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In re Application of Maui Electric Co., Ltd.

Supreme Court of Hawaii

December 14, 2017

In re Application of MAUI ELECTRIC COMPANY, LIMITED, For Approval of the Amended and Restated Power Purchase Agreement With Hawaiian Commercial & Sugar Company.


          Kylie W. Wager and Isaac H. Moriwake for petitioner

          Randall C. Whattoff, James E. Abraham, and Rebecca D. Matsushima for respondent Maui Electric Company, Ltd.

          Mark J. Kaetsu and Thomas C. Gorak for respondent Public Utilities Commission



          POLLACK, J.

         Article XI, section 9 of the Hawai'i Constitution guarantees each person "the right to a clean and healthful environment, as defined by laws relating to environmental quality." Article I, section 5 provides that "[n]o person shall be deprived of life, liberty or property without due process of law." This case raises the issue of whether the protections of the due process clause apply to the right to a clean and healthful environment as defined by laws related to environmental quality. We hold that, under the circumstances of this case, the petitioners asserted a protectable property interest in a clean and healthful environment as defined by environmental regulations; that the agency decision adversely affected this interest; and that a due process hearing was required given the importance of the interest, the risk of an erroneous deprivation, and the governmental interests involved.

         I. BACKGROUND

         This case involves a power purchase agreement between Maui Electric Company, Limited ("Maui Electric"), an electric utility company, [1] and Hawaiian Commercial & Sugar Company (HC&S), a producer of electricity. Hawaii Revised Statutes (HRS) § 269-16.22, relating to power purchase agreements, allows electric utility companies to recover all power purchase costs from customers subject to the approval of the Public Utilities Commission ("Commission" or PUC).[2]

         Maui Electric filed an application with the Commission on March 31, 2015 (the "Application"), seeking approval of a power purchase agreement between Maui Electric and HC&S (the "Agreement"). The Application indicated that the Agreement restated and amended an existing power purchase agreement between Maui Electric and HC&S. Maui Electric sought the Commission's approval of the Agreement, a finding that the energy charges to be incurred under the Agreement were just and reasonable, a finding that the "purchased power arrangement" under the Agreement was prudent and in the public interest, and an authorization to charge consumers for the energy costs through its existing energy cost adjustment clause.[3]

         The existing agreement between the parties was approved by the Commission in 1990 and was negotiated to continue in effect through December 31, 1999, and on a year-to-year basis thereafter subject to termination. The Application noted that, if the Commission did not issue an order approving the Agreement on or before September 30, 2015, the existing agreement between the parties could be terminated by either party.

         Under the existing agreement, Maui Electric had been purchasing energy produced by HC&S at its facility located in Pu'unene, Maui (the "Pu'unene Plant") . The Pu'unene Plant consisted of a sugar processing operation with an internal bagasse-fired power plant that also burned a number of other fuels, including coal and petroleum.[4] Under the Agreement, Maui Electric would continue to purchase energy generated at the Pu'unene Plant. According to Maui Electric, the Agreement would, inter alia, amend the pricing structure and rates for energy purchases under the existing agreement between Maui Electric and HC&S; eliminate capacity payments Maui Electric was making to HC&S under the existing agreement; eliminate Maui Electric's existing minimum purchase obligation; and extend the arrangement between the parties from 2014 to 2017.

         On April 17, 2015, Sierra Club timely filed a motion to intervene[5] or to participate without intervention[6] in the proceedings concerning the Application in order to assist the Commission in fully developing the facts and law regarding the fuel mix at the Pu'unene Plant and other matters at issue in the proceeding. Sierra Club sought intervention on behalf of itself and its members who live in close proximity to the Pu'unene Plant. In its motion, Sierra Club asserted a fundamental due process right to participate in a hearing on the grounds that the Agreement would impact Sierra Club's members' health, aesthetic, and recreational interests. Sierra Club also asserted its organizational interest in reducing Hawaii's dependence on imported fossil fuels and advancing a clean energy grid.

         Sierra Club argued that its members were concerned that the Pu'unene Plant relied too heavily on coal in order to meet its power obligations under the existing agreement and also that its members were concerned "about the public health and visibility impacts of burning coal." Statistics provided by Sierra Club indicated that the fuel mix burned at the Pu'unene Plant for energy generation from 2010 to 2012 was comprised of approximately twenty-five per cent coal and petroleum. Sierra Club asserted that members on an ongoing basis were forced to close the windows of their homes and run air filters to protect against harmful pollution. Sierra Club also noted that the Department of Health sought to impose a fine of over one million dollars on HC&S in the previous year as a result of more than four hundred violations of the Clean Air Act.[7] Sierra Club asserted that the Pu'unene Plant was permitted to burn coal and petroleum, operated without modern pollution controls, and consistently violated limits set by the Clean Air Act. Sierra Club also contended that there was an issue of how much energy at the plant could be considered "renewable power" under HRS § 269-92(b)(4), which relates to standards that prescribe what portions of the renewable portfolio standards may be met by specific types of energy sources. Sierra Club maintained that the proceedings would determine the future obligations of the Pu'unene Plant to supply power to Maui Electric, "which is a de facto determination [of] whether the plant will continue to burn coal."

