Editor’s Note: Over the next several weeks Living Hawaii will be examining the high cost of energy in the islands and efforts to bring down those costs as part of the state’s broader shift toward renewable resources. Certainly, the proposed merger of NextEra and Hawaiian Electric is at the center of any discussion about energy and affordability in Hawaii.

A remarkably broad coalition of power players have come together this summer in a chorus of rejection of NextEra Energy’s $4.3 billion bid to buy Hawaiian Electric Industries. But does that mean the deal is on its deathbed?

It was hardly surprising when long-standing critics of Hawaiian Electric — including environmental activists and alternative energy businesses who say they have been stymied by the company’s policies — came out against a merger that might embolden Hawaii’s energy utility.

But broad-based opposition to the deal has come from diverse and sometimes unlikely allies, like the gas and water utilities, the state’s three most populous counties, the state Department of Business Economic Development and Tourism, the state Office of Planning and even the U.S. Department of Defense.

Throw in Gov. David Ige’s high-profile July 21 declaration that the deal didn’t appear to be in Hawaii’s best interests and Consumer Advocate Jeff Ono’s August 10 statement that the merger offers “illusory and inadequate” benefits for Hawaii, and it is possible to conclude that the deal is so moribund it’s just awaiting a death certificate.

But as deal-makers the world over understand: real negotiations often don’t begin until someone says “no.”

Regulators looking at whether NextEra Energy’s $4.3 billion bid to acquire Hawaiian Electric is good for the state, will likely consider its impact on prices and on Hawaii’s renewable energy goals.

istock.com

Kyle Datta, a general partner at the social change investment firm Ulupono Initiative, which advocates for renewable energy, said that in this case “no” doesn’t necessarily mean no. To Datta, former vice president for energy practice at Booz Allen Hamilton and an ex-CEO for U.S. Biodiesel Group, it means: Show us what else you got.

Deal-Making Time

Much of the most significant opposition to the merger has come with caveats. Ige and Ono, the Consumer Advocate, who wrote up a long list of suggested improvements, are among the many critics who came out against the merger “in its current form”— not in the absolute.

They left open the option of backing a more suitable final merger proposal. The ultimate decision in the case belongs to the Hawaii Public Utilities Commission, which will decide whether or not it is good for the state and its people.

Energy industry analysts, NextEra executives and Hawaii’s senior senator all said in recent interviews with Civil Beat that the merger process has just entered a multi-month phase when horse trading is commonly used to eliminate opposition to a deal.

“This isn’t some three-and-a-half megawatt solar farm that is being dealt with in a contentious fashion. This is: What is the future of our own electric utility? It is not unreasonable for people to have a little bit of anxiety about what is going on.” — U.S. Sen. Brian Schatz

In this phase, some key questions are emerging: What resources and firm commitments will NextEra make to win over enough significant opposition or, if it takes a less diplomatic route, can the company convince the commission to back the merger despite intense and broad-based opposition?

Datta says that in typical mergers, the give-and-take period — when such questions get answered — usually picks up speed in the run-up to a formal hearing before the commission.

At the quasi-judicial hearing slated to start on Nov. 30, the Consumer Advocate, NextEra, Hawaiian Electric and a group of 28 intervenors — nearly all of whom have come out against the initial version of the deal — will bring evidence forward to persuade the commission.

While the decision is ultimately the PUC’s alone, convincing intervenors to withdraw their concerns can help to persuade the commission to issue a favorable final decision.

Settlements are usually reached with some, but not all, of the parties to address problematic issues, NextEra Energy Hawaii President Eric Gleason said last week at a meeting with Civil Beat’s editorial board.

This process “involves some level of concession” and it must be mutually acceptable, he said, adding, “So it is a kind of negotiation.”

The Greedy Snake

It is worth keeping this deal-making phase in mind when looking at the scorn that has met NextEra’s acquisition effort.

