Editor’s note: This post has been reprinted with the author’s permission. It first appeared Sunday on iLind, Ian Lind’s personal blog.
Hu Honua Bioenergy LLC’s controversial and trouble-plagued wood-burning power plant in Pepeekeo on the Big Island’s Hamakua Coast, “was and is a multi-million dollar financial disaster” that has “wasted millions of dollars” and may never go into service, attorneys representing the company’s controlling investor have argued in documents filed in a California lawsuit.
It was, they have asserted, “a fiasco from the beginning.”
That gloomy view is in stark contrast to Hu Honua’s claims that the only thing preventing the company from beginning full operations by the end of this year is the recent adverse ruling by the Public Utilities Commission. The PUC ruled on July 9, 2020 that Hu Honua’s proposal will not be exempted from a round of competitive bidding in order to secure a new long-term agreement to sell its power to Hawaiian Electric.
The commission denied a request to reconsider its ruling earlier this month, and Hu Honua responded by launching an aggressive legal, political, and public relations assault on the PUC and its individual members.
But documents filed in the California case suggest that even an unexpected last-minute reversal by the PUC would not likely be enough to save the project. The Hu Honua financial plan relies in part on tens of millions in investment tax credits which will not be available unless construction is finished, a new power purchase agreement is in place, all environmental permits obtained, and any possible appeals are exhausted, all before the credits expire. With most or all of the tax credits available to Hu Honua scheduled expire by the end of 2020, its financial options appear to be limited, according to documents filed in the case.
“While Hu Honua is still hopeful it can recover the ITCs, the fact that construction is not complete to this date makes the ITC, in the words of the PUC, ‘uncertain’, ‘increasingly unlikely’, and ‘speculative, at best’,” Johnson’s attorney argued in a recent court filing.
The project had also touted the expressed willingness of its well-heeled backers to provide additional cash infusions to keep the project afloat during difficult financial times, but the positions they have now staked out in the court case appear to call those future potential investments into question.
The lawsuit was originally filed in June 2018 by Harold H. Robinson. Named as defendant in the case are Jennifer M. “Jenny” Johnson, Hu Honua’s principal investor, and two limited liability companies she controls. Johnson owns 99% of Silverbelt Holdings LLC, which holds majority control of the Hu Honua Project, and 55% of Silverbelt Investments LLC, which managed the projects owned by Silverbelt Holdings.
Robinson was CEO of Silverbelt Investments from 2013 until his termination in February 2018. Hu Honua was the largest of eight real estate projects in the investment portfolio Robinson managed through Silverbelt Investments, and the only money-loser.
Between March 2013 and the end of 2017, Robinson’s responsibilities with Silverbelt/Hu Honua included “resolving over a dozen lawsuits, renegotiating vendor contracts and undertaking initiatives with vendors, investors, and outside parties that avoided several events that could have severely damaged the investment,” according to the complaint. Robinson alleges he is owed $13 million or more based on current and future performance of the investment portfolio he had been managing.
Johnson is president and chief operating officer of publicly traded Franklin Resources, parent company of the Franklin Templeton family of investment funds with $700 billion in managed assets. Her father, Charles Bartlett Johnson, is worth an estimated $4.4 billion, according to Forbes Magazine. He became CEO of Franklin Resources in 1957 at age 24, and is credited with taking the company public in 1974. The elder Johnson is reported to be the largest shareholder in the San Francisco Giants baseball franchise, holding an estimated 25% to 30% share.
Jennifer’s brother, Greg Johnson, is now chairman and CEO of Franklin Resources, and was also named chairman of the Giants last year.
Jenny Johnson’s reported $40 million personal investment in Silverbelt Holdings and Hu Honua appears to be from her own fortune and not from any of the Franklin Templeton investment funds.
Robinson is married to one of Johnson’s longtime personal friends, and the two families “were personal and professional friends” for many years, and even owned a vacation home together.
In about 2010, Robinson and Johnson decided to go into business together, documents show. In late 2010, they agreed to move forward with what they termed the Silverbelt Portfolio, eventually made up of eight real estate projects, including the Hu Honua project, which represented its largest financial commitment.