         Sierra Club attached the affidavits of two of their members to the motion for intervention or participation. Clare Apana, a Wailuku resident who is able to see the Pu'unene Plant's smokestack from her home, stated the following in her affidavit:

4. I have concerns about the coal burning at Pu'unene. I understand that burning coal results in emissions of dangerous air pollutants such as particulate matter, sulfur dioxide, nitrogen oxides, mercury, and other toxic pollutants. I know that these pollutants can cause or contribute to a wide range of health problems, including asthma, and respiratory and cardiovascular disease.
5. I have concerns about the impacts of the pollution from the plant on my health and the health of my family. On some days, because the pollution in the area causes hazy conditions, I cannot see the mountains from my house. On these days, I will turn on my air filters and close my windows to limit my exposure.
6. I understand that the Pu'unene plant supplies power to the Maui Electric Company . . ., and that the Commission is considering approving a new power purchase agreement with the plant. I am concerned that the plant burns more coal and produces more air pollution in order to meet its obligations to supply power [to Maui Electric].
7. If the Commission decided not to approve the new power purchase agreement, it might decrease coal-burning at Pu'unene, and therefore decrease some of my concerns about the pollution from the plant. I would feel more comfortable about seeing the plume from the plant if I knew that they were not burning coal, or if they were burning less coal at the plant. It would increase my enjoyment of the area and produce other benefits to my long-term health and well-being.

         The other affidavit attached to Sierra Club's motion was by Wailuku resident Christine Andrews, who also expressed concerns regarding the coal burning at the Pu'unene Plant and the potential impact of the coal burning on her long-term health. The Andrews affidavit referenced violations of limits on emissions by HC&S as follows:

I understand that the Department of Health issued the Pu'unene plant a Notice of Violation in 2014 and a million dollar fine regarding its emissions of opacity. I understand that opacity is a measure of particulate matter pollution. I have concerns about the impacts of the pollution from the plant on my health and the health of my family. I do not want to be exposed to levels of air pollution which exceed the levels permitted by law. I am especially concerned about my exposure to [the] plant's particulate matter emissions (including the toxic substances that may be contained in particulate matter) because I know particulate matter can penetrate deep into the lungs and can lead to a range of respiratory problems.

         Maui Electric filed a memorandum in opposition to Sierra Club's motion for intervention or participation asserting, inter alia, that Sierra Club failed to establish a right to participate in a hearing. Maui Electric's memorandum did not address Sierra Club's assertion of a right to a due process hearing and solely argued that Sierra Club failed to establish a statutory right to participate in the proceeding.

         The Commission denied Sierra Club's motion to intervene or to participate without considering Sierra Club's due process assertion. The Commission concluded that Sierra Club did not have an interest distinct from the general public and that "its interests in environmental issues and impacts could unreasonably broaden the issues already presented." The Commission further concluded that the questions and concerns of Sierra Club "fall outside the narrow issues present in the Application, which concern the pricing structure and purchase obligations" of Maui Electric and HC&S. The Commission also found that Sierra Club's involvement in other energy proceedings indicated that there were sufficient other means for Sierra Club to protect its interests.

         Sierra Club subsequently filed a motion with the Commission requesting reconsideration of the order denying its motion to intervene or participate in the proceeding. Sierra Club again asserted a due process right to participate in a contested case hearing related to the Application based on the constitutionally-protected environmental rights of the organization and its members. Sierra Club cited to Pele Defense Fund v. Puna Geothermal Venture, 77 Hawai'i 64, 881 P.2d 1210 (1994), in support of its argument that a due process hearing was constitutionally required. Sierra Club also asserted that the "present proceeding" was required under HRS § 269-27.2(c) .

         In denying Sierra Club's motion for reconsideration, the Commission determined that Sierra Club failed to justify intervention or participation in the proceeding. With regard to Sierra Club's due process argument, the Commission determined that Pele Defense Fund was inapplicable. The Commission did not otherwise address Sierra Club's assertion of a due process right to participate in a hearing concerning its environmental rights.[8]

         The Commission issued its final Decision and Order concerning the Application on September 24, 2015. In its Decision and Order, the Commission granted the Application to approve the Agreement. Among its findings and conclusions, the Commission observed that the Agreement is "anticipated to help accomplish the State's policy goals of reaching 100% renewable energy by 2045 as well as increasing the State's energy self-sufficiency." Additionally, the Commission approved Maui Electric's request to file confidentially fuel information provided by HC&S, which includes the type of fuels burned by HC&S. The PUC determined that the information was proprietary and "if disclosed publicly could disadvantage and competitively harm HC&S."