The primary arguments against the merger are that the company is insufficiently committed to Hawaii’s renewable energy generation goals, that it is unwilling to share its true plans for the state, that it doesn’t want competition and that it doesn’t care enough about bringing down the nation’s highest electricity prices. In its filings and in interviews, NextEra executives bluntly — and repeatedly — refuted such points.

One animated ad by a national solar lobby group, The Alliance for Solar Choice, portrays NextEra as a callous cigar-smoking businessman, a bullying gorilla in a business suit and a greedy gray snake.

Fending off such criticisms can be par for the course in getting mergers through, the NextEra executives said, but they noted their surprise at the breadth and intensity of the backlash their company has faced.

The most vociferous critics have portrayed NextEra as a greedy, tone-deaf mainland company that will, like earlier arriving interlopers, strip Hawaii of control of one of its most crucial resources. Opponents colorfully refer to the company as “NextError” or even “NextTerror.”

One animated ad by a national solar lobby group, The Alliance for Solar Choice, portrays NextEra as a callous cigar-smoking businessman, a bullying gorilla in a business suit and a greedy gray snake.

Many of the merger’s opponents are seasoned critics of Hawaiian Electric, which has long charged its customers by far the highest rates in the country even as the company faced persistent allegations that it slowed the spread of alternative energy in recent years.

In other circumstances Hawaiian Electric’s cost-burdened critics might welcome any serious effort to bring price relief, regardless of its origins — especially since NextEra’s customers in Florida pay about one-third of the rates people in the islands do. In fact, it remains possible that many customers ultimately will, but that doesn’t mean the demonization of the NextEra will end before the PUC issues a final decision on the merger.

In this climate, Marco Mangelsdorf, the president of ProVision Solar Inc., warned of the dangers of  caricaturing key partners in Hawaii’s energy transformation, given the islands’ isolation and need for expertise to revolutionize its energy system over the next 30 years.

“I don’t see it as productive to demonize one side or the other. Once you start ascribing the other side acting in bad faith, dialogue and constructing become all but impossible,” he said during a panel discussion at an energy innovation summit in Honolulu in late August. “We have to do a better job of talking to each other in a civil and collaborative way.”

NextEra Energy Hawaii President Eric Gleason said Hawaii is paying for the “sins” of mainland companies who mistreated Hawaii.

Cory Lum/Civil Beat

Gleason noted that there are days when this tumultuous acquisition process “doesn’t feel typical.”

But, he noted that by definition these regulatory reviews are set up to be contentious.

And he said in a December 2014 editorial board with Civil Beat, just after the merger deal was announced, that the people of Hawaii are more engaged around the subject of electricity than anywhere he has ever seen.

Reminded of those comments last week, following a bruising summer for his company, he said, “We were right, but I don’t think we knew how right we were.”

“And it is more true today than it was then,” he added, essentially because NextEra’s buy-in effort has become such a lightning rod for numerous competitors in Hawaii’s remarkably diverse energy ecosystem.

“Companies have come here and got it wrong….  We’re paying for the sins of others in the past.” — NextEra Energy Hawaii President Eric Gleason

Part of the problem, in Gleason’s analysis, is that some outside companies in Hawaii have poisoned the terrain.

“We’ve been coming here for about five years. … So we knew there was some history with companies coming from the mainland,” he said. “Companies have come here and got it wrong. So there is skepticism and even fear. Given how important the utility is, that is just magnified.”

“We understood that, but to be candid, we didn’t understand how bad the history was,” he said, adding: “We’re paying for the sins of others in the past.”

The result is that Hawaiian Electric and NextEra, as a mainland company, each face “a trust deficit,” albeit for different reasons. “This is going to take time to overcome,” he said.

The more immediate challenge, according to Gleason, is to make sure the process gets to “the truth so the commission can make a good decision.”

Ultimately, both Gleason and Rob Gould, NextEra Energy’s vice president for communications, suggested that the final decision on the merger isn’t supposed to be affected by anti-outsider campaigns or political calculations.

“The PUC has a job to do,” said Gould. “At the end of the day, we would hope it would be free of the politics to evaluate the transaction on its merits.”

