The plan of a developer to breathe new life into the long neglected Sea Mountain resort on the east side of the Big Island has run into little but opposition since it was made public just about a year ago.
The proposal of Black Sand Beach, LLC, to refurbish a golf course, build more than 200 vacation and residential units, rehabilitate a conference center, and develop a wellness center and a small commercial area, among other things, ran into headwinds as soon as the county Planning Department brought the proposal to the Windward Planning Commission. The award of a Special Management Area permit and other county approvals to the developer are now subject to a contested case hearing, a process that can last a year or more.
Now, however, it seems as though the financial situation of Black Sand Beach is so dire that it may not be able to move forward at all with its redevelopment, estimated to cost up to $350 million. It even fell behind in monthly payments to the company that operates the utility it owns, Punaluʻu Water and Sanitation, LLC (PWS) – payments that are around $7,330 a month.
The fragile financial situation of the developer has been laid bare in filings with the Public Utilities Commission, with which the utility filed a rate request June 28. At that time, PWS was seeking a rate hike of more than 1,200 percent, noting that the current rates reflected a tariff approved in 1977. A recent financial statement shows that the utility received $25,006 in income for all of 2024, while having operating expenses of $405,758.
The customer base of PWS is small. In filings with the PUC, attorneys have said the utility serves 75 condominium units and as many as 33 single-family homes as well as the county’s Black Sands Beach Park.The sewage treatment plant is sized to process up to 20,000 gallons per day of wastewater.
On August 1, the PUC notified PWS that the application was incomplete. Months passed without any effort to file the information needed to complete the application and allow the rate case to move forward.
During that time, unconfirmed reports reached the commission that the company was having trouble paying its bills. In response to the lack of action on the application and the rumors of insolvency, on January 23, the commission called a status conference for February 7.
On February 5, attorneys for PWS provided written “preliminary responses” to the PUC’s questions. The company’s financial circumstances “have affected its ability to pay its vendors, consultants, and counsel on a timely basis,” they wrote, and also have “impacted PWS’s ability to obtain additional financing.”
The rate application had been “paused” for months so that the company could avoid incurring legal and consultant expenses while it sought additional financing or other solutions, they wrote.
The company’s financial difficulties were “hindering its ability to provide reliable water and wastewater services to its customers,” they continued. “PWS has informed us that it no longer has the financial capability nor financing to continue to cover the expenses to operate after February 28, 2025.”
At some point, the letter stated, “a representative of PWS’s financing company apparently corresponded with the commission via email and phone to briefly describe PWS’s financial circumstances and discuss possible solutions as well as to inquire about what would happen if PWS was forced to shut down or declare bankruptcy.
“Thereafter, PWS sought to re-engage counsel to address this matter, scheduled a meeting with said counsel, and was in the process of gathering information to bring counsel up to speed on the matter. It was at or around this time that PWS’s counsel received the commission’s Notice of Status Conference.”
The utility was able to work out an arrangement with the company that operates its water system and wastewater plant, Big Island Water and Sanitation, LLC, allowing the utility to remain in operation beyond February 28. In addition, it assured the PUC that it would submit a temporary rate increase application, with the temporary rates “to be in effect until such time that (1) a general rate case review can be completed; or (2) PWS’s owner is able to sell PWS to a new owner.”
On February 14, the utility submitted the promised application for a temporary rate hike of 2,457 percent over the current rates, or roughly double the rate proposed last June. This, the application states, would increase its overall revenues to $639,505, from last year’s $25,006.
Included in the application was documentation of a short-term, zero-interest loan of $65,000 from Black Sand Beach, LLC, to PWS, with Xiaoyuan Liu as co-signer. Liu, who also goes by the name Eva Liu, is the ultimate owner of Black Sand Beach and its subsidiaries.
Maintenance of the infrastructure has been long delayed. Urgent needs identified by PWS include the repair or replacement of four fire hydrants, at a cost estimated at $167,500. An inspection by the county Fire Department in 2023 of all 16 hydrants found all needing some level of repair or servicing and some actually missing. First priority should be hydrants 1-3, the report stated, with “life safety a top priority.” In hydrant 2, the inspector found metal shavings and heavy debris. Hydrants 4-8 serve the area of the condominiums. “These condos also have wooden shingled roofing near the brush fire zone and are a high fire hazard area.”
As a condition of Big Island Water and Sanitation continuing to work at the site, the utility has agreed to make certain improvements, including purchase of chlorination pump parts, a new effluent pump for the wastewater treatment plant, at a cost of $2,132, and repair of the electrical panel at the wastewater pump station, at a cost of $19,450. The repair “is needed to prevent pump burnout of the [wastewater pump station],” according to the agreement memorializing the terms of Big Island Water and Sanitation’s continued work at the site. Should pump burnout occur, “the sewer influent will need to be manually trucked from the [wastewater pump station] to the [wastewater treatment plant], a very costly and labor-intensive problem.”
The application for a temporary rate hike mentions another loan – this one having a maturity date of December 31, 2037, made by “an affiliate company,” Black Sand Beach, LLC, January 2, 2023, in the amount of $750,000. As with the smaller, more recent loan, this one is said to be non-interest-bearing. Loans of this size and duration require advance PUC approval, a fact that is noted in the application. “PWS did not request or obtain approval by the commission,” the application states. “PWS sincerely apologizes for this inadvertent oversight and respectfully requests, concurrently with this application, that the commission approve this long-term financing.”
The temporary rate hike, the application states, will cover expenses and pay for the repair of the fire hydrants, but will not provide any rate of return to the owner. “Additionally,” it continues, “the requested temporary rate increase could serve as a stopgap measure while applicant seeks to find a purchaser for the system who may be able to continue applicant’s water and sewer utility operations more efficiently, thus potentially resulting in minimal utility rate increases.”
On March 3, the PUC issued an order that responded to the dire circumstances described in company filings, stating: “The commission takes seriously PWS’s claims that it will be unable to maintain continuous service without a temporary rate increase. In light of the seriousness of the PWS’s current financial situation, the commission finds it necessary to take immediate steps.” Those steps include convening a public hearing, via Webex, on March 20 at 6 pm.
A Stalled Contested Case
The decision to hold a contested case hearing on Black Sands Beach’s application for a Special Management Area Use Permit was made by the Hawaiʻi County Windward Planning Commission last summer.
Three parties were granted standing to challenge the application: the Center for Biological Diversity, ʻIewe Hanau o Ka ʻĀina, and the Association of Apartment Owners of Colony 1. Their involvement reflects concerns over historic and cultural sites, natural resources, and impacts to owners of properties at the site.
Yet to date, no hearing officer has been appointed and no schedule set for the contested case hearing.
Daryn Arai, planning consultant for Black Sand Beach, said his client was “still waiting for the [Planning] department to formally select a hearing officer for the contested case proceeding. The schedule for the proceedings will be determined by the hearing officer, once selected. Until then, we just wait.”
Jeff Darrow, Hawaiʻi County planning director, told Environment Hawaiʻi that his staff was “actively working on securing a hearings officer at this time.”
In the meantime, property taxes on the land owned by Black Sand Beach have not been paid for the last 18 months. As of late February, more than $91,000 was owed in taxes, interest, and late fees.
— Patricia Tummons
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