Tuesday, July 7, 2015

Imported Ethanol to remain a Hawaii energy policy

By Henry Curtis

For many years the State has offered ethanol subsidies to promote a possible future local ethanol industry, which has simply failed to materialize. At the same time the State has failed to offer the same opportunities for the existing and dynamic local biodiesel industry. That dichotomy is likely to continue.

 The State Legislature passed SB 349 SD2 HD2 CD1 during the 2015 Legislative Session.

"Hawaii is vulnerable to soaring prices or disruptions of its energy imports, which can hinder, cripple, or even devastate the State's economy and the well-being of its inhabitants.  As the most isolated land mass on earth, Hawaii imports nearly ninety per cent of its energy and almost one hundred per cent of its transportation resources.  The legislature finds that it is critical for Hawaii to ensure greater energy security by becoming more self-sufficient in its energy supply."

The purpose of this Act is to: (1) Establish a renewable fuels production tax credit to achieve greater energy security for Hawaii; and (2) Repeal the ethanol facility tax credit.”

"'Qualifying renewable fuels' means fuels produced within the State from renewable feedstocks at a production facility located within the State."

"Information shall be provided to the department of taxation and the department of business, economic development, and tourism ...shall include information on the taxpayer, facility location, facility production capacity, anticipated production start date, and taxpayer's contact information.  Notwithstanding any other law to the contrary, this taxpayer and facility information shall be available for public inspection and dissemination under chapter 92F."

Governor David Ige has placed eight bills on his potential veto list. One of them is S.B. 349.

The Department of Business, Economic Development & Tourism (DBEDT) filed testimony on February 3, 2015. 

The Department also defers to the Attorney General on the legal aspects, especially concerning the definition of ‘renewable fuels,’ which may be in conflict with the commerce clause of the US Constitution.”

The U.S. Constitution, Article 1, Section 8, includes the commerce clause. 

Congress is given the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”

The interpretation of the commerce clause has changed over time. In essence the provision preempts states from regulating trade between states or giving preferential treatment to production in one state. Hawai`i can't say, we want renewable fuel and if it is produced in Hawai`i as opposed to Montana, then it will get a special tax credit.

Because Hawai`i is so far away from other states there is another way of approaching the issue.

Currently State energy policy places no emphasis whatsoever on greenhouse gas emissions.

But legislation could be passed which would rank fuels by their lifecycle greenhouse gas emissions. The Public Utilities Commission, the Department of Transportation and other governmental agencies could have been directed to favor or prioritize fuels based on their lifecycle greenhouse gas emissions on a per unit of electricity produced or mile driven basis.

Instead SB 349 focused on location. 

"’Qualifying renewable fuels’ means fuels produced within the State from renewable feedstocks at a production facility located within the State.”

 #      #      #

Monday, July 6, 2015

NextEra has 500 subsidiaries

By Henry Curtis

NextEra owns 400 subsidies and has partial ownership of another 100 entities.

This figure comes from analyzing a required submission filed by NextEra subsidiary Lonestar Transmission with the Public Utility Commission of Texas. The 500+ subsidiary list is as of December 31, 2014.

In my blog post yesterday (NextEra is Suing Spain) I wrote that the Hawai`i Consumer Advocate asked for the list in the HECO-NextEra merger proceeding. NextEra provided the list under a confidentiality agreement.

“This information is confidential as disclosure of the names and ownership structure of certain entities could harm the company’s ability to develop or acquire assets, such as assembling land parcels for renewable energy or transmission projects.  Moreover, the information is “Restricted” from disclosure to some of the intervenors due to their dual interests in the renewable energy market.”

An alert reader pointed out that the Hawai`i confidential information is publicly available on the Texas PUC site.

What is perhaps equally interesting is the organizational chart provided in the Texas document, which is far more complex than anything presented in the HECO-NextEra merger proceeding.

Provided in Hawaii:

Provided in Texas: 

If the merger is completed, NextEra Energy will own Florida Power & Light (FPL), NextEra Energy Capital Holdings (NEECH) and Hawaiian Electric Holdings (HEH). HEH would own HECO. HECO would own MECO and HELCO. Thus Florida Power & Light would be directly owned by NextEra Energy while HELCO would be three levels down.

