Hu Honua Bioenergy, LLC v. Hawaiian Elec. Indus., Inc.
| Decision Date | 19 December 2017 |
| Docket Number | Civ. No. 16-00634 JMS-KJM |
| Parties | HU HONUA BIOENERGY, LLC, a Delaware Limited Liability Company, Plaintiff, v. HAWAIIAN ELECTRIC INDUSTRIES, INC., a Hawaii Corporation; HAWAIIAN ELECTRIC COMPANY, a Hawaii Corporation; HAWAII ELECTRIC LIGHT COMPANY, INC., a Hawaii Corporation; NEXTERA ENERGY, INC., a Florida Corporation; HAMAKUA ENERGY PARTNERS, L.P., a Hawaii Limited Partnership, Defendants. |
| Court | U.S. District Court — District of Hawaii |
Plaintiff Hu Honua Bioenergy, LLC ("Hu Honua") contracted with Defendant Hawaii Electric Light Company, Inc. ("HELCO") to build an independent power plant run on biomass to supply energy to HELCO on the Big Island of Hawaii. Given problems with the construction contractor and other labor issues, Hu Honua was unable to complete the facility on time. After unsuccessful negotiations to extend deadlines, HELCO cancelled the contract.
Hu Honua filed this suit contending that HELCO's cancellation was, among other things, the result of an illegal conspiracy in violation of antitrust laws. The suit alleges federal antitrust and related state-law claims against HELCO; Hawaiian Electric Company, Inc. ("HECO"); Hawaiian Electric Industries, Inc. ("HEI"); NextEra Energy, Inc. ("NextEra"); and Hamakua Energy Partners, L.P. ("HEP"). It also alleges that HELCO breached the contract by refusing to extend deadlines under the contract's terms.
The court now addresses Motions to Dismiss brought by NextEra and HEP under Federal Rule of Civil Procedure 12(b)(6). ECF Nos. 73, 95. Based on the following, the Motions are GRANTED in part. The federal antitrust claims are DISMISSED as to NextEra and HEP, with leave to amend. The Motions are DENIED without prejudice as to the state-law claims against NextEra and HEP. Hu Honua may file a Second Amended Complaint by January 29, 2018.
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Hu Honua's 96-page First Amended Complaint ("FAC"), ECF No. 27, describes the structure of the electric utility market in Hawaii — in particular, on the island of Hawaii (the Big Island) — and alleges in detail a scheme (although ultimately deficiently, at least as to its antitrust claims) whereby HELCO's cancellation of the contract not only breached certain of its terms but was also part of a conspiracy or conspiracies among NextEra, HEP and the other Hawaiian Electric Defendants1 to monopolize or restrain trade in violation of antitrust laws.
After suit was filed, Hu Honua and the Hawaiian Electric Defendants reached a settlement in conjunction with a renegotiated contract for Hu Honua to complete its biomass power plant. ECF No. 122. Consummation of that settlement is awaiting final completion of the approval process involving the Hawaii Public Utilities Commission ("PUC").2 Perhaps because of that settlement, the Hawaiian Electric Defendants have not moved to dismiss the FAC. (Earlier, they filed a motion seeking to compel arbitration, but asked the court to hold thatmotion in abeyance, pending consummation of the settlement, ECF No. 126). Because only NextEra and HEP have moved to dismiss, the court focuses on setting forth the essential factual allegations against them. That is, the court need not (and does not) reiterate all the details alleged in the lengthy FAC as to the Hawaiian Electric Defendants, but describes those facts necessary to put the claims against NextEra and HEP into proper context. And some of the relevant factual allegations are set forth later, in the appropriate discussion sections analyzing particular claims. For present purposes, the court assumes as true any well-pleaded factual allegations set forth in the FAC.
Unlike on the continental United States — where states and utilities may utilize large interconnected, interstate power grids comprised of high-voltage transmission lines — each island in the State of Hawaii has its own isolated grid and power supplies. FAC ¶¶ 14-16. HECO is such an electric utility providing electricity to consumers on the island of Oahu; likewise, HELCO is the electric utility providing electricity to the Big Island. Id. ¶ 17. HEI is a holding company, with HECO as one of its subsidiaries. In turn, HELCO and MECO are subsidiaries of HECO. Id. ¶¶ 3-5.
