Tenant-Landlord Disputes Aplenty Over Amfac's Use of State Land, Water

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On September 19, 1912, at 3:45 p.m., the Board of Public Lands of the Territory of Hawai`i met at the office of board member R.H. Trent in Honolulu. According to minutes, the meeting had been called “to consider the question of a water license or lease with the right to tunnel to the O`ahu Sugar Co.” The board discussed the matter and, after “sundry provisions of the proposed lease [were] read,” Trent made the following motion:

“That it is the sense of the Board of Public Lands that a license or lease for the use of the water of Makawai and Waianu, in the valley of Waiahole, be authorized at an upset rental of fifteen thousand dollars per year…” Board member Frank Andrade seconded the motion, which was then unanimously adopted by the four members in attendance (Trent, Andrade, Chairman A.W. Carter, and Secretary J.F. Brown).

On October 10, 1912, the board met again, this time in the Senate Chamber of the Executive Building, for the sole purpose of considering terms of the lease of Waiahole water rights, “with privilege of tunneling, rights of way, &c.” Also in attendance was Governor Walter Frear, Frank Thompson, attorney for the applicant Waiahole Water Company, and B.F. Marx (not further identified).

Over the objections of Trent, who felt certain lease terms were too limiting on the government, the board approved the proposed lease. On December 14, 1912, Governor Frear and Joshua D. Tucker, commissioner of public lands for the territory, signed the lease on behalf of the government. Signing for Waiahole Water Company, Ltd., were J.F. Hackfield, its president, and George Rodiek, treasurer.

Rights and Privileges

The lease authorized Waiahole Water Co. to “construct and perpetually maintain and operate tunnels, flumes, dams, aqueducts, ditches, reservoirs, syphons, and other necessary and usual structures … for diverting, conserving, or developing waters across, over or upon the lands of Makawai and Waianu 1, in the Valley of Waiahole.”

In addition to the water collection system, the company was authorized “to construct and perpetually maintain a tunnel … running under the Ko`olau range or ridge” to a point under the crest of the mountain, which marks the boundary between Makawai and Waiawa, on the Ewa side of the Ko`olau. Waiahole Water Co. was also allowed to pump water from Waiahole stream and to take all surface water above the 750-foot elevation on government land.

What the government got in return were payments of $15,000 a year (subject to renegotiation at certain times), and, when the term of the lease ended, the right to use the entire water transmission system, including the trans-Ko`olau tunnel, to convey up to 15 million gallons a day. To secure that right, the seventh condition of the lease required Waiahole Water Co. to “obtain the necessary right of way in perpetuity for the extension of said tunnel under said range beyond the boundary of Makawai to the Ewa side…” If the right to use the tunnel in perpetuity was not secured to the government by Waiahole Water Co., the rights granted by the lease would expire whenever the government’s own rights to use the tunnel beyond government land were extinguished.

The Light at the End?

From 1912 to 1970 — 56 years — the terms of that original lease covered Waiahole Irrigation Co.’s use of water collected from government land. In 1970, a new lease was issued (General Lease S-4329), providing for Amfac’s use of the water until the year 2000. But in all the 84 years since the first lease was signed, the government has never been provided with the assurances required under the seventh condition, relating to the government’s right to use the tunnel beyond the boundary of its own land.

This oversight seems to have come to the attention of the state only in the last two years. On October 6, 1992, then-Land Board Chairman William W. Paty wrote Bert L. Hatton, Amfac Senior vice president, asking for documentation of the easements obtained in satisfaction of condition seven.

Paty reminded Hatton that the lease was to expire December 31, 2000. “In light of the impending expiration and any possible releasing of those rights,” Paty wrote, “the state is examining the Waiahole tunnel and ditch system and what options may be available in the year 2000 or sooner.

“In order to fully evaluate these options, the state needs to know what easement rights Waiahole Irrigation Company” — successor to Waiahole Water Co. — “has regarding the Waiahole Ditch as well as any conditions, limitations, requirements that may attach to the use of the ditch system…

“Second, please provide us with documentation of the perpetual easements which Waiahole Water Co. and now Waiahole Irrigation Co. was required to secure and grant to the territory (now the state) of Hawai`i under paragraph SEVENTH of the 1912 water lease No. 810.

