When is the total less than the sum of its parts? That seems to be at the heart of the issue that the Public Utilities Commission confronts as it gears up to conclude a years-long dispute over a solar energy project in the Big Island district of Ka‘u.
The project in question involves 26 photovoltaic installations that, altogether, would have a generating capacity of 6.5 megawatts. While ownership of the individual installations is vested in 19 limited liability corporations, all those LLCs are themselves subsidiaries of a corporate entity, Solar Power, Inc., registered in the Cayman Islands, with headquarters in China.
That unity of ownership, say nearby residents Ann and Peter Bosted, means that they should not be allowed to charge the utility (and ultimately the electric customers on the Big Island) the high rates that the PUC has allowed for small-scale solar plants.
Instead, the Bosteds argue, the aggregated solar facilities should be considered as a unit for rate-setting purposes. Were that to occur, the rates paid for the electricity would have to be subject to the same competitive bidding process that is required of large-scale electric power generators.
The Bosteds filed their complaint with the PUC in 2016, enumerating six reasons why they believed the feed-in tariff (FIT) agreements between Hawaiian Electric and the companies proposing the solar plants should be removed from the list of FIT-qualified installations.
The PUC rejected five of their arguments but, in an order filed in August 2021, allowed the complaint to proceed based on the argument relating to unified ownership.
“The fact that each individual project is owned by a distinct legal entity, as well as the geographic diversity of the FIT projects themselves, both weigh toward the FIT projects being considered individual,” the PUC stated in that order. But, it continued, “the common overall ownership of the solar project owners and the temporal proximity of the applications for the FIT projects both weigh toward the FIT projects being considered as a single project.”
“Accordingly,” the PUC concluded, “the solar project owners have not met their burden of demonstrating that the Bosteds will be unable to carry their burden for this count at hearing.”
In reaching that conclusion, the PUC leaned heavily on an order it had issued in 2011, the “Monet Order,” as it is referred to in many of the filings in this case. Central to that docket was the question of whether a landowner could qualify for feed-in tariff rates, and thereby circumvent the competitive bidding process, by placing photovoltaic systems on a cluster of as many as 50 lots, each a separate tax parcel, that were created through a condominium property regime organized by the owner as an “agricultural-entity facility.”
The PUC found that the petitioner in that case, Sam Monet, “cannot avoid the competitive bidding requirements by simply subdividing his proposed project into separate 500 kW generating units. … [T]he competitive bidding process is ‘the required mechanism for acquiring a future generation resource or a block of generation resources.’”
In that same order, the PUC also found that despite the discrete legal status of each parcel, the proposed PV projects would be “operated and managed by a single entity.”
A Renewed Push
Progress in bringing the Bosteds’ complaint to a conclusion has been slow. There were health concerns, travel interruptions, and, starting in 2020, the overall slow-down of government business owing to the COVID-19 pandemic.
The PUC did issue that 2021 order dismissing five of the six complaints brought by the Bosteds, but, for most of the next year, the proceedings stalled. In July 2022, attorneys for the solar power owners asked the PUC to “promptly move forward with the issuance of its notice of a prehearing conference to schedule the hearing and final briefings as expeditiously as possible.” With no response from the PUC, on November 23, it filed a more formal motion with a supporting brief, requesting the PUC to schedule a final briefing on the matter without any evidentiary hearing.
The Bosteds filed their reply to the solar power owners’ motion on December 5, arguing in support of an evidentiary hearing. They also asked that commissioner Colin Yost “officially recuse himself from participating in this docket.”
“He may not recall being a party to a RevoluSun hui that transferred its interest in two of the intervenors … to SPI. Consequently, we feel that it is our responsibility for [sic] remind him of this fact in advance,” they wrote.
Attorneys for the solar power owners replied, seeking to have the Bosted filing thrown out as untimely and again argued against the PUC holding an evidentiary hearing.
“Pursuant to [Hawai‘i Administrative Rules § 16-601-41(c), complainants’ response was due on or before December 1, 2022,” the solar power attorneys wrote. “As such it is undisputed that complainants’ response is untimely … and should therefore be struck from the record.”
Four Checks
One of the more unusual filings in past years was made by the Bosteds on January 26, 2021. In it, the Bosteds asked the commission to take note of several documents: four cancelled checks, all drawn on an account of Solar Power, Inc., in payment of fees assessed by the Hawaiian Ranchos Road Maintenance Corporation for the years 2017 to 2020.