#      #      #

Sunday, July 5, 2015

NextEra is suing Spain

By Henry Curtis

The formal title of the claim is “NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Spain.” The arbitration court is the International Centre for Settlement of Investment Disputes (ICSID). The dispute is concerned with the Spanish government’s legal reforms affecting the renewable energy sector. The claim (Case No. ABR/14/11) relies on confidential information not publicly available. 
A decade ago the governments of Spain, Italy and the Czech Republic opted to incentivize renewable energy investments through generous subsidies and feed-in tariffs schemes.  When Wall Street melted down the world economy in 2008 the governments were forced to reappraise and modify their policies.
Spanish and German Companies started suing Spain.
The International Centre for Settlement of Investment Disputes (ICSID) was established in 1966 as an international arbitration institution which facilitates legal dispute resolution and conciliation between international investors. Over 150 nations are part of the ICSID. Based in Washington D.C., the ICSID is a member of the Word Bank Group. 
In 1998 the Energy Charter Treaty (ECT) came into formal existence. A large number of European and Asian countries joined and/or participated. Disputes were to be resolved by the International Centre for Settlement of Investment Disputes (ICSID).
Italy has withdrawn from the Energy Charter through it will not take effect until January 2016. However Italy is a party to almost 100 bilateral investment treaties and Italy is a member of the European Union which is a signatory to the ECT.
The Spanish government’s renewable energy policies resulted in a flood of small-time investors as well as national and international players. Facing a $40B deficit, Spain instituted a series of reforms including curtailing the amount of energy that could be applied for feed-in tariffs, reducing the size of subsidies and imposing taxes on revenues generated. 
Several energy companies opted to sue Spain by filing a claim against Spain at the ICSID.
The Energy Charter Treaty and most bilateral investment treaties provide protection against unlawful expropriation and require countries to give “fair and equitable treatment” to foreign investors, meaning countries must be transparent, reasonable and respect investors’ legitimate expectations,” according to Chadbourne & Parke, a New York-based international law firm.
Earlier this year, for instance, Bulgaria imposed a new fee on wind and solar energy producers and limited the amount of renewable energy that can be purchased at feed-in tariff levels. Further cutbacks are expected.
Meanwhile, Germany recently proposed measures that will scale back renewables subsidies and limit the expansion of onshore wind and solar capacity. The German government also intends to apply a surcharge to consumers who use renewable energy to cover the costs of feed-in tariffs.
Picard Kentz & Rowe LLP, a Washington D.C. law firm focusing on international law, wrote “according to the [Spanish] government, the new measures are crucial to the state’s economic survival. …But major energy players say the new measures, which will apply retroactively as well, will have a disastrous effect on current and future investment. …Hence the proliferation of claims pending against Spain before ICSID.”
Information on NextEra lawsuits, or even their subsidiaries, is difficult to come by. In the HECO-NextEra merger proceedings, the Consumer Advocate asked (CA-IR-61) for “a complete current corporate organization chart for NextEra Energy Inc., showing each legal entity and the ownership structure for such entities.”
NextEra Energy provided the response under protective order. The Commission, Consumer Advocate, and 15 of the 29 intervenors may review the document but cannot publicly talk about its contents.
“This information is confidential as disclosure of the names and ownership structure of certain entities could harm the company’s ability to develop or acquire assets, such as assembling land parcels for renewable energy or transmission projects.  Moreover, the information is “Restricted” from disclosure to some of the intervenors due to their dual interests in the renewable energy market.”
Public Citizen’s blog asserts that the proposed Trans-Pacific Partnership (TPP), which was just fast-tracked by Congress, “would roughly double the United States’ exposure to investor-state attacks against U.S. policies.
The TPP “would grant foreign corporations extraordinary new powers to attack the laws we rely on for a clean environment, essential services, and healthy communities.
Foreign corporations would be empowered to bypass domestic courts and directly "sue" the U.S. and other TPP governments before tribunals of private lawyers that sit outside of any domestic legal system. These lawyers would be authorized to order governments to hand millions of taxpayer dollars to the corporations for laws that frustrate their ‘expectations.’"

#      #      #

Saturday, July 4, 2015

Fair and balanced Hawai`i rooftop solar programs

By Henry Curtis

Are ratepayers with rooftop solar being subsidized by those without solar? Or is it the other way around? Should Net Energy Metering (NEM) be allowed to continue? If so, in what form? Are the utilities dragging their feet resisting distributed energy resources? Or are the utilities reliability and cost allocation concerns legitimate? How should the Public Utilities Commission determine fair and equitable interconnection standards and rate structures?

These complex issues are the focus of Docket 2014-0192. These issues must be resolved regardless of whether NextEra acquires the HECO Companies, the acquisition fails, or the proposed acquisition leads to the disaggregation of the utility through the creation of municipal utilities, public utilities and electric cooperatives.

Lat week the four electric utilities – HECO, MECO, HELCO, and KIUC – the Consumer Advocate and ten intervenors including DBEDT filed their final statement of position in phase 1 of a docket examining distributed energy resources. The filings exceeded 600 technical and complex pages of information.

An over-simplification is given in the following table.

Hawai‘i Solar Energy Association, Hawai‘i PV Coalition, Hawai‘i Renewable Energy Alliance, Ron Hooson, Life of the Land, SunPower, and The Alliance for Solar Choice, Blue Planet
Net Energy Metering is a great program that needs some tweaking.

