At worst, if the companies behind a proposed renewable energy park in `Ewa, O`ahu, can’t pull it off, the state Department of Land and Natural Resources loses half a million dollars in delinquent and potential development fees.
Given the ongoing dispute between those companies — PSP, III, LLC, Investricity, Ltd., and West Wind Works, LLC — and Hawaiian Electric Company over whether the project is eligible for a waiver from the utility’s competitive bidding process, it’s unlikely the DLNR will see that money any time soon, if ever.
On December 22, the companies filed a petition for a declaratory order with the state Public Utilities Commission seeking to overturn HECO’s refusal in 2013 to exempt their renewable energy proposal from the competitive bidding process.
The companies plan to build a large-scale solar farm on 110 acres of state land known as the former `Ewa feedlot, and argue that HECO mistakenly determined that they lacked site control and were, therefore, ineligible for a waiver.
Their petition asks that the PUC order HECO to reconsider, “in good faith,” supporting a waiver for the project and to provide a status report to the PUC once a month.
In its motion to intervene filed last month, HECO counters that not only did the companies not have site control, they improperly changed the project’s size and scope.
Despite being heavily redacted, PSP’s petition exhibits, coupled with the DLNR records regarding the many modifications to the development agreement for the site, suggest that HECO may be right.
In the Beginning …
When the DLNR and West Wind Works (3W) first entered into a development agreement for the O`ahu site in November 2010, the company agreed to pay $345,000 a year in development fees. Any delinquent fees would accrue interest at a rate of 1 percent a month and incur a service charge of $50 a month.
The agreement envisioned an O`ahu Renewable Energy Park that consisted of a 5 megawatt (MW) wind to hydrogen facility, a 5 MW biomass plan, and a minimum 5 MW solar farm.
3W was to have a draft environmental assessment published by October 31, 2011, and obtain a Finding of No Significant Impact by August 31, 2012. The agreement also set deadlines for 3W to secure or apply for various government and utility approvals, including a deadline of July 31, 2012, to obtain power purchase agreements for the various park components, and a deadline of January 31, 2013, to get PUC approval of those agreements.
If and when 3W published a final EA and FONSI, obtained state approval of a final development plan, obtained all land use entitlements and other required approvals, agreed on a lease rental amount, and submitted evidence of adequate financing, then the DLNR would issue a lease to the company. The term of the lease would not exceed 65 years.
That development agreement was to expire on December 31, 2013.
By March 2011, 3W had already begun to fall behind on payment of its development fees. More than a year later, despite having paid some $260,000 in fees, the company was $385,000 in arrears and had also failed to meet several of its development benchmarks.
Threatened with termination of the agreement in May 2012, 3W presented to the Land Board its new funding partner, International Electric Power (IEP). IEP’s Enzo Zoratto asked the board at its May 25 meeting to defer termination and allow the companies to negotiate new development agreement terms, which the board agreed to do that day, and again, on August 10.
In November 2012, 3W and IEP proposed assigning the development agreement to a new company, IEP-ORP, LLC, which would be a partnership between O`ahu Renewable Energy Park, LLC (ORP), a company managed by 3W’s Keith Avery, IEP, and a company called Abacus.
Under their proposal, IEP-ORP would pay the delinquency, which by that time had grown to $528,125, in four installments, the first to occur when the Land Board assigned the development agreement from 3W to IEP-ORP. The subsequent payments would be made if and when IEP-ORP was short-listed for HECO’s request for renewable energy proposals, if and when the company signed a power purchase agreement, and if and when it secured financing and a lease.
In addition, IEP-ORP proposed reducing the project site from 110 acres to 17 acres and instead of building a variety of renewable energy facilities, it planned to build just two 5MW biomass plants. Based on the new, smaller footprint, the company proposed that the development agreement fees be reduced from $345,000 a year to $106,636, payable in two installments of $53,318 – and only then if and when a PPA is approved and the company has secured financing.
