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Hu Honua Bioenergy, LLC v. Hawaiian Electric Industries, Inc.

United States District Court, D. Hawaii

December 19, 2017

HU HONUA BIOENERGY, LLC, a Delaware Limited Liability Company, Plaintiff,
HAWAIIAN ELECTRIC INDUSTRIES, INC., a Hawaii Corporation; HAWAIIAN ELECTRIC COMPANY, a Hawaii Corporation; HAWAII ELECTRIC LIGHT COMPANY, INC., a Hawaii Corporation; NEXTERA ENERGY, INC., a Florida Corporation; HAMAKUA ENERGY PARTNERS, L.P., a Hawaii Limited Partnership, Defendants.


          J. Michael Seabright Chief United States District Judge.


         Plaintiff Hu Honua Bioenergy, LLC (“Hu Honua”) contracted with Defendant Hawaii Electric Light Company, Inc. (“HELCO”) to build an independent power plant run on biomass to supply energy to HELCO on the Big Island of Hawaii. Given problems with the construction contractor and other labor issues, Hu Honua was unable to complete the facility on time. After unsuccessful negotiations to extend deadlines, HELCO cancelled the contract.

         Hu Honua filed this suit contending that HELCO's cancellation was, among other things, the result of an illegal conspiracy in violation of antitrust laws. The suit alleges federal antitrust and related state-law claims against HELCO; Hawaiian Electric Company, Inc. (“HECO”); Hawaiian Electric Industries, Inc. (“HEI”); NextEra Energy, Inc. (“NextEra”); and Hamakua Energy Partners, L.P. (“HEP”). It also alleges that HELCO breached the contract by refusing to extend deadlines under the contract's terms.

         The court now addresses Motions to Dismiss brought by NextEra and HEP under Federal Rule of Civil Procedure 12(b)(6). ECF Nos. 73, 95. Based on the following, the Motions are GRANTED in part. The federal antitrust claims are DISMISSED as to NextEra and HEP, with leave to amend. The Motions are DENIED without prejudice as to the state-law claims against NextEra and HEP. Hu Honua may file a Second Amended Complaint by January 29, 2018.


         A. Factual Background

         Hu Honua's 96-page First Amended Complaint (“FAC”), ECF No. 27, describes the structure of the electric utility market in Hawaii - in particular, on the island of Hawaii (the Big Island) - and alleges in detail a scheme (although ultimately deficiently, at least as to its antitrust claims) whereby HELCO's cancellation of the contract not only breached certain of its terms but was also part of a conspiracy or conspiracies among NextEra, HEP and the other Hawaiian Electric Defendants[1] to monopolize or restrain trade in violation of antitrust laws.

         After suit was filed, Hu Honua and the Hawaiian Electric Defendants reached a settlement in conjunction with a renegotiated contract for Hu Honua to complete its biomass power plant. ECF No. 122. Consummation of that settlement is awaiting final completion of the approval process involving the Hawaii Public Utilities Commission (“PUC”).[2] Perhaps because of that settlement, the Hawaiian Electric Defendants have not moved to dismiss the FAC. (Earlier, they filed a motion seeking to compel arbitration, but asked the court to hold that motion in abeyance, pending consummation of the settlement, ECF No. 126). Because only NextEra and HEP have moved to dismiss, the court focuses on setting forth the essential factual allegations against them. That is, the court need not (and does not) reiterate all the details alleged in the lengthy FAC as to the Hawaiian Electric Defendants, but describes those facts necessary to put the claims against NextEra and HEP into proper context. And some of the relevant factual allegations are set forth later, in the appropriate discussion sections analyzing particular claims. For present purposes, the court assumes as true any well-pleaded factual allegations set forth in the FAC.

         1. The Basic Structure of the Electric Utility Market in Hawaii

         Unlike on the continental United States - where states and utilities may utilize large interconnected, interstate power grids comprised of high-voltage transmission lines - each island in the State of Hawaii has its own isolated grid and power supplies. FAC ¶¶ 14-16. HECO is such an electric utility providing electricity to consumers on the island of Oahu; likewise, HELCO is the electric utility providing electricity to the Big Island. Id. ¶ 17. (Although not a defendant, Maui Electric Company (“MECO”) powers the islands of Maui, Lanai, and Molokai. Id.[3]) HEI is a holding company, with HECO as one of its subsidiaries. In turn, HELCO and MECO are subsidiaries of HECO. Id. ¶¶ 3-5.