Initially Johnson and Robinson set up Silver Belt Investments LLC, 95% owned by Johnson.
Then they restructured their business and created two limited liability companies, Silverbelt Holdings LLC, and Silverbelt Investments LLC, which jointly participated in the Silverbelt Portfolio.
Johnson controlled all but a tiny fraction of Silverbelt Holdings, which owned the properties and was funded by her personal capital. She was also a majority owner of Silverbelt Investments, with a 55% share. Robinson was manager of Silverbelt Investments and held a 45% share of the company, and was to control of the company’s day to day operations.
It was Robinson who first pitched the idea of taking over Hu Honua Bioenergy by acquiring the ownership interest of C Change Pacific LLC, which had bought into Hu Honua in 2010 but apparently had been unable to raise sufficient capital investment to see the project through.
According to a court filing by Johnson’s attorneys, Robinson had been laid off after working on the project for a previous employer.
“When he brought this ‘opportunity’ to Ms. Johnson, Plaintiff bragged that he knew more about the Hawaii power plant as an investment vehicle than any other person on earth,” according to a court filing last December. “This boast turned out to be false.”
In a proposal presented to Johnson in July 2011, Robinson estimated it would cost $22 million to acquire C Change Pacific’s interest, and another $60 million to finance the remaining development and construction costs, offset in part by an estimated $17,800,000 in federal investment tax credits “after commercial operations commence” and a $50 million refinancing.
A “key assumption” of the investment thesis was that the power plant would be up and running by the end of 2012.
But estimates of both time and money proved far off the mark.
Between 2011 and 2018, Robinson “made repeated recommendations to me that I invest in the power plant project,” Johnson said in a declaration filed in court. “Completion dates for the project kept being extended into the future at an ever-increasing cost.”
“Three years later, in 2014, the power plant still had not opened and the cash requirements for the project had risen to ‘approximately $185 million,’” Johnson’s attorney recounted in October 2019.
A July 4, 2014 email from Robinson to Johnson and two other investors described the critical nature of the financial situation.
As we all know we are in a situation where time is truly of the essence. Yesterday, the bulk of the Hawaii Project cash reserves were used to make critical payroll payments. Starting next week we will begin to see an onslaught of payment requests from various vendors. If we fail to put a down payment on our turbine in the next week or so our completion date will suffer unacceptable delays. Numerous other examples supporting the need for immediate cash infusions into the Project exist.
“More millions — although not yet the full $185 million — were invested in the power plant,” Johnson later recounted. “It still did not open.”
By summer of 2017, Plaintiff [Robinson] was reporting that the “Cost-to- Complete” the work was either $153 million or $161 million. These staggering amounts were not accompanied by a prediction of when the power plant might open if the money could be found. Now it is 2019, the power plant is not open, and Plaintiff says he cannot predict when, if ever, that might happen.
By summer of 2017, Plaintiff [Robinson] was reporting that the “Cost-to- Complete” the work was either $153 million or $161 million. These staggering amounts were not accompanied by a prediction of when the power plant might open if the money could be found.
Now it is 2019, the power plant is not open, and Plaintiff says he cannot predict when, if ever, that might happen.
“To date Honua Ola Bioenergy has spent more than $330 million in construction costs of the 21.5 megawatt plant on Hawaii Island and $474 million in all-in costs,” PBN reported in July.
In her declaration, Johnson said she had personally invested more than $40 million in Hu Honua.
“To my knowledge the Hawaii project has not generated operating revenue profits, or profits-based return to investors. The project has, however, resulted in large losses to investors. The losses continue,” she wrote.
Furthermore, according to Johnson and her attorneys, even if the plant eventually opens, it will be another 15 years before any profits are returned to investors.
The California case is scheduled to go to trial on January 21, 2021 in the California Superior Court in San Francisco.
Read Ian Lind’s earlier blog post on the Hu Honua situation:
“Powerful state senators pressure agencies to back Hu Honua,” iLind.net, Sept. 17, 2020.
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