The Hawai‘i Supreme Court has issued a ruling that makes clear what it thinks of the Public Utilities Commission’s effort to push the companies it regulates to reduce greenhouse gas emissions.
And that is: Not much.
In a decision issued June 9, the four justices who heard the case found unanimously in favor of the two groups who had appealed a PUC decision allowing The Gas Company, LLC, to raise its rates. The rate increase was needed, the company said, to allow it to recoup costs associated with construction of infrastructure required to import liquefied natural gas (LNG). Although The Gas Company did not specify the exact sources of the fuel, the groups that appealed suspect that much of it would come from fracking, the controversial practice of extracting fossil fuels from deep underground by injecting pressurized liquid into bedrock formations.
Three groups – Life of the Land, Hui Aloha ‘Aina o Ka Lei Maile Ali‘i, and 350 Hawai‘i – sought to intervene when The Gas Company, doing business as Hawai‘i Gas (HG), petitioned the LUC for the rate hike. The PUC did not allow them full intervenor status but did permit them to participate on a limited basis on the question of whether the PUC should disallow as unreasonable costs associated with importing LNG “due to the effects of HG’s use of imported LNG on the state’s reliance on fossil fuels and greenhouse gas emissions.”
The PUC specifically forbade them to discuss how Hawai‘i Gas’s use of LNG might impact the environment beyond the state’s borders. It also ruled out of bounds any mention of the link between greenhouse gas emissions and climate change, and generalized statements about LNG and fracking.
On December 21, 2018, the commission issued its order allowing Hawai‘i Gas a rate increase of 8.39 percent, amounting to about $9 million a year and giving the company a rate of return on investment of roughly 7.1 percent. The 233-page order was dismissive of the concerns raised by the three groups. Instead, it quoted argument from Hawai‘i Gas that concerns over fracking were “inapposite” to the proceeding.
The commission’s order repeated the conditions imposed on the participant groups granted, noting that their “asserted interest in a clean and healthful environment beyond the state’s borders” and “evidence of a causal connection between greenhouse gas emissions and climate change” were “outside the scope of this rate case proceeding.”
Two of the groups – Life of the Land and Hui Aloha ‘Aina – then filed their appeal to the Supreme Court.
No Room to Quibble
The Supreme Court’s judgment leaves no room for further quibbling about the PUC’s responsibility to consider greenhouse gas emissions and the impact of climate change in the matters that come before it.
In a succinct summation of the issues raised in the appeal and the resolution of them, Chief Justice Mark Recktenwald and Associate Justices Paula Nakayama, Sabrina McKenna, and Richard Pol- lack (Associate Justice Michael Wilson recused himself after oral arguments were made), first dispense with the issue of standing. Hawai‘i Gas had argued that the groups should not have been granted standing to appeal to the court. The justices dismissed the claim. The appellants met the two-pronged test for standing to bring the appeal since “they demonstrated their members’ right to a clean and healthful environment was especially, personally, and adversely affected by the PUC’s Decision and Order, and they were participants in HG’s contested case.”
As to the question of whether the PUC had complied with the Hawai‘i law requiring it to consider the need to reduce the state’s reliance on fossil fuels, the court found that the commission “did not fulfill its obligations under [Hawai‘i Revised Statutes] Section 269- 6(b) because the Decision and Order simply reiterated HG’s representations that its LNG projects would decrease GHG [greenhouse gas] emissions. Further, the PUC’s geographic limitation demonstrated that the PUC did not intend to consider GHG emissions from production, development, and transportation of LNG occurring outside of the state. Without that information, however, the PUC could not have explicitly considered the hidden and long-term costs of the state’s reliance on fossil fuels.”
The Supreme Court also determined that the PUC had violated the groups’ due-process rights by denying them the opportunity to discuss greenhouse gas emissions.
On two questions relating to constitutional obligations to protect native Hawaiian practices and to exercise its role as trustee of Hawai‘i’s natural resources, the court determined that because the PUC had improperly curtailed the ability of the groups to raise substantive questions on these issues, “the record is not sufficiently developed” for the court to address them. “On remand, the PUC should consider its constitutional obligations,” the justices wrote.
One matter the groups raised was definitively rejected by the court. The groups had argued that the PUC abused its discretion by not promulgating rules to assess greenhouse gas emissions. “The PUC did not attempt to bypass a rule, amended rule, or pending rule concerning how it should measure GHG emissions,” the justices found.
Beyond the Borders
The court put the PUC’s order in context. It noted that in December 2017, just four days before the PUC set its procedural schedule for hearing the rate increase request, the court issued its opinion in an appeal of an earlier PUC decision involving a power purchase agreement between Maui Electric Co. (MECO) and HC&S, which operated a power plant at Pu‘unene.
The Sierra Club had asked the PUC to be granted intervenor status or, failing that, to be allowed to participate in the proceeding. The PUC denied the request on both counts, and the Sierra Club appealed. In deciding that appeal, the justices said, “we held that there is a ‘protectable property interest’ in the ‘right to a clean and healthful environment,’” as guaranteed in the Hawai‘i Constitution and in HRS Chapter 269, the law governing the PUC. The case was remanded to the Intermediate Court of Appeals, which was instructed to address the matter of whether the PUC had abused its discretion in denying the request of the Sierra Club to intervene. (By the time the Supreme Court issued its decision in the Maui Electric case, the Pu‘unene plant, owned by Alexander & Baldwin, had been removed from service. In January 2018, the Sierra Club withdrew its appeal.)
In an order issued in the Hawai‘i Gas case on February 6, 2018, the PUC denied the groups’ request to intervene but did grant limited standing to participate in the proceeding.
Just how limited?