HECO-Consumer Advocate’s HCEI Energy Agreement (2008) proposed phasing out Net Energy Metering. HECO’s current proposal would drastically change the existing scheme for compensating rooftop solar owners.
Consumer Advocate
HECO’s proposal is a step in the right direction.
No new Net Energy Metering customers should be allowed.
HECO’s proposal is a step in the right direction. What is needed is a fleshing out of the plans, processes and assumptions. There must be greater transparency.
The immediate concern is dealing with HECO’s problems

All parties believe that the minimum monthly bill should rise from $16 to $25.
The Consumer Advocate believes that the Net Energy Metering program should be phased out as of June 1, 2015. Setting a future date would create a stampede.

“The Consumer Advocate does not believe the cap should be implemented by setting a future date upon which the current NEM program will stop accepting applications. Doing so will result in DG PV system vendors taking advantage of the deadline to convince customers to submit applications prior to the specified date or pending order, thus undermining efforts to migrate future customers to transitional plans.”

The Consumer Advocate believes that a reasonable compromise price to compensate future distributed energy resource (DER) owners is the rate that HECO believes is fair and balanced.

“The Consumer Advocate proposes, for the purposes of the DER Pilot, to establish a rate of $0.1 8/kWh to compensate new DER customers for energy exported to the grid.”

The Consumer Advocate notes that the price is not based on science or accounting.
“To be clear, this rate is not based on extensive analysis and is not intended to represent a detailed assessment of the costs and benefits of DG PV. Instead, the Consumer Advocate views this rate as a reasonable compromise between an approach that would base compensation on avoided costs and/or utility-scale solar pricing and the desire to promote more sustainable DER growth.”

The HECO position has not changed in the past half-decade although how the issue is framed has been adjusted.

In essence, the HECO Companies believe that Net Energy Metered customers receive excess compensation. Customers should give energy to the grid at a lower compensation level than they get energy from the grid. It can be thought of as giving the utility three units of electricity, getting back two, and calling it even. The customer gives the energy during the bright sunny afternoon and gets it back in the evening when peak demand on the grid occurs.

“The Companies’ NEM programs have been very successful in incentivizing customers to invest in DG. This is not unexpected. The State of Hawai‘i expressly enacted NEM program provisions over a decade ago in 2001 to encourage the establishment of a market for renewable energy in Hawai’i.

In combination with federal and state incentives, the legislation served to nurture a developing technology and industry, at a time when the cost to self-generate clean renewable energy was prohibitive. This has changed. PV system costs have decreased dramatically during the last several years and the need to provide retail compensation to incent DG no longer exists.

Moreover, the unrestrained continuation of incentive programs can produce unintended and undesired consequences. In the case of the existing NEM program, the unique provisions designed to entice investments in smaller, distributed renewable resources have resulted in a situation where NEM systems are in aggregate the largest by far, and generally the most costly, of the Companies’ renewable energy resources.

NEM customers utilize the power grid to provide them energy when their onsite power is not available. Yet, NEM customers do not pay a fair share of the fixed costs associated with maintaining the utility grid, which results in a shift of those costs to other non-NEM customers; and the total size of the program results in the displacement of other more cost-effective, diverse and grid-friendly renewable resources.

NEM systems therefore increase costs for non-participants while simultaneously reducing the potential to utilize alternate resources to reduce costs. In short, the NEM program has reached the point where it is no longer sustainable in its current form both from a technical and social policy perspective.”

The Joint Parties consist of six organizations and one individual who signed a joint filing and the Blue Planet Foundation which filed a separate joinder with additional comments. EarthJustice Attorney Isaac Moriwake, working on behalf of the Hawai`i Solar Energy Assocition, played a key role in producing the document.

“It is important to recount the successes of Hawai‘i’s clean energy policies to date. These policy commitments have elevated the state as a national leader in clean energy, especially customer DERs, along with other much larger states and markets like California. The concrete benefits to the people of Hawai‘i cannot be understated. In 2014, approximately 27% of the HECO Companies’ renewable portfolio mix came from customer solar generation alone.

These customer-based renewable energy contributions have saved millions of barrels of oil, curbed Hawai‘i’s greenhouse gas emissions, and reduced the over four billion dollars sent out-of-state each year From 2010 through 2014, an average of 17.5% of all construction expenditures came from the solar industry, and virtually all of this construction activity was funded through the individual investments of utility customers in DERs. In 2014, over 2,200 people were employed in the solar energy sector, making it one of the most dynamic sectors in the state.  

Net energy metering (“NEM”) has been the cornerstone policy for the success of customer solar in Hawai‘i in empowering customers and advancing the State’s clean energy future. NEM’s success in Hawai‘i is reflected across the nation. Today, 44 states and the District of Columbia have adopted NEM, and Mississippi will soon join those ranks.

NEM’s strength as an easily understandable policy for customers that protects their long-term investments without tax liability has created a solid base for economic development rooted in well-established consumer and industry experience and legal and regulatory precedent.”

