TASK FORCE TO INVESTIGATE HAWAII ELECTRIC COMPANY (HECO)

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House Bill (H.B.) 1999 HD1, now before the Hawaii Legislature, is one of the most important pieces of legislation to be considered for enactment into law. …

House Bill (H.B.) 1999 HD1, now before the Hawaii Legislature, is one of the most important pieces of legislation to be considered for enactment into law.

H.B. 1999 HD1 establishes the Legislative Utility Oversight Task Force to review franchises held by investor-owned electric utilities, specifically, Hawaiian Electric Company (HECO) and its subsidiary utilities, Maui Electric Company (MECO) and Hawaii Electric Light Company (HELCO)
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HECO OPPOSES H.B. 1999 HD1.

HECO is a state-granted monopoly. Denial or Opposition to the review of its processes is not a right or privilege to be invoked by HECO. HECO has been granted the right to be the sole provider of electric power to the people of Hawaii. The self-serving testimony of HECO is subject to review, so are its processes, and its links to its parent, Hawaiian Electric Industries (HEI) and its sister, American Savings Bank (ASB).

The testimony of the Consumer Advocate and The Blue Planet are instructive and illustrative.

TESTIMONY OF HAWAIIAN ELECTRIC COMPANY (HECO)
The Hawaiian Electric Company and its subsidiary utilities, Maui Electric Company and Hawaii Electric Light Company, OPPOSES H.B. 1999, H.D. 1.

TESTIMONY OF THE CONSUMER ADVOCATE
“The Consumer Advocate APPRECIATES the intent of the H.D.1, which is proposing to regularly evaluate investor-owned utility companies to “ensure that these utilities are adequately providing services that serve the public.” All utility companies should be held accountable for their duty to provide safe, reliable, high quality utility services at affordable rates. The Consumer Advocate APPRECIATES the Legislature’s desire to hold the HECO Companies accountable to their franchise by creating this task force, although much of the work of the task force may be duplicative of what the Commission is already doing.” [Emphasis supplied]

TESTIMONY OF BLUE PLANET FOUNDATION
“As the PUC’s May 2013 order said, “attractive financial returns are not a utility entitlement." But developing the right system—the world-class system that other utilities emulate—should provide attractive value not only for the utility and its shareholders, but also for every resident in the state. As the PUC concluded, “the public interest demands no less.” BLUE PLANET FOUNDATION BELIEVES THAT HB 1999 HD1 WILL HELP IDENTIFY HOW BEST TO ENSURE THAT OUR INVESTOR-OWNED UTILITIES PROVIDE THAT VALUE. THIS INSTITUTIONAL EVOLUTION REGARDING HOW TO REGULATE HAWAII'S LARGEST ELECTRIC COMPANY WILL DETERMINE HOW THE ISLANDS ARE POWERED FOR THE NEXT CENTURY.” [Emphasis supplied]

Transparency, accountability, and responsibility require full disclosure and openness to audit, investigation, inquiry, and review by independent, third-parties and agencies.

The House Committee on Consumer Protection and Commerce has scheduled a Decision Making Hearing, Today, February 12, 2014, 2:00 p.m., Hawaii State Capitol, Room 325.

