I recommend Andrew Gomes story on Hawaiian Electric in today’s Honolulu Star-Advertiser (“Maui fire will reshape Hawaiian Electric”).
Gomes ably summarizes events and reporting of the past week on the Lahaina fire’s impact on Hawaiian Electric Industries, Inc., the parent company with subsidiaries that provide electricity on all Hawaiian islands except Kauai.
The company has been rocked by turmoil as the financial markets have responded to the public rush to judgement over who to blame for the fire and resulting death and destruction. In the process, the company’s stock price plunged over 60% during the week. A headline in the Wall Street Journal said it directly, “Hawaii Fires Turn a Safe Investment Into a Big Risk.”
The company’s bonds were similarly hit as “bondholders have unloaded the company’s debt at steep discounts,” the WSJ noted.
At the end of Gomes’ story, former legislator and PUC Chair, Mina Morita, is quoted at length. In my view, her comments are quite instructive. Morita traces the situation back to the political opposition that scuttled the proposed acquisition of Hawaiian Electric by the Florida-based NextEra Energy.
Mina Morita, a former PUC chairperson who lives on Kauai where the utility company is a nonprofit cooperative owned by ratepayers, said past state leaders and regulators rejected an opportunity that could have put Hawaiian Electric in a stronger position to address challenges of modernizing its grid for mandated renewable energy expansion while also addressing other high priorities like mitigation of long-known wildfire risks.
In 2014, Hawaiian Electric agreed to being acquired by Florida-based utility giant NextEra Energy Inc. for $4.3 billion. The administration of then-Gov. David lge opposed the deal, and it was killed in 2016 by a 2-0 vote by the PUC then led by [former state Senator Randy] Iwase, with one new member abstaining.
Ige was criticized for altering the PUC’s membership while the deal was pending, and Morita, who was replaced by Iwase, said Hawaiian Electric would have been in a better position to meet challenges if the deal had been approved.
“NextEra, in my opinion, was one of the few companies which had the financial backbone, technical expertise and management skills to take on this transformation for a new utility business model, largely utilizing renewable resources, to make Hawaii the utility model for the world,” Morita said. “To just say it was a political decision by the lge administration to squash the merger is an understatement.
“That costly political decision has caused HECO to hobble through a mandated business model transformation taxing its limited capacity. This would be similar to demanding to have an old race car become a new race car but you have to upgrade or change all the parts and fuel the race car, and train your pit crew with hardly any money while the car is still racing and you’re not allowed to lose ”
Morita doesn’t suggest that the Maui disaster wouldn’t have happened if the NextEra deal had been done. In fact, she said a rush to judge Hawaiian Electric isn’t fair.
“I am concerned that the rush to put the blame directly on HECO is like cutting off your nose to spite your face,” she said. “HECO operates a critical and necessary infrastructure that serves the public good. The costs to operate and maintain this important infrastructure is largely borne by the ratepayer. There are so many complex technical and financial parts that HECO had to weigh given competing priorities. Any large investments or expenditures ultimately have to be approved by the PUC for cost recovery, impacting rates. Unfortunately, there were many political decisions that set HECO on an uphill trajectory where its pathway just to operate a well-functioning utility was a steep uphill climb.”
The state’s political focus on clean energy put pressure on Hawaiian Electric to order its priorities in the same way.
After the PUC’s rejection of the NextEra deal, Governor David Ige commented, as quoted by Civil Beat.
Hawaii Gov. David Ige, who was strongly opposed to the merger deal, released a statement thanking the commission and stakeholders for a “historic process.”
“This ruling gives us a chance to reset and refocus on our goal of achieving 100 percent renewable energy by 2045,” he said, referring to the state mandate he signed into law last year.
The Wall Street Journal also quoted Morita and others.
“You have to look at the scope and scale of the transformation within [Hawaiian Electric] that was occurring throughout the system,” said Mina Morita, who chaired the state utilities commission from 2011 to 2015. “While there was concern for wildfire risk, politically the focus was on electricity generation.”
The drive to reach the renewable goals also preoccupied private energy companies working with Hawaiian Electric and state energy officials, said Doug McLeod, a consultant who served for several years as the Maui county energy commissioner.
“Looking back with hindsight, the business opportunities were on the generation side, and the utility was going out for bid with all these big renewable-energy projects,” he said. “But in retrospect, it seems clear, we weren’t as focused on these fire risks as we should have been.”
In any case, there’s a lot of food for thought here.
See:
“NextEra merger dead, Hawaii turns to realizing a 100% renewables future,” Utility Dive, July 25, 2016
“State Rejects Sale Of Hawaiian Electric to NextEra Energyt,” Civil Beat, July 15, 2016
“Do criticisms of HEI-NextEra deal move us towards a desired energy future?” iLind.net, July 21, 2015
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Next Era HATES rooftop solar. They have fought in Florida to make it prohibitively expensive. That does not mesh with energy independence.
My recollection is that was a big reason, perhaps the main reason, why the transaction was disapproved.
Rooftop solar has been a big part of our push to not only reduce our contribution to climate change, but also to improve our energy and economic self-sufficiency.
I have NO sympathy for Hawaiian Electric. They are the same company that FOR YEARS severely limited individual homeowners ability to use solar on their individual homes. Very apparent to those living the Big Island at the same time, who were free to install their own solar.
All accounts I read said that NextEra was much more restrictive of rooftop solar than HECO.
I had a lot of mixed feelings about NextEra–their push to move to natural gas, for example, seemed counterintuitive, and the thought of losing another “local” company hurt. But I thought NextEra’s financial strength was a strong argument to allow the merger to go forward. Their relatively high credit rating (A or A-, I think) was a stark contrast to HECO’s, which, back then, was one or two grades above “junk” status. HECO had a lot of infrastructure to upgrade and borrowing money with a near-junk credit rating was not ideal; allowing HECO to piggyback on NextEra’s better credit rating would have been helpful. Now, HECO’s credit rating *is* “junk” and the infrastructure issue is far worse–I fear ratepayers are going to feel much more pain in the coming years.
Sometimes keeping “local, local” works against us. It’s like unreasonable nostalgia for things that actually didn’t make life better.
Gonna be interesting to see how well the choo choo to nowhere runs the next ten years.
Can you imagine the impression that David Ige would have made on the country and the world while attempting to address the challenges and failures resulting from the Lahaina Fire? Ige made George Ariyoshi seem like Pericles.
I meant Demosthenes. I still remember when Ariyoshi solemnly informed us that Hawaii is an island state surrounded by water.
To fully understand the failures of HECO that precipitated their agreement to sell to NextEra, you must read the PUC’s scathing analysis of HECO’s failures that was published as an exhibit to Order approving a rate increase application. The PUC’s publication of a rebuke of a public utility’s operations and management of this sort was unprecedented and set in motion a lot of changes that HECO had been consciously resisting for decades and was clearly uncomfortable taking despite the clear changes in the technology and regulatory landscape that were going on around them in plain view. Its a good read for those inclined to delve into the depths of public utility law and regulation.
https://puc.hawaii.gov/wp-content/uploads/2014/04/Commissions-Inclinations.pdf