The DLNR’s Land Division found the proposal “unacceptable,” according to a January 25, 2013, report to the Land Board. The division complained that under the proposal, the delinquencies and future development agreement fees would not be paid in a timely manner, if at all. The agency also expressed concern that the location where IEP-ORP planned to place its biomass plants would hamper development of the remaining 93 acres.
Should the Land Board choose to accept IEP-ORP’s proposed terms, the Land Division recommended that the board also require IEP-ORP to:
- Relocate the biomass plant site to preserve the development potential of the remaining site;
- Provide a bond to cover all delinquencies and future development agreement fees;
- Publish a draft EA by August 1, 2013; and
- Submit a subdivision application for the 17 acres to the City and County of Honolulu by January 31, 2014.
The Land Board deferred the matter that day, at IEP-ORP’s request. Attorney William McCorriston, representing IEP-ORP, had said his clients needed time to conduct some due diligence, adding that because HECO was expected to issue a request for proposals for renewable energy projects soon, development agreement terms needed to be resolved in the next 60 days.
“If we don’t … then we’ve missed the boat,” he told the board.
Missing the Boat?
On February 22, 2013, HECO issued an invitation for low-cost, renewable energy projects on O`ahu that could be quickly put into place. For selected projects, HECO would seek a waiver from the PUC’s competitive bidding framework. Projects had to be able to produce more than 5 MW and applicants had to provide proof of site control for the 20-25-year duration of a power purchase agreement. Proposals were due March 22, 2013.
On March 8, 3W returned to the Land Board seeking approval of the assignment of the development agreement to IEP-ORP and the modification of terms as it had proposed in November. The Land Division, again, asked the Land Board to reject those terms. However, should the board choose to accept them, the division asked that the recommendations it made in January be included. In addition, the division wanted to add two more conditions:
“The final configuration of the project site … shall be subject to DLNR approval and legally subdivided by IEP-ORP, LLC at IEP-ORP’s expense,” and
“DLNR/BLNR is allowed to accept unsolicited or solicited proposals for the remaining lands.”
The Land Board voted to accept the assignment and modifications proposed by both IEP-ORP and the Land Division.
While it would seem that the board’s approval erased all private development rights for the 93 acres outside of IEP-ORP’s project site, 3W apparently believed otherwise. On March 13, less than a week after the Land Board’s approval of the transfer, 3W entered into an agreement with a company called Power Solar Partners, LLC, to develop the 93-acre portion of the park with solar photovoltaics. Power Solar Partners (PSP) had only registered with the state Department of Commerce and Consumer Affairs on March 7, one day before the Land Board meeting. PSP’s sole member is Mercury MO-Dyne, LLC, a company managed by Mercury Solar’s James Sparkman. Petition-related filings to the PUC, however, claim that Investricity was the managing member of PSP, LLC.
The 3W/PSPIII/Investricity petition before the PUC states, “The binding agreement between Petitioner West Wind and PSP LLC was based upon the decision by the [Land Board] at its meeting on March 8, 2013, to allow a subdivision of or assignment of at least sufficient area (93.11 acres) as required for the construction of a 29.5 MW PV park.” This despite the fact that there was no mention whatsoever at the Land Board’s March 8 meeting of PSP or of any plans to build a solar park.
Even so, PSP submitted a waiver application to HECO on March 22, 2013, that identified three sites on which it would build PV solar projects that together would generate more than 26 MW. PSP also identified 93 acres of the `Ewa feedlot as one of two expansion sites. The proposed generation capacity at the feedlot site was listed as 29.5 MW.
“PSP has identified a 93 acre property on the State of Hawai`i’s 110.11 acre lot,” the application states. “It has subsequently signed a letter of intent with West Wind Works to assist with the expansion of its solar PV portfolio on that property specifically toward the HECO Waiver process.”