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  • 1. TO THE HOUSE COMMITTEES ON ENERGY & ENVIRONMENTAL PROTECTION, CONSUMER PROTECTION & COMMERCE, AND FINANCE THE TWENTY-SEVENTH LEGISLATURE REGULAR SESSION OF 2014 THURSDAY, February 5, 2014 TESTIMONY OF CLIFTON M. HASEGAWA, PRESIDENT AND CEO CLIFTON M. HASEGAWA & ASSOCIATES, LLC TO THE HONORABLE CHRIS LEE, CHAIR THE HONORABLE CYNTHIA THIELEN, VICE CHAIR AND MEMBERS OF THEHOUSE COMMITTEE ON ENERGY & ENVIRONMENTAL PROTECTION (EEP) REPRESENTATIVE TY J.K. CULLEN REPRESENTATIVE NICOLE E. LOWEN REPRESENTATIVE CINDY EVANS REPRESENTATIVE SCOTT Y. NISHIMOTO REPRESENTATIVE FAYE P. HANOHANO REPRESENTATIVE CALVIN K.Y. SAY REPRESENTATIVE DEREK S.K. KAWAKAMI REPRESENTATIVE RICHARD LEE FALE
  • 2. TO THE HONORABLE ANGUS L.K. MCKELVEY, CHAIR THE HONORABLE DEREK S.K. KAWAKAMI, VICE CHAIR AND MEMBERS OF THE HOUSE COMMITTEE ON CONSUMER PROTECTION & COMMERCE (CPC) REPRESENTATIVE SHARON E. HAR REPRESENTATIVE BOB MCDERMOTT REPRESENTATIVE KEN ITO REPRESENTATIVE DELLA AU BELATTI REPRESENTATIVE CHRIS LEE REPRESENTATIVE TOM BROWER REPRESENTATIVE MARK M. NAKASHIMA REPRESENTATIVE ROMY M. CACHOLA REPRESENTATIVE MARCUS R. OSHIRO REPRESENTATIVE RICHARD CREAGAN REPRESENTATIVE CLIFT TSUJI REPRESENTATIVE CINDY EVANS REPRESENTATIVE RYAN I. YAMANE REPRESENTATIVE CYNTHIA THIELEN TO THE HONORABLE SYLVIA LUKE, CHAIR THE HONORABLE AARON LING JOHANSON, VICE CHAIR THE HONORABLE SCOTT Y. NISHIMOTO, VICE CHAIR MEMBERS HOUSE COMMITTEE ON FINANCE REPRESENTATIVE TY J.K. CULLEN REPRESENTATIVE RICHARD H.K. ONISHI REPRESENTATIVE MARK J. HASHEM REPRESENTATIVE GREGG TAKAYAMA REPRESENTATIVE KANIELA ING REPRESENTATIVE JAMES KUNANE TOKIOKA REPRESENTATIVE JO JORDAN REPRESENTATIVE JUSTIN H. WOODSON REPRESENTATIVE NICOLE E. LOWEN REPRESENTATIVE BETH FUKUMOTO REPRESENTATIVE DEE MORIKAWA REPRESENTATIVE BERTRAND KOBAYASHI REPRESENTATIVE GENE WARD REPRESENTATIVE KYLE T. YAMASHITA HOUSE BILL NO. 1999 - RELATING TO ELECTRIC UTILITIES DESCRIPTION: This measure seeks to establish stringent licensing procedures for any person intending to construct, operate, acquire an electric utility or extend an existing electric utility outside its designated area.
  • 3. POSITION: I support H.B. No. 1999 and offer the following comments and recommendations. COMMENTS: The comments provided to the EEP by Chair of the Hawai`i Public Utilities Commission, Hermina Morita are foundational and provide the basis for my comments and recommendations for further consideration by the Committees. Specifically, The Commission would like to caution the Legislature that if it initiates a review of an electric utility franchise, it must ensure (1) that proper resources are budgeted and allocated to obtain the required expertise on the subject matter, and (2) that the investigative process that is established is based on a framework that clearly establishes for all participants the elements of the franchise that will be reviewed, the criteria that will be used to evaluate those elements, and the procedures to be followed in making the evaluation. The Legislature also needs to be mindful that a review of a franchise without clarifying the associated review process and evaluation criteria could create uncertainty affecting the electric utility’s financial position. First, the strength and integrity of an organization is the establishment of internal controls. Here, Chair Morita provides a glimpse into the structure and organization of the Public Utilities Commission and its weaknesses. In particular, 1. That the Commission is overwhelmed and inundated by Hawaiian Electric Company (HECO), and its subsidiaries, Maui Electric Company, and Hawaiian Electric Light Company who have and continue to aggressively pursue initiatives for renewable energy at an alarming rate. The Commission’s resources have been drained by funding cuts and the Commission’s ability to determine whether approval of any rate increase by the utility is in the public interest has been diminished.