The PUC summed up issues the groups could address in one sentence: “whether the commission should disallow as unreasonable [Hawai‘i Gas’s] LNG costs due to the effect of [its] use of imported LNG on the state’s reliance on fossil fuels and greenhouse gas emissions.”
On the other hand, the list of issues deemed to be “outside the scope of this rate proceeding” ran on for several hundred words. Among those out-of- bounds subjects was the participants’ “asserted interest in a clean and healthful environment beyond the state’s borders…,” “evidence of a causal connection between greenhouse gas emissions and climate change,” whether the company’s use of LNG should be banned or prohibited by law, and whether fracking and all new oil, coal, and gas projects should be banned.
The participants’ interest in a healthful environment outside the borders of Hawai‘i, the PUC said, was not guaranteed by the state Constitution. As to the link between greenhouse gas emissions and climate change, the PUC dispensed with this by merely taking “official notice” of legislative actions that made such connection explicit.
With those constraints, the PUC had little difficulty finding in favor of Hawai‘i Gas. The groups opposed to the rate increase, the PUC stated in its order, “have not produced any credible evidence” that contradicts the company’s evidence or its statements that greenhouse gas production inside the state would increase with the use of LNG. Instead, the groups “rely on general assertions, without credible evidentiary support, that [HG’s] use of imported LNG will increase greenhouse gas emissions.”
‘Appellants Are Correct’
The court didn’t buy it. The commission, it found, violated the specific language of HRS Section 269-6(b), which requires it to “explicitly consider, quantitatively or qualitatively, the effect of the state’s reliance on fossil fuels on … greenhouse gas emissions.”
Both the PUC and Hawai‘i Gas argued to the court that the “plain language” of the law doesn’t require consideration of greenhouse gases beyond the state’s borders. The company’s own analysis of the impact on greenhouse gas emissions that would result from the use of LNG in Hawai‘i, the PUC argued, provided the “only credible evidence in the record.”
On this point, the court wrote, “Appellants are correct.” In contrast to the PUC’s reading of the “plain language” of the law, “We note that the plain language of HRS Section 269-6(b) does not limit the PUC’s consideration of [greenhouse gas] emissions to those only occurring within the state.”
The court went on to point out that in the Maui Electric decision, “we noted ‘a primary purpose’ of the statute is to ‘require the [PUC] to consider the hidden and long-term costs of reliance on fossil fuels, which subjects the state and its residents to ‘increased air pollution’ and ‘potentially harmful climate change due to the release of harmful greenhouse gases.’”
In the present case, the justices agreed with the groups that the company “has quite literally ‘hidden’ the GHG emissions impact of its imported LNG. The ‘hidden’ GHG emissions impact Appellants are concerned with include GHG emissions from the extraction, development, production, and transportation of imported LNG, which occur out-of-state, but which, nonetheless impact Hawai‘i due to the global nature of GHG emissions. We agree with this contention.”
Referring to Act 234 of the 2007 Legislature, which established the Greenhouse Gas Emissions Reduction Task Force, the court noted that even then, the Legislature was concerned with minimizing “leakage” – the reduction of in-state emissions that comes at the cost of increases elsewhere.
“In this rate proceeding, HG and the PUC have largely disregarded any possible GHG emission leakage from imported LNG,” the court wrote. In this, “the PUC’s action was contrary to law and, therefore, an abuse of discretion.”
‘Just a Rate Case’
In defending its order approving the rate hike, the PUC noted that this was ‘just a rate case,’ with the commission already having met the requirements of the law in earlier dockets that approved the projects associated with the importation of liquefied natural gas.
Specifically, with respect to LNG, Hawai‘i Gas sought PUC approval in 2014 for investing in improvements that would allow it to displace 30 per- cent of its synthetic natural gas, produced from imported oil, with LNG. As with this case, Life of the Land sought to intervene, but, again as in this case, was granted only participant status on the limited issue of whether the project for which Hawai‘i Gas was seeking approval was reasonable. The group submitted articles and statements of position that pointed to the dangers inherent in fracking, employed by the British Columbia firm that was providing LNG to Hawai‘i Gas, outlined the threats posed by climate change brought on by increasing use of fossil fuels, and even cited to HRS Section 269-b(b). The gas company objected, arguing that the group’s arguments went well beyond the narrow scope under which its participation was allowed. In the end, Hawai‘i Gas was allowed to make the investment, on the condition, however, that it would not be able to “pass through to its customers any costs associated with the project … without subsequent commission approval.”
Life of the Land did not appeal that decision. However, by 2018, the legal landscape had changed. For one thing, Hawai‘i law changed in 2016 to allow direct appeals to the Hawai‘i Supreme Court of decisions from the PUC and other regulatory agencies. For another, the Supreme Court had issued its decision in MECO.
That decision was pivotal. In MECO, the court had affirmed the obligation of the PUC to address greenhouse emissions, writing that the requirement for the commission “to reduce reliance on fossil fuels and to consider greenhouse gas emissions applies to the fulfillment of all of the commission’s duties.” Here, in approving the gas company’s rate hike, the commission failed to meet that requirement in that, first, it didn’t “explicitly consider all of the GHG emis- sion impacts” of the company’s projects tied to LNG since it had “erroneously previously determined that the out-of- state GHG emissions … were beyond the scope of the rate proceeding,” and, second, that it “merely restat[ed], without substantiating, HG’s representation that its LNG projects would decrease GHG emissions.”
By so stringently limiting the scope of the arguments that the groups could raise, the PUC also violated their due-process rights, the court held. This had the effect of “truncating appellants’ property interest in a manner not required under the plain language ofHRS Section 269-6(b), and in a manner contrary to MECO.”
The order approving the rate hike was thus remanded to the PUC.
— Patricia Tummons
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