         Power supplied to electric utilities (which utilities then provide to retail consumers) is divided into two basic categories: “firm power” and “intermittent power.” Id. ¶ 18. “Firm power” (generated by fossil fuels, geothermal, biomass, and similar sources) is power that is intended always to be available during “the period covered by a guaranteed commitment to deliver.” Id. In contrast, “intermittent” power consists of sources such as wind or solar that are not always available, “with output controlled by the natural variability of the energy resource rather than power dispatched based on system requirements.” Id.

         Much of Hawaii's power currently comes from fossil fuels. “77% of Hawaii's electricity is generated by petroleum, making the State's utility the most oil dependent in the country. All of the petroleum consumed in the State is generated from crude oil imported from South East Asia and other off-shore locations.” Id. ¶ 11. And so, “[t]o mitigate the risk of dependence on foreign fuel sources, the Hawaii state government policies and legislation have sought to place greater emphasis on the development of renewable energy resources[.]” Id. ¶ 13. “[I]n June 2015, the Hawaii Legislature amended Hawaii's Renewable Portfolio Standard statute to require Hawaii to move towards achievement of 100% renewable energy by 2045.” Id.

         HELCO serves approximately 85, 000 customers on the Big Island. Id. ¶ 21. “HELCO currently owns fossil fuel plants that generate in excess of 65% of the [Big] Island's dispatchable firm electrical capacity.” Id. Specifically, it “owns and operates six oil-fired power generation plants, accounting for 184 MW [(megawatts)] of firm power capacity[.]” Id. ¶ 28. “In addition to its own fossil fuel plants, HELCO purchases firm power generation capacity [and electrical energy] from HEP, which owns a 60 MW fossil-fuel combined cycle power plant, pursuant to a 1997 Power Purchase Agreement.” Id. ¶ 22. “HEP is one of only two independent power producers (‘IPPs') on the Island of Hawaii that provides firm power generating capacity.” Id. ¶ 23. The other is Puna Geothermal Venture “whose power capacity is 34.6 MW, only part of which is firm.” Id.

         “HELCO is compensated differently for the power that it generates itself through the power plants that it owns versus the power that it purchases from IPPs.” Id. ¶ 32. “In fact, as a result of HELCO's ability to recover its capital costs, and an annual fixed rate of return on those costs, HELCO receives more revenue through the rates paid by its customers for the sale of power that HELCO generates from running its own units than from the power it purchases from IPPs.” Id.

         “In Hawaii, IPPs must sell power to a public utility because Hawaii's utilities have not permitted the use of their grids for the ‘wheeling' or transmission of power to power purchasers, and because it would be economically impractical for IPPs to build their own transmission and distribution system.” Id. ¶ 24. “As a result, HELCO is not only the monopoly retail seller of electricity on the Island of Hawaii, but also the monopoly owner of electricity transmission and distribution infrastructure and monopoly purchaser of wholesale electricity.” Id.

         2. The Hu Honua Power Purchase Agreement

         In May 2012, Hu Honua entered into a Power Purchase Agreement for Renewable Dispatchable Firm Energy and Capacity (“the Hu Honua PPA” or “the Contract”) with HELCO under which Hu Honua would develop an independent power plant on the Hamakua Coast of the Big Island, with a renewable biomass fuel source (e.g., eucalyptus trees) of firm power. Id. ¶¶ 1, 34, 38. “The trees were to be 100% locally grown and harvested on a sustainable rotational basis and would have provided an important means to reduce Hawaii's dependence on imported fossil fuels.” Id. ¶ 34.

         Hu Honua's power plant would supply HELCO with “no less than 10 MW of electricity capacity at all times, ” with the facility having a “maximum ‘Available Capacity' of approximately 30 net MW.” Id. ¶ 46. Hu Honua began construction in late October 2012, but was unable to complete the facility by the end of 2015, as contemplated by the Hu Honua PPA, because of disputes with its construction contractor, labor union issues, and related litigation. Id. ¶ 51, 58.[4] After unsuccessful negotiations between Hu Honua and HELCO to extend milestone dates as provided in the Hu Honua PPA (where milestone-date extension requests “shall not be unreasonably withheld, ” id. ¶ 42), HELCO cancelled the Contract on March 1, 2016. Id. ¶ 60.