  • 4. 2. On January 31, 2012 Chair Morita made the following statement to the EEP, “Allowing an independent power producer to sell the power to someone other than the utility does not make the problem of curtailment go away. It only makes the problem worse. Again, curtailment occurs in low load situations. By selling to someone other than the utility in that situation in effect lowers the system load even more, which could result in the utility shutting down more firm generation. If the intermittent resource does not meet the needs of the customer who switched out, when the customer comes back to the grid there may not be enough generation available to meet the customer’s demand. This could result in an under-generation situation that will impact system reliability for all of the customers on the grid.” Now still in early 2014 the Commission is still grappling with grid problems, addressing roof top solar demands and the utilities demands for new programs. The integration of renewable energy into the utility grid has been existence since 2006. The integration of Big Wind developers of Kaheawa at Maalaea by Maui Electric Company was fraught with difficulty – finding hardware to stabilize the intermittent flow of energy, to curtailment of energy from Kaheawa into the grid. Since 2006 Hawaiian Electric Company (HECO), and its subsidiaries, Maui Electric Company, and Hawaiian Electric Light Company have aggressively pursued initiatives for renewable energy. HECO established an internal standard for clean energy initiatives, parallel but more aggressive than the Hawaii Clean Energy Initiative. 3. I support clean, renewable, sustainable energy. The availability of expertise within the Commission and the lack of aggressive oversight and insight by the Consumer Advocate to act as the public’s watch dog have allowed the process to be controlled by HECO. HECO has been allowed to pursue its own agenda. Examples, “Hawaiian Electric Co. says its interconnection facility inside the battery energy storage system warehouse at the Kahuku Wind Farm on Oahu's North Shore, which was destroyed by fire in August, will cost at least $8 million to rebuild and take about a year to complete.
  • 5. The 15-megawatt system, which helps stabilize the wind energy output for the grid, houses both HECO's interconnection facility and Kahuku Wind Farm's control rooms. The Hawaiian Electric Industries' subsidiary also noted in a letter sent last week to the state Public Utilities Commission that the scheduled completion date for its interconnection facility is late 2013. That means that Boston-based First Wind won't have its Oahu wind farm up and running until the latter part of next year” [Emphasis supplied] Source: Shimogawa, D. (2012, November 17). HECO says Kahuku Wind Farm's battery storage system will cost at least $8m to replace. Pacific Business News. Retrieved from http://www.bizjournals.com/pacific/news/2012/11/17/heco-sayskahuku-wind-farms-batter.html. “HECO announced six new solar projects on Tuesday. Earlier this year, the utility announced that it was pursuing five other energy projects, but three of the developers asked that their projects be withdrawn. HECO is asking the Public Utilities Commission from an exemption from the competitive bidding process for the remaining nine solar projects.” Source: Honolulu Civil Beat Staff. (2013, November 05). HECO Pushing Forward on Nine Solar Farms for Oahu. Honolulu Civil Beat. Retrieved from http://hawaii.news.blogs.civilbeat.com/post/66156078039/heco-pushing-forward-onnine-solar-farms-for-oahu “First Wind’s 30-megawatt Kahuku Wind Farm on Oahu’s North Shore, which has been hampered by a fire that destroyed its battery warehouse last year, is still only running at a capacity of 5 megawatts, a spokesman for the Boston-based renewable energy company told PBN. Originally, First Wind said it would be back at full capacity by the end of 2013.” Source: Shimogawa, D. (2013, December 30). First Wind's Kahuku Wind Farm still not back up to speed. Pacific Business News. Retrieved from http://www.bizjournals.com/pacific/news/2013/12/30/first-winds-kahuku-wind-farmstill.html