Rob Gould, NextEra Energy’s vice president for communications, hopes regulators will decide on the merger based on its merits, not on political considerations.

Cory Lum/Civil Beat

Sweetening the Pot

As the NextEra executives made clear during their recent visit to Civil Beat’s offices, the negotiations have already begun.

NextEra and Hawaiian Electric made numerous updates to the merger proposal at the end of August, which was the deadline for the company to file responses to the thousands of questions that intervenors have raised about the deal. They upped their offer with pledges to bring more financial benefits to Hawaii, to share more plans after they write them up and to make sure that Hawaiian Electric retains a very strong local leadership component.

In late August, NextEra sweetened its offer, adding 54 “binding commitments” — including not reselling the company for at least a decade — to the 31 the company had previously made.

But Datta, whose Ulupono Initiative is an intervenor in the case, said that many of the improved offerings that NextEra has cited this summer are simply a “repackaging” of previous pledges that, in many cases, may or may not come to fruition.

There are undoubtedly some concrete new additions, though, particularly on the financial front.

U.S. Sen. Brian Schatz, who spoke at an innovative energy summit in Honolulu in August, says major change in a field as sensitive as energy is always contentious.

Cory Lum/Civil Beat

Beyond the $60 million in savings that NextEra already guaranteed, the company recently promised charitable giving of at least $22 million dollars in the decade after the merger is completed. The company also pledged to set up a $10 million “customer benefit fund” — money the PUC can spend as it sees fit in the public interest.

NextEra also committed, among other things, to speeding up technological advancements of the sort that are increasingly common on the mainland, like deploying smart meters around the state that facilitate time-of-use rate options. This is significant because it makes it easier for customers to understand their electricity usage and make it more efficient, which can result in saving them money.

NextEra has also promised, in writing, to continue many of Hawaiian Electric’s community efforts and to live up to the “Hawaii values of kuleana, malama pono and aloha.”

“I’ve been involved in the energy space for a long time and I’ve never seen it move smoothly. I mean I’ve never seen it move smoothly.” — Sen. Schatz

Gleason and Gould, in interviews with Civil Beat, clarified that there are some questions that they simply can’t answer. In some cases, they said, a merger this complex means that they just don’t know how everything will be done in the future, while in other cases they don’t want to share all of their business practices and plans with competitors.

It became clear that the regulatory process, which began with the announcement of the merger in December 2014, might be particularly contentious earlier this year when representatives of more than two dozen environmental groups, utilities, renewable energy companies, unions, counties, state and federal government and others asked to become “intervenors.”

In what U.S. Sen. Brian Schatz described as a surprising turn of events, they were all accepted, even though this gave energy industry competitors like Hawaii Gas and renewable energy companies intervenor status and the ability to gain access to some confidential documents in the case. Intervenors also get to express their approval or disapproval of a merger involving their competitor. Some of those intervening energy companies, perhaps not surprisingly, raised concerns in their filing that the merger will diminish competition in the energy sector.

Schatz noted that it would have been within the PUC’s prerogative to deny standing to some of the companies that asked to take part in the process. “They just let everybody in,” the senator said.

One intervenor, Paniolo Power Company, which is linked to Parker Ranch, ultimately decided to back out.

State Rep. Chris Lee, left, was the chief architect of the renewable energy legislation signed into law by Gov. David Ige, right, in May. That legislation changed the terrain just before the regulatory process for the NextEra-HECO merger began in earnest.

Cory Lum/Civil Beat

NextEra did argue that competitors should be precluded from directly participating in the proceeding, but the commission decided to make the process as inclusive as possible.

“Typically you would not expect competitors to be part of a proceeding like this,” said Gleason. “This is about what’s in the public interest, not what’s in the narrow private commercial interests of these various competitors.”

In the big picture, NextEra Energy Hawaii’s president said, “The level at which people are engaged in (this merger) and it is politicized is exceptional in my experience.”

The Power Tour

The effort at inclusiveness is far-reaching.