Recently there have been a number of studies across the nation which examined whether rooftop solar customers are subsidizing or being subsidized by those without solar.

Eight of eleven “recent cost-benefit analyses conducted on NEM have found that the benefits NEM customers provide are worth more than the compensation NEM customers receive through NEM.14 Yet, the HECO Companies insist on pursuing a backward process: first, eliminate NEM, then conduct the analysis whether that actually was necessary, or a mistake.”

 The Joint Parties believe that limits to NEM programs should not be arbitrary and capricious. “Parties seeking to eliminate the proven NEM framework bear a heavy burden to justify such drastic interim action and these difficulties it raises, but no justification exists.”

The Joint Parties recognize that NEM customers use the grid as a battery. NEM customers should pay for the fixed infrastructure costs associated with their use of the grid. The “toll” to use the grid should be based on accurate information.  Based on 2014 data the initial tolling fee should be 3.9 cents per kilowatt-hour. The toll would not apply immediately to Lana`i due to the low rooftop solar penetration that exists on the island.

Blue Planet filed a joinder to the Joint Party submission.

“Energy policy should not automatically equate distributed generation with utility-scale generation. These resources are different, with different attributes, strengths, and weaknesses. In moving forward to achieve the statutory mandate for 100% renewable energy, it is overwhelmingly likely that both types of resources will be expanded. Thus, the development of one resource should not be viewed as a 1:1 opportunity cost in the development of the other.

From an engineering perspective, as individual electrons, the energy from each may be fungible. But as a policy matter and as economic resources, DERs and centralized generation are not fungible.”

 “Most importantly, the utility’s interaction with independent power producers (“IPPs”) is fundamentally different than its interaction with customers. A DERs tariff should consider the value of having a customer attached to the grid, where their load and generation can serve as a shared resource, and where an evolving utility business model can derive revenue and value from other services.

Just as the price of utility-scale generation should not be derived by the price paid by customers, the price of distributed generation should not be derived by the price paid to IPPs.”

#      #      #

Friday, July 3, 2015

Former PUC Chair Morita challenges Solar Industry and Sierra Club

By Henry Curtis

The HECO-NextEra merger deal was publicly announced on December 3, 2014. Hermina Morita, Chair of the Public Utilities Commission, resigned five weeks later. In June Ian Lind reported that Morita has concerns about some parties opposed to the merger.  

Mina Morits has a blog with occasional blog postings.

On June 7 Morita wrote that The Alliance for Solar Choice (TASC) and the Sierra Club are promoting rooftop renewable energy which is being financially subsidized by those without rooftop solar.

“It appears that The Alliance for Solar Choice (TASC) is ramping up its efforts to oppose the HECO-NextEra merger through its intervention in the merger docket and a "local" effort called KULOLO (Keep Our Utilities Locally Owned and Locally Operated).

First of all, let me clarify - I am neither for or against the merger nor am I for or against rooftop solar or distributed generation.  

However, I am pragmatic and concerned that people are reacting emotionally and taking positions and making decisions that may not be cost-effective and provide only short-term gains for a few. The guerrilla tactics being used by these two entities through the press and social media only detract from real issues, the technical and economic challenges that Hawaii's electric systems face in transforming a system to benefit all.

Are TASC and KULOLO acting in the public interest for the public good?  I'm not sure, but it sure looks and smells like corporate business as usual to me.  

With the Sierra Club as the "local" front man, it's just a move to increase rooftop pv market share and a promotion of self-interest wrapped up as democratization of power generation.  

I cannot help but feel that Hawaii is being used as the poster child to preserve net metering programs and what happens here will influence and affect these companies' profitability nationwide thus their active interest, concern and the distractions.”

Morita discussed the subsidization issue in her 2015 blog posts. Morita stressed that the cheapest form of renewable energy is not guaranteed by listening to those with the loudest voice.

"Instead of seeking the most affordable way to scale up renewables, the loudest voices (though possibly not most of the voices) in the renewables movement are talking about "personal power", Home energy independence", "empowering the consumer", and rejecting "government-created monopolies."  

Generally, I would not have a problem with these opinions, but it is a problem when these advocates fail to understand the economics of producing reliable and affordable electricity and to whom the burden will fall to ensure this essential service.  Our failure to rectify and properly manage Hawaii's energy transformation may inadvertently create an unaffordable electric grid to serve the public good.”

As a legislator and long-time Chair of the House Committee Energy and Environmental Protection (EEP), Representative Morita was responsible for leading the successful effort to enact the net-metering program (NEM) and adopt a Renewable Portfolio Standard (RPS).

The NEM program and REITC [ Renewable Energy Investment Tax Credit] would incentivize and reward early adoption and the RPS would establish a minimum floor to give certainty to investors that there would be a buyer (the electric utility) for electricity produced from renewable resources” according to Morita.

