lee, president of Hu Honua, told the crowd.

LOL Responds

Life of the Land lodged its response to Hu Honua just two days later. Among the chief points it raises is that the PUC was well within its rights to revoke the waiver from the competitive bidding requirement. That waiver was granted when HELCO and Hu Honua won approval for the first power purchase agreement they entered into back in 2008.

In 2017, when an amended agreement was brought before the PUC, the commission clarified that the waiver was not perpetual. In the utility’s filings, it indicated that it presumed that the 2008 waiver was still valid.

Life of the Land points out, however, that HELCO was put on notice that this presumption was not correct. The order approving the 2017 agreement states that “circumstances on the island of Hawai‘i have changed since the commission initially granted the waiver…. HELCO’s reliance on a waiver granted 8-1/2 years ago is incompatible with such change in circumstances.”

When the PUC reopened the proceeding in 2019 following the Supreme Court ruling, it specifically allowed Life of the Land to address all questions associated with the power purchase agreement, including the matter of the waiver.

“Hu Honua did not object within the time limit and is now barred from doing so,” LOL states in its response.

— Patricia Tummons

For Further Reading

Environment Hawai‘i has followed the efforts of Hu Honua to reclaim the old Pepe‘ekeo power plant for the better part of a decade. Here is a selection:

  • “Hu Honua Faces New PUC Hearing, Well Issues, DOH Fines, and a Lawsuit,” June 2019;
  • “PUC Puts the Brakes on PV Project in Ka‘u, Biofuel Plant in Pepe‘ekeo,” September 2016;
  • “Creditor Owed $30 Million Presses Forward with Foreclosure Action against Hu Honua,” December 2014;
  • “Withdrawn Delaware Lawsuit Sheds Light on Complex Ownership of Hu Honua Plant,” December 2013.

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