United States District Court, D. Hawaii
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.
AMENDED ORDER GRANTING IN PART DEFENDANTS NEXTERA
ENERGY, INC.'S AND HAMAKUA ENERGY PARTNERS, L.P.'S
MOTIONS TO DISMISS, ECF NOS. 73 & 95, WITH LEAVE TO
Michael Seabright Chief United States District Judge
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.
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
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.
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 to monopolize or
restrain trade in violation of antitrust laws.
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”). 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.
The Basic Structure of the Electric Utility Market in
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.) HEI is a holding company, with HECO as
one of its subsidiaries. In turn, HELCO and MECO are
subsidiaries of HECO. Id. ¶¶ 3-5.
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
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.”
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.
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.
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
The Hu Honua Power Purchase Agreement
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.
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. 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. ¶
NextEra's Proposed Merger with HEI, and HELCO's
Proposed Purchase of HEP's Power Plant
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. 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.
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
FAC ¶ 56. 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.
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
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.
Hu Honua Files This Action
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
• 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.
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. ¶ 1. It
seeks treble damages and ...