Now that high penetrations have occurred, it is time to re-evaluate the programs.
Morita assessed the nature and size of the cost shift subsidization by quoting Hawaiian Electric Company statistics and pronouncements.

Morita recognized that these issues are currently under investigation by the Hawai`i Public Utilities Commission.

“Besides the HECO-NextEra merger application, I believe the most critical docket before the Hawaii Public Utilities Commission is the Distributed Energy Resources (DER) Investigation (Docket No 2014-0192) where the technical (integration and interconnection) and economic (correct pricing signals) are being investigated. 

Therefore, I am not writing this post to argue about the fair or unfair valuation of services distributed generation provides or its impact on the electric system but to bring awareness to the fact that Hawaii's energy policies are in need of review.  

We are at a critical juncture where some of these policies are detrimental to the customer who does not own or does not have access to or chooses not to have a distributed generation system.”

Morita asserts, “Buzzwords like ‘100 percent renewable’ and aspirational concepts like ‘energy democracy’ may prompt near-term achievements for individuals but often lack detail to achieve an advanced electric system that is accessible and affordable for all electricity users. 

Even with Hawaii’s high penetration of rooftop solar installations, over 80 percent of electric customers still lack access or funding, or have no desire to install a distributed generation system and must rely on the electric utility while shouldering more of the fixed-cost burden of the electric system under the current net energy metering program.”

“While I think we should aspire to the use of cleaner, renewable fuels, the RPS should be a real strategy stressing cost-effectiveness and a well-managed transition for the public good. … 

Even though the 100% target is far out into the future, it creates a race with a propensity to drive up costs to meet a target of aspiration, not an informed strategy.  Unfortunately, it is those who can least afford it that will be paying for this potentially expensive sound-bite.

HECO’s subsidization calculations are being challenged by a group of intervenors in the Distributed Energy Resources Docket 2014-0192 including Blue Planet Foundation, Life of the Land, Hawai‘i Solar Energy Association, Hawai‘i PV Coalition, Hawai‘i Renewable Energy Alliance, Ron Hooson, SunPower, and The Alliance for Solar Choice.

On July 2, 2015 The Alliance for Solar Choice filed a Motion with the Public Utilities Commission requesting a formal Evidentiary Hearing.

“TASC observes that formal evidentiary hearings are necessary in order to establish a sufficient evidentiary record through discovery and the ability to respond on the record to the positions and evidence offered by parties to this proceeding. …

The Commission requested that parties work collaboratively in Phase 1 towards a stipulation to resolve these questions. For the past three months, TASC made a good-faith effort to reach agreement with the HECO Companies and other parties through these settlement like discussions. A stipulation was reached on a very narrow subsection of issues in this proceeding.

Unfortunately, a stipulation could not be reached on a number of issues vital to the property and financial interests of TASC, its members, and their customers. 

As an Intervenor, TASC has a right to a hearing to cross-examine witnesses, put on evidence, and respond to evidence submitted by other parties in order to assist the Commission in establishing a record up on which it can make a just and reasonable decision.”

#      #      #

Thursday, July 2, 2015

Connecticul Utility Merger runs into a Brick Wall

By Henry Curtis

Good Jobs First found that over the past 15 years the federal government has given out $68 billion dollars in grants and subsidies to specific companies. The number 1 recipient was Iberdrola at $2.1 billion followed by NextEra at $1.9 billion. Both companies are seeking to acquire utilities.

Excluded from the $68 billion are industry-wide subsidies. "Mature portions of that industry—especially oil, gas and coal producers—receive much of their assistance in the form of provisions inserted into the Internal Revenue Code, including depletion deductions and the expensing of exploration and development costs. These tax subsidies cannot be attributed to individual companies." 

Last March the Spanish company Iberdrola submitted an application with the Connecticut Public Utilities Regulatory Authority (PURA) to acquire UIL, a Connecticut utility. (Docket No. 15-03-4515-03-45) 

The Parties in the regulatory proceeding are the Applicants, three state agencies (Office of Consumer Counsel, Commissioner of the Department of Energy and Environmental Protection, and the Office of the Attorney General State of Connecticut) and four non-governmental organizations (Connecticut Industrial Energy Consumers, Connecticut Independent Utility Workers Local 12924, Eversource Energy and The Alliance for Solar Choice).

The State agencies expressed major concerns with the merger.

The Connecticut Independent Utility Workers Local 12924 and Eversource Energy appeared to have played no meaningful role in the proceedings.

The Alliance for Solar Choice (TASC) and the Connecticut Industrial Energy Consumers (CIEC) both conditionally supported the merger subject to specific conditions.  TASC focused on interconnection standards while CIEC focused on financial standards.

On June 30, 2015 PURA issued a 44-page Proposed Final Decision against the merger.