“West Wind Works along with its Oahu Renewable Energy Park LLC and IEP-ORP LLC, received an award to develop qualified renewable energy systems on the above site. They subsequently received approval from the DLNR and its board to reduce its leasable area by subdividing the TMK into 2 parcels; 17 acres and 93 acres. WWW & IEP-ORP must submit their subdivision application on or before January 31, 2014. Prior to that date, WWW will assist PSP with an introduction to the DLNR so that PSP may explore this site with the DLNR as an expansion option,” the application states.
On March 27, HECO notified PSP that its proposal had been rejected because its electricity cost was outside the utility’s target. But three months later, HECO gave the PSP and other rejected proposals another chance. On June 17, it invited them to “refresh” their proposed pricing. However, the offer stated, any updates were limited to energy pricing only and HECO would “not consider proposals in the Pricing Refresh that differ materially from the Project originally submitted in response to the invitation.” The deadline for submissions was July 1.
On June 30, 2013, a company called PSP II, LLC — registered on June 24, 2013, and managed by Mercury MO-Dyne and Investricity — submitted a pricing refresh proposal that included all five original projects site. Investricity’s Kevin Lynch wrote in a letter to HECO that PSP I had become PSP II and had the same managing partners.
The next day, however, HECO received a refreshed pricing proposal from another original PSP member (identified in PUC filings only as ‘PSP 1 Member’ for confidentiality reasons) that included only three of the five original sites.
To resolve the confusion, HECO informed both parties on July 3 that it wanted only one proposal for the project known as Oahu PV One and it also wanted evidence that PSP had transferred and assigned the entire, original project proposal, as well as development rights and site control, to the bidder submitting the refreshed proposal.
“To be clear, Hawaiian Electric is not accepting new bids and will only consider one proposal for the Oahu PV One project,” HECO stated in a joint letter to the two entities.
On July 8, PSP II revised the scope of its proposal to only include a 29.5 MW solar park at the former `Ewa feedlot, the one property of the five to which it claimed site control. The other former member of PSP resubmitted a proposal for the sites that it controlled.
A Second Rejection
On August 9, 2013, HECO advised Lynch that his updated proposal had been disqualified “due to failure to satisfy the site control threshold requirement.”
Not long after HECO’s second rejection, 3W finally decided to introduce its new development partners to the DLNR. According to a Land Division report to the Land Board, on October 18, 2013, IEP informed the department that it was no longer interested in being a party to the development agreement. 3W asked that a modified development agreement be assigned, instead, to Investricity, which planned to use the entire feedlot to develop a 30MW solar park.
To HECO, the efforts to reassign the development agreement (if it was even aware of them at all) did nothing to change its position. On November 5, in an email to Lynch, the utility reiterated its disqualification, pointing out that all the refresh projects were supposed to have maintained their original size and scope and could not increase, reduce, or change the size or nature of the projects.
PSP II’s revised proposal was reduced in size and scope, and the project also did not have site control, the email stated.
“The entity that held the lease [sic] was not listed as a partner organization. … Please note that this decision is final and no further requests for reconsideration of this matter will be entertained,” it stated.
Even so, on November 8, 2013, 3W sought, and received, an assignment of the development agreement to Investricity and a modification reflecting the new project’s size and scope. Although the project would use the entire site, the Land Board did not increase the development fees to reflect the increase in size from 17 acres to 110 acres. The proposed lease term, however, was limited to 25 years.
Since the November assignment, the project has changed at least twice. On April 11, 2014, the Land Board approved the assignment of the development agreement to PSP III, LLC, a subsidiary of Investricity and its partner, LJ Capital. The board also reduced the size of the proposed facility from 30 MW to 20 MW, increased the lease term from 25 years to 65, and extended payment and performance deadlines. The agreement is now set to expire at the end of 2016.
On June 27, 2014, at PSP II’s request, the Land Board amended the development agreement again to allow the draft EA to be completed six months from the effective date rather than by August 1, 2014. Should the DEA fail to be completed by the new deadline, the DLNR has the right to terminate the development agreement.
