Should a Local Co-Op Take Over Power Operations on the Big Island of Hawaii?

Hawaii Electric Industries, or HEI, the parent company of the state’s three investor-owned utilities, is seeking approval to be sold to NextEra, a large utility owner and renewable energy provider based in Florida. This potential sale has already been highly controversial, with dozens of intervenors involved in the Hawaii Public Utilities Commission (PUC) docket adjudicating the merits of the sale.

Two groups of intervenors are proposing an unusual alternative to the NextEra purchase: rather than allowing an out-of-state company with a relatively poor record on renewables to buy the HEI utilities and possibly set the state back on its renewable energy efforts, not to mention ensuring that utility profits go away from the state, why not allow a local cooperative to buy the Big Island utility known as Hawaii Electric Light Company or HELCO?

Well, there are two efforts seeking to make this happen. The Hawaii Island Energy Cooperative (HIEC) is a new group spearheaded by local farmer Richard Ha, Marco Mangelsdorf, owner of ProVision Solar, a solar integrator company based in Hilo, and other community and business leaders. HIEC is an intervenor in the PUC docket. The co-op describes itself as follows:

The Hawaii Island Energy Cooperative is a nonprofit cooperative association formed by community and business leaders on Hawaii Island to explore the potential merits of a community-based, cooperative ownership structure for electric utility service on the Big Island. HIEC is also exploring how other energy sectors, such as transportation, can be transformed to be more sustainable and environmentally friendly.

The second group calls itself KULOLO, an acronym for “keep our utilities locally owned and locally operated.” (Kulolo also happens to be a Hawaiian dessert made from taro. That’s smart branding.) The only announced member of KULOLO is The Alliance for Solar Choice, which includes major solar companies SolarCity and Sunrun. The limited publicly announced membership is probably a result of the limitations on information that HEI will be allowed to impose on members of KULOLO, due to the fact that KULOLO may be a direct competitor to NextEra. Parties to the PUC docket can ask questions of HEI and NextEra until September in a “discovery” process.

NextEra hits a major hurdle

The current NextEra deal received the Federal Energy Regulatory Commission’s blessing in early April. However, this is just one of many required steps, and the next step in the acquisition by NextEra went awry in early May. HEI shareholders, by state law, have to approve the sale with 75 percent of all shareholders saying yes. The vote in early May was only 70 percent.

It’s not clear at this point whether this recent vote will torpedo the deal, since HEI extended the vote to June 10 in order to have more time to round up the additional 5 percent of yes votes. While there is nothing in principle stopping HEI from extending the deadline a number of times while it works to increase yes votes, there is in practical reality a limit on how long it can do this because of the deadlines put in place under the PUC process of discovery and due diligence.

The 75 percent threshold, while a good protection against the easy sale of Hawaii publicly owned companies, is also a hurdle to any full sale, including to any parties other than NextEra. However, a purchase by a future co-op of one of HEI’s subsidiaries (like HELCO) would need only HEI’s board approval and PUC approval.

Why local ownership of HELCO?

HIEC sees many possible benefits of local ownership, including higher levels of solar and other renewables, as well as a more proactive approach to transforming the island’s transportation system away from fossil fuels and toward electricity. KULOLO is seeking public ownership of HEI utilities for a number of reasons, foremost of which is referred to in KULOLO’s name: keeping the utility ownership and control local.

There is a good recent precedent for what new cooperative efforts like HIEC is seeking to achieve. Kauai’s utility, now the Kauai Island Utility Cooperative (KIUC), was formed in 2002 after purchasing Kauai Electric Company from the Citizens Utilities Company, a Connecticut-based company. KIUC paid $215 million for the utility that now serves about 32,000 customers. By most accounts, KIUC ratepayers are happy with the change to cooperative ownership and with the accountability that this new structure brings. KIUC has been doing its part in shifting to a renewable energy grid, despite the fact that it is not subject to PUC regulation.

The difference between HELCO and Kauai’s utility is that HELCO is a big chunk of a much bigger company, and losing HELCO as part of the NextEra purchase may make the NextEra purchase less attractive. Kauai Electric was the only utility company in Hawaii owned by Citizens Utilities, so it made sense to sell it off individually. Since Oahu’s utility, HECO, is by far the largest part of the HEI system of companies, there is also a possibility that selling HELCO to a different party may make the sale of HECO more attractive.

Will Maui follow suit in seeking alternatives to NextEra’s purchase?

Interestingly, Maui County is now considering alternatives to NextEra’s proposed purchase. The Maui Electric Company (MECO) is almost as large as HELCO, so the Maui County proposal must have come as a bit of a surprise to NextEra and HEI. Maui County issued a request for proposals in early May for a consultant to consider alternatives to NextEra’s purchase. A key reason for Maui County’s exploration is the degree to which MECO has, like other HEI utilities, stifled behind-the-meter solar development. The RFP states:

“The issue of alternative forms of electric utility ownership is under consideration by the County of Maui and its citizens because of concerns related to the proposed sale of Maui’s electric utility company to NextEra Energy.  

Concerns include whether quantifiable ratepayer benefits will be provided, whether the growth of consumer photovoltaic systems and other consumer distributed energy resources will be continue to be stifled, and whether the proposed sale will support Maui’s desire for a ~100% renewable energy future.”

As with a possible sale of HELCO, we can’t know at this point whether HEI will view the sale of MECO as a potential positive move for the sale of HECO, or as a detriment to such a sale. Either way, HEI cannot officially entertain any offers other than the NextEra deal while it is in the PUC process for approval of the NextEra merger, so for now, other efforts to purchase HELCO or MECO are entirely theoretical.

We may find out relatively soon whether the NextEra deal is viable. It may die if HEI can’t secure the 75 percent shareholder vote it needs by early June. And if that does happen, cooperatives like HIEC may find a little more positive reception for their ideas about purchasing HELCO.

***

Tam Hunt is a lawyer and writer, owner of the renewable energy consulting company Community Renewable Solutions LLC, and author of the upcoming book The Solar Singularity: Why Our Energy Future Is So Bright.