         Sierra Club appealed to the Intermediate Court of Appeals (ICA) challenging the Commission's order denying its motion to intervene or participate in the proceedings and Sierra Club's motion for reconsideration. Both the Commission and Maui Electric contested the jurisdiction of the ICA, arguing that the ICA lacked jurisdiction because the appeal did not arise from a contested case. Maui Electric filed a motion to dismiss the appeal, asserting that the appeal should be dismissed for lack of jurisdiction because the motion to intervene was not a contested case proceeding. Maui Electric asserted that Sierra Club's concern regarding "the public health and visibility impacts of burning coal" did not rise to the level of property within the meaning of the due process clause. Maui Electric also argued that, as a factual matter, the Commission's approval of the Application would not increase the amount of electricity generated using coal at the Pu'unene Plant.

         In its statement of jurisdiction and memorandum in opposition to Maui Electric's motion to dismiss, Sierra Club asserted that a hearing regarding the Application was required pursuant to HRS § 269-27.2(d), HRS § 269-16(b), and by due process to protect the right to a clean and healthful environment.

         The ICA granted Maui Electric's motion to dismiss Sierra Club's appeal, concluding that the Commission was not required to hold a hearing on the Application, and thus, the ICA determined, Sierra Club was not "a person aggrieved in a contested case proceeding" under HRS § 269-15.5. Accordingly, the ICA concluded that it was without appellate jurisdiction to consider Sierra Club's appeal. The ICA relied on In re Tawhiri Power LLC, 126 Hawai'i 242, 245-46, 269 P.3d 777, 780-81 (App. 2012), in noting that appellate jurisdiction does not exist over appeals based on a Commission order denying a motion to intervene.[9] Sierra Club subsequently filed an application for a writ of certiorari to this court, which was granted.


         A. Mootness

         Maui Electric asserts that this case should be dismissed in light of the recent closing of the Pu'unene Plant. However, to the extent Sierra Club's claim is moot, it falls within the public interest exception to the mootness doctrine. This court reviews three factors in analyzing the public interest exception: "(1) the public or private nature of the question presented, (2) the desirability of an authoritative determination for future guidance of public officers, and (3) the likelihood of future recurrence of the question." Cty. of Haw, v. Ala Loop Homeowners, 123 Hawai'i 391, 405, 235 P.3d 1103, 1117 (2010) (quoting Doe v. Doe, 116 Hawai'i 323, 327, 172 P.3d 1067, 1071 (2007)) .

         The issue in this case is whether, given the circumstances presented, due process under the Hawai'i Constitution provides procedural protections to persons asserting the constitutional right to a clean and healthful environment. Resolution of the issue may affect similarly situated parties who in the future seek to assert their right to a clean and healthful environment in proceedings before agencies and other governmental bodies. Ala Loop, 123 Hawai'i at 405, 235 P.3d at 1117 ("[T]he ICA's ruling that there is no private right of action under chapter 205 'inject[ed] the requisite degree of public concern' in support of having the public interest exception apply." (quoting Doe, 116 Hawai'i at 327, 172 P.2d at 1071)); Hamilton ex rel. Lethem v. Lethem, 119 Hawai'i 1, 7, 193 P.3d 839, 845 (2008) (noting that "the public interest exception has focused largely on political or legislative issues that affect a significant number of Hawai'i residents"); Kaho'ohanohano v. State, 114 Hawai'i 302, 333, 162 P.3d 696, 727 (2007) (holding that the question in the case was of a public nature because the outcome would affect all state and county employees); Doe, 116 Hawai'i at 327, 172 P.3d at 1071 (constitutionality of a grandparent visitation statute was of a public nature).

         Resolution of the issue presented in this case is also desirable because it will guide public officers, especially those working for agencies that exercise quasi-adjudicative authority, as to the manner in which due process and the right to a clean and healthful environment interact and as to the procedural safeguards that may be applicable when these two constitutional rights converge. See Ala Loop, 123 Hawai'i at 405, 235 P.3d at 1117 (reasoning that "because the availability of private enforcement is a potentially important consideration for public officers to take into account in performing their own duties under HRS chapter 205, public officials need guidance with regard to whether private citizens have a private right of action to enforce HRS chapter 205"); Kaho'ohanohano, 114 Hawai'i at 333—34, 162 P.3d at 727-28 (noting that "determination of the matter would assist public officers in the future" because it "will assist executive officers and legislators in making budgetary decisions involving the benefits of public employees"). Providing guidance in this area is desirable because it will clarify to public officers that they have the duty to properly consider and effectuate safeguards that the Hawai'i Constitution provides in the context of agency proceedings. See Mauna Kea Anaina Hou v. Bd. of Land & Nat. Res., 136 Hawai'i 376, 414, 363 P.3d 224, 262 (2015) (Pollack, J., concurring) (a majority of the court holding that "an agency . . . must perform its statutory function in a manner that fulfills the State's affirmative constitutional obligations").