Power supplied to electric utilities (which utilities then provide to retail consumers) is divided into two basic categories: "firm power" and "intermittent power." Id. ¶ 18. "Firm power" (generated by fossil fuels, geothermal, biomass, and similar sources) is power that is intended always to be available during "the period covered by a guaranteed commitment to deliver." Id. In contrast, "intermittent" power consists of sources such as wind or solar that are not always available, "with output controlled by the natural variability of the energy resource rather than power dispatched based on system requirements." Id.
Much of Hawaii's power currently comes from fossil fuels. Id. ¶ 11. And so, "[t]o mitigate the risk of dependence on foreign fuel sources, the Hawaii state government policies and legislation have sought to place greater emphasis on the development of renewable energy resources[.]" Id. ¶ 13."[I]n June 2015, the Hawaii Legislature amended Hawaii's Renewable Portfolio Standard statute to require Hawaii to move towards achievement of 100% renewable energy by 2045." Id.
HELCO serves approximately 85,000 customers on the Big Island. Id. ¶ 21. "HELCO currently owns fossil fuel plants that generate in excess of 65% of the [Big] Island's dispatchable firm electrical capacity." Id. Specifically, it "owns and operates six oil-fired power generation plants, accounting for 184 MW [(megawatts)] of firm power capacity[.]" Id. ¶ 28. "In addition to its own fossil fuel plants, HELCO purchases firm power generation capacity [and electrical energy] from HEP, which owns a 60 MW fossil-fuel combined cycle power plant, pursuant to a 1997 Power Purchase Agreement." Id. ¶ 22. "HEP is one of only two independent power producers ('IPPs') on the Island of Hawaii that provides firm power generating capacity." Id. ¶ 23. The other is Puna Geothermal Venture "whose power capacity is 34.6 MW, only part of which is firm." Id.
"HELCO is compensated differently for the power that it generates itself through the power plants that it owns versus the power that it purchases from IPPs." Id. ¶ 32. "In fact, as a result of HELCO's ability to recover its capital costs, and an annual fixed rate of return on those costs, HELCO receives more revenuethrough the rates paid by its customers for the sale of power that HELCO generates from running its own units than from the power it purchases from IPPs." Id.
"In Hawaii, IPPs must sell power to a public utility because Hawaii's utilities have not permitted the use of their grids for the 'wheeling' or transmission of power to power purchasers, and because it would be economically impractical for IPPs to build their own transmission and distribution system." Id. ¶ 24. "As a result, HELCO is not only the monopoly retail seller of electricity on the Island of Hawaii, but also the monopoly owner of electricity transmission and distribution infrastructure and monopoly purchaser of wholesale electricity." Id.
In May 2012, Hu Honua entered into a Power Purchase Agreement for Renewable Dispatchable Firm Energy and Capacity ("the Hu Honua PPA" or "the Contract") with HELCO under which Hu Honua would develop an independent power plant on the Hamakua Coast of the Big Island, with a renewable biomass fuel source (e.g., eucalyptus trees) of firm power. Id. ¶¶ 1, 34, 38. "The trees were to be 100% locally grown and harvested on a sustainable rotational basis and would have provided an important means to reduce Hawaii's dependence on imported fossil fuels." Id. ¶ 34.
Hu Honua's power plant would supply HELCO with "no less than 10 MW of electricity capacity at all times," with the facility having a "maximum 'Available Capacity' of approximately 30 net MW." Id. ¶ 46. Hu Honua began construction in late October 2012, but was unable to complete the facility by the end of 2015, as contemplated by the Hu Honua PPA, because of disputes with its construction contractor, labor union issues, and related litigation. Id. ¶ 51, 58.4 After unsuccessful negotiations between Hu Honua and HELCO to extend milestone dates as provided in the Hu Honua PPA ), HELCO cancelled the Contract on March 1, 2016. Id. ¶ 60.
Meanwhile, two other relevant things happened: First, "the proposed merger" — on December 3, 2014, NextEra, which is a large Florida-based utility holding company, and HEI entered into an Agreement and Plan of Merger (the"NextEra/HEI Merger Agreement" or "Merger Agreement") under which HEI subsidiaries HELCO and HECO would become wholly-owned subsidiaries of NextEra. Id. ¶¶ 6, 52.5 And second, "the proposed purchase" — on December 23, 2015, HECO and HELCO publicly disclosed that HELCO would purchase HEP's 60 MW fossil-fuel power plant for over $88 million. Id. ¶¶ 22, 91.6
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