“The copies of the four checks document the fact that SPI is paying the bills for 16 of the [special purpose entities] controlled by Calwaii and for two properties owned by Calwaii – all in the Ranchos subdivision in Ocean View,” the Bosteds wrote. (Calwaii is a subsidiary of Solar Power, Inc.) “We are offering these checks as further evidence that the Ocean View project is, in fact, managed as one project by SPI,” they stated.
Also attached to the filing were two orders issued by the U.S. District Court for the Southern District of New York. Both dealt with a lawsuit brought by a former SPI employee alleging wrongful termination. The plaintiff had prevailed and the court granted his request to attach all of SPI’s Hawai‘i assets, including the holdings of Calwaii “and lower-tier special purpose subsidiaries.” (Later filings in that case show that the employee and SPI reached a settlement that avoided any transfer of the Hawai‘i interest of SPI.) Factual recitals in those two orders provide details as to the nature of the Hawai‘i assets of SPI that the Bosteds maintain support their claims of unitary ownership and management of the Ka‘u solar projects.
Attorneys for the solar power companies objected. “Even considering the substance of the quoted excerpts,” they wrote, “it is apparent that they are merely taken from the background section of a totally unrelated employment lawsuit brought by a former employee of Solar Power, Inc., and more importantly, are not inconsistent with any of the positions taken by Interveners [sic] in this proceeding, and have absolutely no bearing on the relevant issue as to the applicability of … the Monet decision in the present case.”
The PUC disposed of the Bosteds’ request in the same August 2021 order in which it disallowed all their complaints but one. Court precedent precludes the commission from taking “official notice of the truth of matters set forth in judicial decisions,” the PUC wrote. As to the cancelled checks, “There is no basis on which the commission could take official notice of the checks – they are not generally known within the jurisdiction to be true, are not capable of accurate and ready determination by resort to sources whose accuracy cannot be reasonably questioned, and are not the type of information on which the commission could opine using its expertise.”
“However,” the PUC continued, “the commission observes that the solar project owners do not appear to dispute the authenticity or veracity of the checks, but instead dispute their meaning. Thus, although the commission does not take official notice of the checks at issue, it will allow their inclusion in the record, without establishing their authenticity via official notice at this time.”
Corporate Issues
Apart from the disputes at issue in the PUC docket, SPI may face substantial financial exposure as a result of litigation originating in Malta. The company provides some background in its most recent quarterly report filed with the Securities and Exchange Commission, for the period ending September 30. In 2014, SPI entered into a share sale and purchase agreement with two companies – SINSIN Europe Solar Asset Limited Partnership and SINSIN Solar Capital Limited Partnership — headquartered in Malta. The two SINSIN companies are themselves, like SPI, registered in the Cayman Islands. As described in court filings, they are “investment vehicles co-owned by two Chinese state-owned entities.”
By 2017, that agreement had turned sour. SPI sought relief in Malta through binding arbitration but did not prevail, either in original proceedings or in appeals. Last March, the chief justice of the Malta court rejected SPI’s final appeal. Under terms of the arbitration, SINSIN is owed more than !38 million. Half is to be repaid at 6 percent interest accruing since November 2015, while interest on the remainder accrues at 6 percent since June 2016.
Since then, SPI informed the SEC, SINSIN had filed an action on November 2 to confirm the award with the U.S. District Court for the Eastern District of California. “As of the date of this report” – November 14 – “we were not served with the action. We are negotiating with SINSIN in order to achieve a settlement to suspend and dismiss the enforcement” of the awards, SPI reported.
Federal court records show that SPI was served the same date, November 14, as the SEC filing.
While SPI describes itself as being primarily involved in various enterprises relating to the production of goods and services relating to solar power, it has also reported to the SEC a number of widely divergent business initiatives over the last few years, including: shipping alfalfa grown in Arizona to China; launching a (now dormant) virtual currency mining platform; and getting involved in producing hemp and cannabidiol. None of these initiatives, however, is mentioned in the most recent quarterly filing.
— Patricia Tummons
Environment Hawai‘i has reported on the Ka‘u PV projects in the following articles: “Coming PUC Decision Could Make Ka‘u Solar Projects Uneconomical” (August 2016) and “PUC Puts the Brakes on PV Project in Ka‘u, Biofuel Plant in Pepe‘ekeo” (October 2016).
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