“This proposed final Decision is being distributed to the parties in this proceeding for comment. The proposed Decision is not final. The Authority will consider the parties’ arguments and exceptions before reaching a final Decision, which may differ from the proposed Decision. Therefore, this proposed Decision does not establish any precedent and does not necessarily represent the Authority’s final conclusion.”

PURA found that Iberdrola is in a strong financial position and has the financial capability to combine with UIL. Iberdrola is a multinational holding company focused on energy with $114 billion in assets and net income of $3 billion.

“Nevertheless, based on the current structure of the proposed change of control, the Public Utilities Regulatory Authority finds that the applicants do not possess the requisite suitability and responsibility to acquire UIL Holdings Corporation. More particularly, as the proposed change of control is currently structured, the Public Utilities Regulatory Authority cannot conclude that the applicants will continue to possess the ability to provide safe, adequate, and reliable service to the public.

Moreover, the applicants have failed to meet their burden of proof that the proposed transaction, as presently structured, is in the public’s interest. As a result, the Public Utilities Regulatory Authority is unable to discern sufficient meaningful, specific, and measurable public benefit from this proposed transaction. Accordingly, the Public Utilities Regulatory Authority hereby denies the present application for a change of control.”

The Applicants asserted that “there would be no changes to the headquarters or local management of UIL or the UIL Utilities.”

The Office of Consumer Counsel stated “that it has serious concerns regarding the management suitability of Iberdrola, based on the experience of the New York Public Service Company (NYPSC) with Iberdrola’s management of two New York utilities.”

The Attorney General cited “concerns that important investment, planning and resource allocation decisions could be made by remote management who may have little interest in or appreciation for the needs of UIL’s customers. Specifically, the AG notes that in 2009, when Iberdrola owned CNG and Southern, the Authority issued final Decisions in rate cases for those companies with which neither company nor Iberdrola were satisfied. Two months later, Iberdrola management directed the gas companies to develop a plan that included “austerity measures and work force reductions.”

“Without specific details regarding succession planning, corporate governance or personnel changes, the Authority is not inclined to risk great uncertainties in potentially altering UIL’s current management practices.”

Simply put, the Applicants are expecting the Authority to accept their verbal assurances, without any specific and detailed commitments to the Connecticut ratepayers regarding measures to assure an appropriate level of local control of management of UI, CNG and Southern. While Iberdrola is managerially capable from a narrow experience and knowledge perspective, the transaction, as specifically structured, provides insufficient protections to assure that the Applicants’ management is suitable and responsible or in the public interest.

The Applicants are committed to innovation, investment, and smart meters. Some of UIL's service areas have been impacted by significant increases in solar photovoltaic interconnections. This can pose concerns. 

Iberdrola has committed to studying these issues but UIL is “required to meet the voltage limits …regardless of the outcome of this [merger] transaction.”

Scott Hempling appeared as an expert witness for the Office of Consumer Counsel (OCC).

“Mr. Hempling believes that in determining whether an acquisition satisfies the public interest, regulators should evaluate an applicant's assertions of benefits using three categories in terms of their appropriateness for consideration. 

Mr. Hempling states that only one category is appropriately called merger benefits which are benefits attributable to the coupling of companies. He believes that only this category distinguishes mergers that contribute to the public interest from those that do not. The other two categories blur this distinction, leading to distortions in the merger market and negative effects on the public interest.

The first category of benefits is the actual synergies produced when two companies operate more efficiently together than apart. An example is when a merger results in economies of scale, scope or integration, or allows resource sharing that reduces overhead expense.

The second category occurs when the acquirer improves the performance of the target. This results not from the coupling of companies, but from the substitution of higher quality practices for lower quality practices. This benefit occurs if the acquirer's managers do their jobs better than the target's managers and the acquirer uses its hierarchical control to bring that superior performance to the target.

The third category of benefits is financial offers unrelated to the acquisition transaction. These benefits arise from merger strategy rather than merger execution and become available not because two companies have combined to make operations more efficient, but because the acquirer is willing to donate resources it already has.

Treating these offers as merger benefits favors acquirers who have extra resources over alternative acquirers who have fewer resources but would make a better fit.”

Hempling also express concerns about who would be making the decisions. Iberdrola appears to have full control over major decisions and may make them based on what is good for the holding company rather than the ratepayer.

"1. If and when the utilities should seek rate increases or decreases.

2. How to make the tradeoff between reliability and cost (e.g., when to invest in distribution, transmission, generation, demand management or energy efficiency).

3. How to make the tradeoff between profitability and economic efficiency, such as whether to satisfy load by adding to rate base vs. encouraging demand management or energy efficiency.

4. Whether, when and how much to spend on cyber security and storm response.

5. Whether to fund public service investment by using retained earnings vs. accessing capital markets (and in the latter case, from whom to borrow and under what terms).

