Utilities commission cites distrust in NextEra

The state Public Utilities Commission rejected Florida-based NextEra Energy Inc.’s proposed $4.3 billion purchase of Hawaiian Electric Industries Inc. on Friday on a 2-0 vote.

Hawaii’s resistance to mainland control and doubts about NextEra’s commitment to the state’s lofty renewable-energy goals sank the deal.

“The benefits offered by applicants are both inadequate and uncertain,” the commission said in a news release.

The decision came after 19 months of attempts by NextEra to win over shareholders, regulators, politicians and customers with promises of cheaper electricity rates and greater resources.

PUC Chairman Randy Iwase and Commissioner Lorraine Akiba voted to reject the sale. Commissioner Tom Gorak abstained.

PUC approval was needed for the companies to close the deal.

In a joint statement NextEra and HEI said they are reviewing the order.

“We are in receipt of today’s PUC order and are currently reviewing it,” the companies said.

The rejection means HEI will continue to run the state’s largest utility, which provides power to 95 percent of Hawaii residents through its subsidiaries: Hawaiian Electric Co. on Oahu, Maui Electric Co. and Hawaii Electric Light Co. on the Big Island.

HEI’s bank subsidiary, American Savings Bank, which was to be spun off if the deal went through, will continue to operate as part of HEI, at least for the time being.

NextEra had promised to save ratepayers $465 million, or about $70 per customer per year, over five years, and to use its experience as one of the nation’s leading providers of solar and wind power to accelerate Hawaii’s move toward the goal of generating 100 percent of its electricity from renewable sources by 2045. The company promised not to lay off workers for two years.

A lack of trust

The PUC said it wasn’t convinced NextEra would keep its promises.

“The commission observed that these calculations were based on assumptions and/or unrealistic expectations about the future,” the PUC said in a statement.

Despite the promises, NextEra wasn’t able to bring on board Gov. David Ige, who announced his opposition to the deal a year ago.

“This ruling gives us a chance to reset and refocus on our goal of achieving 100 percent renewable energy by 2045,” Ige said in a news release.

The opponents, including several environmental groups and solar-power companies, argued that selling HEI to NextEra would stall the progress Hawaii has made toward shifting to renewable energy, including rooftop solar panels.

The PUC said NextEra’s “lack of specific commitments” toward rooftop solar panels “runs contrary to Hawaii’s status as a national leader in integrating high levels of distributed solar photovoltaic systems.”

The PUC’s decision was in line with public opinion. A poll in January showed that most Hawaii residents were opposed to the sale. The poll found 53 percent did not think NextEra’s purchase of HEI would be good for Hawaii, while 26 percent did.

NextEra favored a centralized model, where the utility generates and distributes the power; that way the utility holds onto control and revenue associated with energy generation.

Challenges ahead

NextEra also said it wanted to make liquefied natural gas (LNG) a major interim source for electricity in the state, something Ige opposed. NextEra argued that LNG is cheaper and cleaner than what is currently burned in Hawaii’s power plants. Ige has said the money needed to build an LNG infrastructure would be better spent on renewable energy sources.

NextEra and HEI could challenge the PUC decision. The companies could file a motion with the PUC for reconsideration within 10 days of the order or file a motion to appeal the PUC decision with the Hawaii Supreme Court.

The PUC also said its decision does not prevent Hawaiian Electric “from seeking another partner, or from renewing discussions with NextEra.”

One issue that likely would be raised in an appeal is the change Ige made in the three-member PUC just weeks before the decision was announced. On June 29 Ige appointed Gorak to take the place of outgoing commissioner Michael Champley. Ige said Gorak’s views were more aligned with his own. State senators have questioned whether Ige had the authority to make that change without the approval of the state Senate.

Gorak abstained from voting in the case to blunt criticism of Ige’s move. The PUC said Gorak “fully supported” the decision to reject NextEra but didn’t want his participation in the decision to be a focus of attention.

State Attorney General Doug Chin said in a formal opinion Friday that the Hawaii Constitution authorized Ige to appoint Gorak.

Immediately after the PUC order was issued, former PUC Chairwoman Mina Morita filed a complaint with the First Circuit Court challenging the legality of Ige’s appointment of Gorak.

In addition to Ige, the local energy community was mostly cool to the sale. Environmental activists such as the Sierra Club, clean-energy advocates such as Blue Planet Foundation, local social investment firms such as Ulupono Initiative, representatives from solar-power companies and the state Office of Planning voiced concern or outright opposition.

They questioned whether NextEra would support more rooftop solar panel systems popular in Hawaii, whether the company would send profits out of the state, whether it would lay off workers after the first two years and whether major decisions would be made in Florida.

NextEra’s size dwarfs HEI’s. The Florida company had $17.5 billion in revenue last year and about 14,300 employees in 27 states and Canada. HEI had $2.9 billion in revenue last year and 3,900 employees.

NextEra’s size became an issue during the PUC’s review of the sale. At a PUC hearing in December, an email surfaced from Hawaiian Electric CEO Connie Lau in which she said NextEra viewed HEI as a “snack” on the way to a buffet of larger utilities it hopes to buy.

More offers on the horizon

Just last month, news reports said NextEra was interested in buying Oncor Electric Delivery Co., a leading Texas electrical utility, for $17 billion to $18 billion.

NextEra now joins a list — with the Thirty Meter Telescope and the Hawaii Superferry — of high-profile cases where major investments in Hawaii ran into opposition or were turned back.

The Thirty Meter Telescope is a $1.4 billion project to build a telescope on Mauna Kea on Hawaii island. The Hawaii Supreme Court invalidated the project’s permit in December. The Hawaii Superferry began operations between Oahu and Maui in December 2007 and left the islands in March 2009, after the state Supreme Court ruled that a law allowing the ferry to operate was unconstitutional.

NextEra invested heavily in its effort to win approval for the HEI sale. As of last fall, NextEra said it had spent nearly $21 million on public relations and consultants working on the HEI deal.

NextEra had some successes. It won approval from HEI shareholders. The company hired Jennifer Sabas, longtime aide to the late U.S. Sen. Daniel K. Inouye, as a consultant. The International Brotherhood of Electrical Workers Local 1260 announced support for the sale. IBEW 1260 originally said the group was opposed to the sale. Several business leaders and chambers of commerce also voiced support.

The news isn’t all bad for Hawaiian Electric. According to its contract, NextEra will have to pay HEI roughly $95 million because it did not get PUC approval.

It’s likely other companies will step in with offers to buy Hawaiian Electric. Washington, D.C.-based Twenty First Century Utilities has expressed an interest, according to three sources who asked to remain anonymous because the company did not authorize them to speak.

The failure of the deal could be seen as a setback for Lau. She would have left the company and collected about $12.3 million if the deal had closed. Now she will continue, at least for the time being, as head of the utility.

PUC votes to not approve the HECO Companies and NextEra Energy's joint application for change of control by Honolulu Star-Advertiser on Scribd

PUC release supplement – July 15 by Honolulu Star-Advertiser on Scribd