         3. NextEra's Proposed Merger with HEI, and HELCO's Proposed Purchase of HEP's Power Plant

         Meanwhile, two other relevant things happened: First, “the proposed merger” - on December 3, 2014, NextEra, which is a large Florida-based utility holding company, and HEI entered into an Agreement and Plan of Merger (the “NextEra/HEI Merger Agreement” or “Merger Agreement”) under which HEI subsidiaries HELCO and HECO would become wholly-owned subsidiaries of NextEra. Id. ¶¶ 6, 52.[5] And second, “the proposed purchase” - on December 23, 2015, HECO and HELCO publicly disclosed that HELCO would purchase HEP's 60 MW fossil-fuel power plant for over $88 million. Id. ¶¶ 22, 91.[6]

         “Article V of the Merger Agreement addresses certain issues relating to HECO's conduct of its and its subsidiaries' business during the pendency of the merger. Among other things, Article V prohibited HECO from engaging in several activities without NextEra's prior consent.” Id. ¶ 56. Specifically, “§ 5.01(a)(xii) provides that HECO/HELCO shall not:

(1) enter into, terminate or amend in any material respect any material Contract,
(2) consent to any extension or continuation of any material Contract . . . or
(3) waive any material right on any material Contract[.]”

FAC ¶ 56.[7] Based on this consent provision, Hu Honua alleges that NextEra “exercised total control over HECO's/HELCO's conduct of their important business actions and material agreements, including the fate of Hu Honua's PPA.” Id.

         As for HELCO's proposed purchase of the HEP power plant, Hu Honua alleges that its biomass facility “would have been a direct competitor to the HEP Power Plant in the supply of wholesale electricity capacity to HELCO.” Id. ¶ 90. Hu Honua alleged “[o]n information and belief, HELCO planned to acquire the HEP Power Plant in order to further HELCO's strategy to increase its monopoly over power generation on the Island of Hawaii.” Id. ¶ 92. “On information and belief, HELCO favors its own power generation instead of purchasing power from Hu Honua, because HELCO generates more profit by owning its own power generation.” Id. And, as for HEP's motivation, it alleges that

HEP had its own reasons for wanting the Hu Honua PPA terminated. As early as 2012, HEP recognized that the proposed Hu Honua Facility was a direct competitive threat. On September 19, 2012, it filed a motion to intervene in the Commission's docket for HELCO's Application for Approval of the Hu Honua PPA, which it vigorously opposed on the grounds that “[t]he introduction of the proposed Hu Honua plant would, according to [the] HELCO plan outlined in its application, reduce the HEP Plant's dispatch.” In sum, HEP, as the operator of the largest power plant on the Island, attempted unsuccessfully to exclude Hu Honua as a competitor in the power generation market. It was presented with another opportunity three years later to accomplish that objective. Hu Honua is informed and believes, and on that basis alleges, that HEP participated in and supported the termination of Hu Honua's PPA, as alleged [in the FAC].

Id. ¶ 99.[8]

         4. Hu Honua Files This Action

         After HELCO cancelled the Hu Honua PPA in March of 2016 (and after the PUC rejected the proposed NextEra/HEI Merger Agreement in July 2016), Hu Honua filed the original Complaint in this action on November 30, 2016, ECF No. 1. It filed the FAC on January 27, 2017, ECF No. 27, alleging the following counts:

• Count One - Violation of Section Two of the Sherman Act, 15 U.S.C. § 2 (attempted monopolization, conspiracy to monopolize, and monopolization) against the Hawaiian Electric Defendants and NextEra;
• Count Two - Violation of Section One of the Sherman Act, 15 U.S.C. § 1 (conspiracy to restrain trade) against all Defendants;
• Count Three - Breach of Contract against HELCO;
• Count Four - Promissory Estoppel against HELCO;
• Count Five - Breach of the Covenant of Good Faith and Fair Dealing against HELCO;
• Count Six - Breach of Fiduciary Duty against HELCO;
• Count Seven - Tortious Interference with Contract against NextEra;
• Count Eight - Unfair Competition in Violation of HRS Chapter 480 against All Defendants;
• Count Nine - Declaratory Relief against HELCO; and
• Count Ten - Conversion against HELCO.

FAC at 69-93. Hu Honua claims it was damaged “in the amount of its investment of $120 million in the plant, plus lost profits of $435 million.” Id. ΒΆ 1. It seeks treble damages and attorney ...

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