6. When to pay dividends to the parent and in what amounts.

7. What to say to ratings agencies when they request information on the utilities' earnings potential, cash flow and the ‘regulatory environment.’"

The OCC express concern that self-interest not the public interest was the motivating factor in the merger.

“The OCC argues further that there is no evidence that this proposed transaction had the public interest as its motivating factor. The OCC believes that the motivating factor for the Applicants is self-interest. Iberdrola is motivated by its corporate strategy as a multi-national corporation such that the Proposed Transaction is a strategic acquisition of assets that complement their riskier businesses. These motivations are not relevant to the Authority’s mission or for Connecticut ratepayers.

In addition, UIL stands to gain $590 million in shareholder profit. Furthermore, senior management of UIL has the potential for significant promotion within the acquiring company of Iberdrola. The OCC points out that these financial benefits to officers and shareholders do not impact the Authority’s mission and do not inure to ratepayers. Moreover, the OCC states that no party to this Proposed Transaction has demonstrated that it is motivated to protect the ratepayer or enhance the benefits to them.

Significantly, no studies were done and no studies were performed to evaluate whether ratepayers would benefit from the transaction. It is the OCC’s position that the parties clearly did not believe they had a burden to demonstrate that real net ratepayer benefits would flow from this transaction, or that there was any quantifiable, non-speculative public benefit attributable to the proposed transaction.

The OCC believes that any benefits that might accrue from the merger could easily be overshadowed by the financial risks associated with IUSA’s non-regulated operations and by Iberdrola’s non-American operations, including nuclear power production.

In summary, the OCC asserts that the Applicants bear the burden of proof in this proceeding, yet they have failed to identify any substantive public benefits that would result from the Proposed Transaction. The OCC contends that the Applicants have made vague assurances about local control, protection from parent company risk, and customer benefits by way of shared ‘best practices, but have not substantiated those assurances with actual commitments.

Based on the lack of evidence presented in this proceeding to demonstrate that the Application is in the public interest and meets other statutory standards, the OCC recommends that it be denied. If the Application is not rejected outright, the Authority should condition approval of the transaction on the Applicants’ acceptance of, and demonstrated intent to comply with, several conditions proposed by OCC.”

The Attorney General “asserted that under Connecticut law, the Authority may only approve the Proposed Transaction if it determines that the change of control is in the public interest. The AG defines the public interest as ratepayers and the State of Connecticut being better off as a result of the proposed acquisition of UIL.  The AG emphasizes that at the least this requires that the UIL Utilities will provide better service at lower rates. 

In the AG’s opinion, the record does not demonstrate that the Proposed Transaction is in the public interest. In the AG’s judgment, it presents significant uncertainties and risks to the ratepayers and communities currently served by the UIL Utilities. The AG requests that the Authority reject the Proposed Transaction with the caveat that an approval would only be made if the Authority imposes conditions clearly sufficient to address those risks and to serve the interests of Connecticut ratepayers.” 

The Alliance for Solar Choice (TASC) “recommended that if the Authority approves the Proposed Transaction, it does so with certain conditions which ensure that Connecticut can achieve its clean energy goals and ensure that the merger is implemented in a manner that supports these goals. The Applicants stated that the Proposed Transaction would benefit Connecticut in part, by helping the state achieve its renewable and environmental policy goals. The Applicants should be held to such statements. 

Consequently, TASC proposed 12 conditions that the Authority should impose if it approves the merger. According to TASC, the proposed conditions are consistent with conditions implemented in similar transactions in other states.”

The Connecticut Industrial Energy Consumers (CIEC) asserted that the Applicants have the burden of proof. “Although the Applicants acknowledged that improvement of the utilities’ credit rating could result in savings, such savings were never studied. The Applicants’ failure to even examine the existence and possible level of synergy savings and/or other financial benefits has placed the Authority as well as the Parties and Intervenors in the position of having to identify and evaluate whether such savings and benefits are in the public interest absent the Applicants’ active involvement. Therefore, any failure to identify and quantify with precision, synergy savings and/or other financial benefits that likely would result from the proposed transaction is the direct result of the Applicants’ insufficient record evidence.”

PURA summarized their Analysis.

“The Applicants have failed to demonstrate that UIL would indeed be a better company as a result of the merger. No compelling evidence was presented by the Applicants that proves this change of control transaction is the best solution for UIL’s plan to grow or become financially stronger, improve performance in a way that provides additional measurable and enforceable benefits to ratepayers, the public service companies themselves or the State. The Authority’s Decisions approving other proposed mergers or changes of control clearly identify many specific commitments to achieve quantifiable post-merger savings, infrastructure improvements or improved performance by dates certain. The Applicants’ proposal is deficient in making any such commitments upon which the Authority could rely to determine that approval of the change of control is in the public interest.

The Applicants claim benefits in the areas of creating a more financially sound UIL Company; however, during cross examination, they admitted that there was no guaranteed increase in credit ratings due to the merger because it is not known what the rating agencies will do.