After NextEra filed its latest filing on Aug. 31,  the regulatory process entered a public phase that is already starting to play out in meetings around the state. Last week, the PUC conducted the first of seven listening sessions, getting an earful on Maui about what locals do and don’t like about the proposed deal. The commission’s six-island tour will culminate on Oahu on Oct. 27.

These gatherings come amid a backdrop of questioning about the need for a statewide power company at all. In Maui County and on the Big Island various power players are looking into breaking off from Hawaiian Electric, whether as a municipal utility or as a co-op, perhaps along the lines of the one that already exists on Kauai.

But the main event begins on Nov. 30 when the formal hearing opens at the Neil S. Blaisdell Center, where NextEra, Hawaiian Electric, the Consumer Advocate and the intervenors can formally argue whether or not the case is in Hawaii’s best interests.

“Today, the biggest driver of electricity prices is oil prices, and we can’t control that.” — NextEra’s Eric Gleason

After that hearing, the commission could make a decision, seek a delay or ask more questions. A final decision is expected in the first half of 2016.

“I’ve been involved in the energy space for a long time and I’ve never seen it move smoothly,” said Schatz, who was designated as a sort of “clean energy czar” for the state in 2012 while serving as lieutenant governor. “I mean I’ve never seen it move smoothly.”

As for the three- or four-month prime negotiating phase that this merger process has just entered, Schatz said, it is “the most chaotic time.”

Beyond the merger process, Schatz said near-term decisions loom on relevant peripheral issues, including a pair of large-scale renewable energy proposals and whether the state will use liquefied natural gas as a bridge fuel for electricity generation as part of its broader 30-year transition toward non-fossil fuels.

But given the stakes — the transformation of Hawaii’s outlandishly priced electricity system — he says this is understandable.

“This isn’t some three-and-a-half megawatt solar farm that is being dealt with in a contentious fashion,” said Schatz. “This is: What is the future of our own electric utility? It is not unreasonable for people to have a little bit of anxiety about what is going on.”

Negotiating Your Electric Bill

The most challenging issue for NextEra might ultimately be less about whether it is revealing enough details about its plans in Hawaii, its charitable giving or its localness than it will be about the same anger that Hawaiian Electric has faced because prices are far too high.

NextEra executives expressed confidence they will generate savings of at least $1 billion in the first five years — although they only have enough confidence to concretely guarantee $60 million in savings. And that $60 million doesn’t mean that customers will definitely end up with lower electric bills.

NextEra calculates that the average customer in the islands will pay about $400 less over the course of five years, for a savings of $6.67 per month.

Florida Power & Light Company engineers work at the Power Delivery Diagnostic Center at the company’s office in Jupiter, Florida. The center uses advanced smart grid technology to better manage the electric system.

Doug Murray/FPL

But given Hawaii’s continued reliance on oil-generated electricity, those savings would easily be swallowed up by market volatility. The obvious culprits, according to Gleason, would be an increase in oil prices or a disruption in the flow of oil to the islands.

“Today, the biggest driver of electricity prices is oil prices, and we can’t control that,” said Gleason. Truly guaranteeing lower prices requires getting Hawaii’s electricity off of oil and that is likely to take years, he added.

In the meantime, NextEra promises that your bills “will be lower than they would have been if Hawaiian Electric was operating independently.”

“But,” Gleason clarified, “I can’t promise you they’ll go down.”

For some analysts, NextEra is — like some of its critics — still in negotiating mode. If NextEra wants the deal to go through, the power company “will need to pony up real commitments, not illusory promises,” according to Datta, of the Ulupono Initiative. He said that translates into guarantees of real savings, as well as a hard commitment to Hawaii’s renewable energy targets.

Then, Datta said, the company’s management has to meet those commitments and the PUC can follow up by seeing see whether customers end up with more money in their pockets.

Disclaimer: The Ulupono Initiative was founded by Pierre and Pam Omidyar. Pierre Omidyar is the CEO and publisher of Civil Beat.

Do you have a story about the human impact of the cost of living in the islands, whether about you or someone you know, for our Connections section? If so, drop me a note at epape@civilbeat.com.

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