“Finally, please explain the legal relationships between Waiahole Irrigation Company and Amfac, O`ahu Sugar Company, and Waiahole Water Company.”

No written response to Paty’s inquiry could be found in files at the DLNR’s Division of Land Management. Amfac allowed certain state employees to review (although not copy) company documents addressing the easement question, but no report on what they learned could be found in DLM files.

With Amfac having withdrawn its application for Waiahole water, the question of who has rights to use the tunnel has suddenly become more than academic. In late August, state officials were still trying to sort out the implications.

Early Problems

The length of the first lease was 30 years, with options for ten-year renewals at 30, 40, and 50 years after completion of the tunnel (which occurred on May 27, 1916).

In 1945, a year before the first 30-year lease term ran out, the City and County of Honolulu asked the commissioner of public lands that 4 million gallons a day of the government water taken through the Waiahole tunnel be withdrawn, as provided for in the lease, and made available instead to the city’s Suburban Water System. On May 10, 1945, Public Lands Commissioner A. Lester Marks notified Waiahole Water Co. that the territory would be allowing the city to take up to 4 mgd, effective on the end of the first 30-year lease term. (Under condition six of the lease, the territory could withdraw up to 4 mgd any time after the first 30-year term expired, provided written notice of the withdrawal was given to Waiahole Water Co. at least 12 months in advance.)

Amfac acknowledged Marks’ letter in June 1945, and at the same time announced that Waiahole Water Co.’s was applying for a 10-year extension of the lease.

But Marks by then was having doubts about the legality of the lease. In a letter to Nils Tavares, attorney general, dated July 21, 1945, Marks wrote: “As you will recall, the original lease provided for a 30-year lease with the option of three 10-year renewals. In our discussions you have held that the greatest length of leasehold encumbrance that the territory can place upon territorial property is 21 years — anything over that period was a revocable license. I would appreciate any suggestions that you can make regarding a reply to the application which American Factors have made” for the lease renewal.

Not until February 1946 did the attorney general get around to responding to Marks’ question on the validity of the lease. As Marks expressed in a letter February 28, 1946, to Amfac, “This office has been informed by the attorney general that no authority exists under territory statutes for a license extending over 21 years and that occupancy beyond this 21-year period is of a nature of a revocable permit.” Still, he continued, “I have no immediate intention of revoking this nor disturbing the royalty paid up in good faith to the end of the 30-year period…. This also will in no way interfere with the withdrawal of government water up to 4,000,000 gallons per day, as set forth in my letter of May 10, 1945.”

As late as 1960, some documents at the Division of Land Management continued to speak of withdrawals of up to 4 mgd by the city. Staff at the Board of Water Supply could not confirm that any diversion system in Waiahole Valley ever was built. In any case, the city is not now drawing any water from any source in the valley.

‘Decisive Action’

For the next 10 years, Waiahole Water Co.’s use of the state water was allowed to continue under payment terms set at rental negotiations in 1946. In 1955, however, then-Public Lands Commissioner Marguerite K. Ashford sought to open negotiations for a rental for the second 10-year extension of the original lease.

Amfac was slow to respond, prompting Ashford to write H.K. Keppeler,1 manager of Amfac’s land department, on September 8, 1955. Ashford reminded Keppeler that she had stated the government’s willingness to negotiate a rental of “not less than $10.00 per million gallons…

“Inasmuch as we have not had the courtesy of a reply, I find it necessary to advise you that no future billing will be made for the use of the waters taken based on our prior rental agreement until we have reached an amicable settlement on the terms, covenants, and conditions of the new license, and that unless we can get together, some decisive action will have to be taken by us.”

Again, no response. In October 1955, Ashford upped the ante: “I am advised by the attorney general,” she wrote, “that the Land Commissioner had no jurisdiction or authority to sell to Waiahole Water Company a water license extending over a period in excess of twenty-one years, and that any period beyond that must be regarded as used under a revocable permit.

“I therefore advise you that if you wish to continue to take the territorial waters, the price therefore will be $10.00 a million gallons… If you wish to have other than a revocable license, I will be glad to advertise the license for sale.”

Amfac’s lawyer, Arthur Smith, did respond to this volley, asking that the matter be held in abeyance while he conducted his own examination of the law. By December, Smith had reached his conclusion: the 1912 license was still good.