  • 6. “Hawaiian Electric Co. (HECO) filed an environmental impact statement preparation notice for a 50 MW biofuel power project at a U.S. Army site in Honolulu, Oahu.” Source: Editors of Electric Light & Power/ POWERGRID International. (2014, January 13). Hawaiian Electric Begins Work On 50 MW Biomass Energy Project. Electric Light & Power. Retrieved from http://www.elp.com/articles/2014/01/hawaiian-electric-beginswork-on-50-mw-biomass-energy-project.html 4. My recommendation is the Committees and the Commission together consider referral of investigation to the Federal Energy Regulatory Commission (FERC). The FERC regulations allow Enforcement staff to conduct investigations relating to any matter subject to the Commission's jurisdiction. The investigative staff initiates investigations from information received through a variety of sources, both internal and external. Internally, information is received from other Commission offices, or from the Commission itself or in the course of another investigation. Externally, information may be received from a referral from another government agency. Source: http://www.ferc.gov/enforcement/investigations.asp Second, the framework of the investigation. Hawaiian Electric Company (HECO), and its subsidiaries, Maui Electric Company, and Hawaiian Electric Light Company are but Economic Engines, revenue sources for Hawaiian Electric Industries (HEI), the Control Center, to be funneled to and through their Disbursement Agent, American Savings Bank. The major concern is porous internal controls, interlocking governance, and misapplied/misplaced financial principles and accounting practices by and between Hawaiian Electric Industries (HEI), Hawaiian Electric Company (HECO), and its subsidiaries, Maui Electric Company, and Hawaiian Electric Light Company, and American Savings Bank. 1. Intermixing matters under the jurisdiction of the State of Hawaii Public Utilities Commission and Federal banking regulators. See HEI 2012 Annual Report. http://phx.corporate-ir.net/phoenix.zhtml?c=101675&p=irol-sec 2. Exercise of complete control by key officers and directors of Parent [Hawaiian Electric Industries (HEI)] over Subsidiaries [American Savings Bank FSB (ASB)] and [Hawaiian Electric Company (HECO)] and HECO divisions {Maui Electric Company Ltd. (MECO)] and [Hawaii Light Company, Inc. (HELCO)].
  • 7. 3. Misuse of utilization of non-GAAP standard as a measure for financial reporting of utility and banking performance and operations. 4. Augmenting and balancing banking operations and financial performance with operational and financial performance of the sole public utility (monopoly) for electricity in Hawaii and vice versa. Compare: HEI 2012 Annual Report http://phx.corporateir.net/phoenix.zhtml?c=101675&p=irol-sec and SEMPRA ENERGY 2012 Annual Financial Report http://www.sempra.com/annualreport/letter.html 5. Failing to disclose the Commission the full extent and participation of the trading portfolios - within reporting units and/or with other businesses trade investments. The linkages and interconnection of the utility and the financial organization reporting to Hawaiian Electric Industries (HEI) Control Center requires the collective expertise of the Federal Energy Regulatory Commission (FERC), the Securities and Exchange Commission (SEC), and the Office of the Comptroller of Currency (OCC), and the Department of Justice (DOJ). Chair Morita’s caution that operating procedures are needed to preserve the integrity of the process is on target and such is absolutely required. The investigation will make inquiry into loan and investment portfolios, funds management, capital, earnings, liquidity, and exposure to undue market risk, compliance with consumer banking laws, review of internal controls, internal and external audit, and compliance with law and actions from banking, utility, audit, and corporate structure – whether there exists a permissible vertical or horizontal monopoly. Sincerely, Electronic Signature Clifton M. Hasegawa 1044 Kilani Avenue 12 Wahiawa, Hawaii 96786 Telephone: (808) 744-5155 Mobile: (808) 463-1057 Email: clifhasegawa@gmail.com Web: www.linkedin.com/in/cliftonhasegawa