         Finally, given that agencies are "often in the position of deciding issues that affect multiple stakeholders and implicate constitutional rights and duties, " Mauna Kea Anaina Hou, 136 Hawai'i at 413-14, 363 P.3d at 261-62, it is likely that the constitutional right to a clean and healthful environment will be asserted or will arise under agency proceedings in the future. Thus, the question that we resolve in this case is likely to recur in the future. See Ala Loop, 123 Hawai'i at 405-06, 235 P.3d at 1117-18 (reasoning that "given the volume of land development activity in the State and the frequency with which issues relating to chapter 205 have been litigated, the question regarding whether a private party may seek to enforce HRS chapter 205 is likely to recur in the future"); Kaleikini v. Thielen, 124 Hawai'i 1, 13, 237 P.3d 1067, 1079 (2010) (explaining that "the likelihood of future recurrence of the question seems high inasmuch as it seems probable that iwi will continue to be unearthed at future construction projects"). Accordingly, this case satisfies the three prongs of the public interest exception to the mootness doctrine, and we proceed to address the merits of this case.

          B. Appellate Jurisdiction

         Commission decisions are appealable to the ICA pursuant to HRS § 269-15.5.[10] "Only a person aggrieved in a contested case proceeding . . . may appeal from the order, if the order is final, or if preliminary, is of the nature defined by section 91-14(a)." Id. Judicial review over an agency appeal is authorized by HRS § 91-14 when the following requirements have been met:

first, the proceeding that resulted in the unfavorable agency action must have been a contested case hearing . . .; second, the agency's action must represent a final decision or order, or a preliminary ruling such that deferral of review would deprive the claimant of adequate relief; third, the claimant must have followed the applicable agency rules and, therefore, have been involved in the contested case; and finally, the claimant's legal interests must have been injured--i.e., the claimant must have standing to appeal.

Kilakila 'O Haleakala v. Bd. of Land & Nat. Res., 131 Hawai'i 193, 200, 317 P.3d 27, 34 (2013) (quoting Kaleikini v. Thielen, 124 Hawai'i 1, 16-17, 237 P.3d 1067, 1082-83 (2010)).[11] In other words, there are four requirements for judicial review over an agency appeal: a contested case hearing, finality, compliance with agency rule, and standing. As the decision was final and Sierra Club complied with applicable agency rules, we consider whether there was a contested case and whether Sierra Club has standing to appeal.[12]

         1. The Proceeding Was a Contested Case

         A contested case hearing is one that is (1) "required by law" and (2) determines "the rights, duties, and privileges of specific parties." Kilakila '0 Haleakala, 131 Hawai'i at 200, 317 P.3d at 34 (quoting Kaleikini, 124 Hawai'i at 16-17, 237 P.3d at 1082-83). Accordingly, we address whether a hearing was required by law and, if required, whether such a hearing would have determined the rights, duties, and privileges of specific parties.

         "In order for an administrative agency hearing to be 'required by law, it may be required by (1) agency rule, (2) statute, or (3) constitutional due process.'" Id. (quoting Kaleikini, 124 Hawai'i at 16-17, 237 P.3d at 1082-83). Sierra Club asserts that a hearing was required in this matter under HRS § 269-27.2 (d);[13] HRS § 269-16 (b);[14] and under the due process clause of article I, section 5 of the Hawai'i Constitution.[15]

         a. HRS § 269-27.2(d)

         Sierra Club has not established that a hearing was required under HRS § 269-27.2(d). HRS § 269-27(d) provides that the Commission may allow a public utility to impose an interim increase in rates to recover payments made to "nonfossil fuel producers for firm capacity[16] and related revenue taxes" after an evidentiary hearing. HRS § 269-27(d) (emphasis added) .[17]Sierra Club has not argued that the Commission's decision authorized Maui Electric to impose an interim increase in rates for the purpose of recovering payments for firm capacity, nor has Sierra Club argued that Maui Electric ever sought permission to do so. Indeed, the record indicates that one of the features of the Agreement was to eliminate the capacity payments that Maui Electric was paying to HC&S under the existing agreement.[18]Accordingly, the requirement of a hearing provided for in HRS § 269-27(d) is not applicable to the Application in this case.

         b. HRS ...

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