Land Division administrator Russell Tsuji says he has not received any request from PSP III for an extension of that deadline, but that doesn’t mean his division is going to rush to cancel. He says he has his own reasons for wanting to hold onto a party that’s willing to do something good with the property — such as build a renewable energy facility. He said he’d rather have that than one with less-desirable plans or no one at all.
Although no new changes have been brought before the Land Board, PSP III’s petition before the PUC states that if the commission reverses HECO’s decisions, the park “now with up to 40 MWp (megawatts peak) per year of capacity, could be commissioned by the end of 2016.”
HECO Response
Whether PSP III’s project will ever receive a competitive bidding waiver remains to be seen. In its filing with the PUC, HECO is clearly not thrilled with the attempt to force its decisions.
The utility points out that the PUC can only issue declaratory orders on the applicability of a statute, rule, or order. PSP III’s petition seeking to compel HECO to keep the waiver invitation open and negotiate a power-purchase agreement with the petitioners is “inconsistent with the purpose of a petition for a declaratory order under Hawai`i law,” HECO’s motion to intervene states.
The utility also points out that none of the other four sites making up the original PV project are included in the petition, and adds that the sole document submitted as evidence of site control was the March 13, 2013, letter of intent between PSP I and 3W to develop a utility scale solar project on the former `Ewa feedlot.
What’s more, HECO argues that PSP III and 3W lack standing to assert any claims in the petition because they were not parties to PSP’s original proposal or PSP II’s `Ewa feedlot proposal.
“While WWW purportedly entered into a development agreement with the State of Hawai`i for the `Ewa feedlot and purportedly entered into Letters of Intent with PSP I and PSP II, it was never a party to the submissions involving [either project]. Similarly, PSP III was not a party to either submission and, in fact, was not registered with the DCCA until February 14, 2014 — well after the July 1, 2013, close of the Pricing Refresh Invitation,” it states.
Finally, HECO states, in both the waiver and pricing refresh invitations, the utility “expressly reserved the right not to request a waiver on behalf of a developer for any reason.”
A Rebuttal
Although the parties to the PUC petition had no objection to HECO’s attempt to intervene, they disputed the utility’s characterization of the situation.
In their January 22 response to HECO’s motion, they accused the utility of piling on new reasons to dismiss PSP II’s project after being presented with evidence which they believe proved that PSP II had site control (i.e., the March 2013 Letter of Intent between 3W and PSP, LLC to develop the solar farm, as well as the minutes of the March 8, 2013, Land Board meeting).
HECO improperly tried to broaden the basis for dismissal to include the change in scope and size and “issues related to the underlying lease [sic],” they argued.
They claimed that HECO “misleadingly” contends that PSP II revised the scope of its proposal to include only the former `Ewa feedlot. In fact, they argue, PSP II’s proposal was meant to be taken into consideration together with the proposal submitted by the PSP 1 member.
“The intention was that the full set of project sites were resubmitted in a clear fashion, and HECO clearly accepted this resubmission at that time,” their response states.
They also took issue with HECO’s interpretation of the March 8, 2013 Land Board meeting’s minutes.
“In the November 5, 2013, email, HECO erroneously referenced the BLNR minutes to show a lack of site control when, in fact, these minutes show just the opposite,” their response states.
Finally, they argued that the PUC can issue a declaratory order on a controversy over the applicability of its competitive bidding framework, and that the commission’s rules allow it to, on its own, issue an order to “terminate a controversy or remove uncertainty.”
What’s more, they state, 3W does, indeed, have standing to file the petition because PSP and 3W had entered into a binding agreement in March 2013. PSP III also has standing, they state, because its parent company, Investricity, was the “managing member” of PSP, LLC.
“[B]oth petitioners West Wind and PSP III have contractual relationships with Investricity Ltd. that depend on the outcome of the development of the `Ewa site and therefore have been directly impacted by HECO’s disqualification,” their response states.