Hawaii’s Public Utilities Commission said today it has rejected NextEra Energy Inc.’s proposed $4.3 billion purchase of Hawaiian Electric Industries Inc.
The vote was 2-0 with PUC Chairman Randy Iwase and Commissioner Lorraine Akiba voting to reject the sale. Commissioner Tom Gorak abstained. PUC approval was needed for the companies to close the deal.
In a brief joint statement, NextEra and HEI said, “We are in receipt of today’s PUC order and are currently reviewing it.”
NextEra, based in Juno Beach, Fla., announced in December 2014 its plan to run Hawaii’s largest utility which provides power to 95 percent of Hawaii residents.
Hawaiian Electric Industries includes Hawaiian Electric Co. on Oahu, Maui Electric Co. and Hawaii Electric Light Co. on the Big Island. The original plan called for HEI’s bank subsidiary, American Savings Bank, to be spun off and run as a stand-alone company.
NextEra conducted a 19-month campaign to win approval of the deal. NextEra argued it was a better alternative for Hawaii because it could offer lower rates and a quicker path to the state’s goal of achieving 100 percent renewable electricity production. NextEra promised to lower electric bills – the highest in the nation – by about $70 a year over the next five years and to not lay off employees for two years.
Opponents of the sale – including Gov. David Ige, environmental groups and solar power companies – argued the state’s largest utility should not be run by company based in Florida, which would view Hawaii as a small part of its operations. They also questioned NextEra’s commitment to 100 percent renewable energy, especially in light of its plan to convert power plants to liquefied natural gas and the small amount of rooftop solar in use in Florida.
Parties involved in the case could file a motion with the PUC for reconsideration or file a motion to appeal the decision with the Hawaii Supreme Court.
The PUC’s decision came just weeks after Ige changed the makeup of the three-member commission. On June 29, Ige appointed Gorak, PUC chief counsel, to replace outgoing Commissioner Michael Champley. The governor said Gorak’s views were more aligned with Ige’s. State senators have questioned whether Ige had the authority to make that change without the Senate approval.
State Attorney General Doug Chin said in a formal opinion today that Hawaii’s Constitution authorized Ige to appoint Gorak.
The PUC said Gorak supported the decision’s conclusion but abstained because he believes that the focus should be on the decision and electric utility’s path toward achieving the state’s renewable energy goals, and not about the controversy regarding his appointment.
Immediately after the PUC order was issued today, former PUC Chairwoman Mina Morita filed a complaint in First Circuit Court challenging the legality of Ige’s appointment of Gorak.
The PUC said Gorak supported the decision to reject NextEra’s purchase of HEI but abstained because he believes that the focus should be on the substance of the decision as well as HECO’s path toward achieving the state’s renewable energy goals, and not about the controversy regarding his appointment.
The PUC said Gorak’s vote was not necessary because the order had the support of the other two commissioners.
The state agency said that it “emphasized” that it is not preventing HEI from seeking another partner, or from renewing discussions with NextEra. The PUC said it included guidance on key elements that would help future companies looking to buy HEI’s electric utilities.
The PUC said despite NextEra proving that it can perform the services that are currently offered by HEI’s electric utilities, the Florida-bases company failed to show that the deal was in the public interest.
The commission said the benefits offered by NextEra to ratepayers were “inadequate and uncertain;” NextEra failed to offer enough protection to the ratepayers to offset the risk’s associated with its complex corporate structure; NextEra failed to offer commitments tailored to Hawaii’s environmental and clean-energy goals; the company failed to guarantee that Hawaii would not suffer after the change in corporate structure; and failed to demonstrate that the energy market would be fair for other companies looking to compete with NextEra in Hawaii.
The PUC said NextEra’s promises of $60 million in rate credits and $1 billion in statewide benefits were too conditional or unrealistic.
“There was an unacceptable risk that ratepayers may not ultimately enjoy the entire $60 million in rate credits, if at all, and/or the projected benefits of a rate case moratorium,” the PUC said. “The commission observed that these calculations were based on assumptions and/or unrealistic expectations about the future that were vigorously challenged in the proceeding. Additionally, applicants had not offered any reliable means to track these estimated benefits to determine whether or not they actually occurred, nor did they propose an enforcement or penalty mechanism, in the event that such benefits did not result.”
“Unlike the HECO companies, NextEra is a large corporate family, with hundreds of affiliates and subsidiaries,” the PUC said. “While the commission believed that its existing regulatory power would offer ratepayers some protection, primarily through preventing various types of cost-recovery by NextEra, it expressed serious concern over the risk posed by the potential bankruptcy of NextEra and/or one of its many subsidiaries or affiliates.”
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