The Authority finds that any credit savings would be minimal and not an attractive selling point, especially when coupled with the financial risks associated with IUSA’s non-regulated operations and by Iberdrola’s non-American operations, including nuclear power production.

The Applicants spent a significant amount of time espousing the benefits of best practices; however, they did not provide any specific best practices that could be implemented in Connecticut or identify any benefits because studies had not been undertaken. As a result, the Authority finds that the Applicants have not identified and committed to achieving any specific improvements post change of control by a date certain that would benefit UIL customers.  …

The Applicants presumably did try to remedy this shortage of specific benefits by offering a list of tangible benefits …which they value at $10 million. …However, it is not persuasive in overcoming public interest concerns. In summary, the Applicants’ list of additional conditions separately and in total are too little and too late. They are unquantifiable, have assigned values of zero and do not offer sufficient benefit for ratepayers. …

The Authority cannot accept the Applicants’ word without substantive evidence. Conn. Gen. Stat. §16-22 provides that the Applicants bear the burden of proof that the Proposed Transaction is in the public interest. Based on the above, the Authority finds that the Applicants have failed to satisfactorily demonstrate that the Proposed Transaction is in the public interest. …

Conclusion …Iberdrola brings to its proposed acquisition of United Illuminating potential assets deriving from its size and diversity: financial resources, technical experience and human resources. Concurrently, it is possible under the agreement as proposed that financial strains in the parent company or the need for human resources strength from UI could weaken this Connecticut distribution company.

That dilemma is the core of the PURA’s concern. Connecticut now has a competent, responsible, well-managed utility with an established track record in electric and gas operations and an established commitment to positive community relations. We do not know what its replacement would be; its structure, operations or management. Iberdrola’s record of mergers and divestitures in the region is mixed and does not offer a consistent picture of sustained commitment to strong, resilient and dedicated local distribution of gas and electricity. The change of control request is in effect one asking for a leap of faith into an unknown situation.

It is possible that greater clarification of what the resulting Connecticut entity would be, who would comprise its management team, how its financial strength would be protected from the vicissitudes of global forces and other currencies and insight into what Connecticut could reasonably foresee in future years could convince the PURA to approve a change of control transaction. Lacking such clarity and given the importance of United Illuminating to Connecticut’s future, together with the Applicants’ unwillingness to provide more definitive benefits to the public and to UI’s affiliated Connecticut utility companies, the PURA declines approval.”

#      #      #

Wednesday, July 1, 2015

Could NextEra be the White Knight?

By Henry Curtis

Hawaiian Electric has delayed its plan to add storage to the grid. Last year the company issued a Request for Proposals and received more than 60 responses. HECO asserted that it will take additional time to slash the winning choices down to just the three that will be accepted.

Storage would increase the amount of solar that could be easily added to the grid. The federal solar tax credit is due to expire next year, so time is of the essence. The time delay will probably hurt the solar industry but not the HECO Companies.

Meanwhile HECO proposes to dramatically cut the rate of new solar from 100 percent growth rate to seven percent. 

HECO proposes to cut the rate that net energy metered customers receive. Under the new scheme ratepayers with rooftop solar who give energy to the grid and take back the same amount of energy from the grid would discover that they owe the utility money for each unit of energy swapped with the grid and for the first time, their energy transfers would be subject to state and federal taxes.

Earlier this year HECO and HELCO sent threatening letters to ratepayers suggesting that the net energy metering program would be curtailed altogether.

NextEra, a company which asserted that it has access to cheaper capital, could have served as the White Knight, sweeping in and asserting that it would rescue Hawai`i ratepayers and the local solar industry.

Instead NextEra is asking for trust. They want first to acquire the HECO Companies and then to lay out their plans for the future. Some have speculated that NextEra does not yet have any plans. Highly placed Florida energy experts have told me that isn’t so. They have asserted that far more than any other utility, NextEra does highly detailed due diligence and knows precisely what it plans to do.

NextEra’s reputation is a utility which spends great sums of money to maximize manipulating laws, minimizing its taxes (its federal tax rate for the past decade is less than 2 percent), controlling the appointment of regulators, and cutting energy efficiency programs. NextEra subsidiary Florida Power and Light has an abysmal record in terms of customers with rooftop solar (few) and home battery systems (none).

On July 20th the 29 intervenors will file their testimony with the Public Utilities Commission. At that point Hawaii residents will be able to determine which intervenors want business-as-usual, which ones want greater local control, and which ones want HECO to become a small part of a large distant company. 

If the merger goes through, the HECO Companies would represent a mere seven percent of the assets and five percent of the net income of NextEra, assuming that NextEra’s $18 billion bid for Texas energy company Oncor fails. If the Oncor proposal succeeds, HECO would become an even smaller piece of NextEra.

#      #      #