‘No Problem’

But a year later, the attorney general at the time, Edward N. Sylva, backed up Ashford (who went on to become a deputy attorney general) and her successor as land commissioner, Frank Hustace. In October 1956, Sylva ruled that Waiahole Water Co. could not exercise its option to extend the original lease. According to an article in the Honolulu Star-Bulletin of October 12, 1956, H.K. Keppeler said that he did not expect that the ruling “if upheld, will affect the company’s operations.” If the license was regarded as invalid, Keppeler said, then the company would anticipate operating on the basis of a permit. “I see no problem,” he told the paper.

Based on Sylva’s ruling, Hustace notified Waiahole Water Co. on October 16, 1956, that the use of the water was revocable, and that the value of the water was to be renegotiated. By February 6, 1958, Amfac had still not responded.

Back Rent

In 1959, the territory became a state. Hustace was no longer land commissioner, but had been replaced by C. Eric Reppun.2 But Keppeler was still manager of Amfac’s land department and still was refusing to negotiate with the state on rental reopening.

In September of that year, Keppeler sent a check for $22,981.81 to Reppun as payment for water taken from January 1, 1955, to July 1, 1959, calculated on the basis of the 1946 rental rate ($8 per million gallons up to 3 mgd; $6 per million gallons for 3 mgd to 5 mgd; and $2 per million gallons over 5 mgd; and $1 per million gallons of pumped water). “We feel that from a business-like point of view payment should be made for the water so taken but that such payment should in no way prejudice the rights of either party in this matter,” Keppeler wrote. “Accordingly, we enclose herewith our check…”

Reppun returned the check, reminding Keppeler that Hustace had agreed to receive payment only if the disagreement between Amfac’s lawyer, Arthur Smith, and the state attorney general over the validity of the lease were submitted to the Supreme Court for a ruling.

In December 1961, upon advice from the state attorney general, the director of the newly established Department of Land and Natural Resources agreed to accept payment from Amfac of back rent owed, based upon the previous rental agreement and on the understanding that the state was making no concessions with regard to the lease’s validity.

Decades of Dispute

Through the 1960s, the matter remained unresolved. New attorneys general came and went, reaffirming the state’s position that the lease was invalid. Amfac held to its guns, resisting efforts either to renegotiate rental rates or to re-open the lease to public auction.

The situation deteriorated when, in 1966, the state, through condemnation, acquired Kahana Valley and, with it, the right to collect money from Amfac for water taken above the 790-foot elevation at the back of the valley (including water collected from the Kahana development tunnel). With no agreement between the state and Amfac concerning use of the Kahana water, Amfac made no payments to the state.

Not until 1970 did the state and Amfac finally come to terms. General Lease 810 — though Amfac continued to maintain it had another six years’ of life remaining — was put to rest and replaced by General Lease 4329, sold at public auction to Amfac. Amfac agreed to pay $9 per million gallons ($1.50 per million gallons of pumped water) for water taken between 1956 and 1966. For 1966 to 1970, Amfac would pay $10 per million gallons for the first 360 million gallons it took annually and $8 per million gallons thereafter (the rate for pumped water did not change). For the four years of water withdrawals from Kahana Valley, Amfac agreed to pay the state a lump sum of $160,588.32.

The new lease called for payment of $10 per million gallons up to 2,160 million gallons annually and $8 per million gallons thereafter (again, the rate for pumped water remained at $1.50 per million gallons) for the first 15 years of the lease. For the last 15 years (1985 to 2000), rental has been set at $14.75 for the first 2,160 million gallons per year and $10.00 for each million gallons thereafter. Pumped water is $2.25 per million gallons — although no water has been pumped for more than a decade, owing to the high energy cost of lifting the water into the tunnel.

By comparison, the rate charged homeowners on O`ahu is $1,650 per million gallons ($1.65 per thousand gallons).

1 H.K. Keppler was the father of John Keppler II, deputy director of the Department of Land and Natural Resources who co-signed Amfac’s application for continued use of the Waiahole water.
2 Reppun was the uncle to Charlie, John, and Paul Reppun, who are among the windward taro farmers now seeking to have water restored to Waiahole Valley. Eric Reppun died later in 1959.

Volume 5, Number 3 September 1994

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