NextEra merger dead, Hawaii turns to realizing a 100% renewables future
NextEra never convinced regulators they could follow through on their clean energy goals. Can Hawaiian Electric?
July 15, the Hawaii Public Utilities Commission rejected the application from Florida-based NextEra Energy to acquire Hawaiian Electric Industries (HEI), the parent company of the state’s dominant electric providers. The two companies terminated their merger agreement soon after.
The decision concluded a contentious 18-month proceeding. It highlighted a long-standing dissatisfaction with HEI (often referred to as the Hawaiian Electric Company (HECO), the name of its largest subsidiary) and provoked a rich debate among stakeholders over whether the investor-owned utility business model best serves Hawaii’s needs or whether an electric cooperative, a municipal utility, or a system operator might be better.
In their decision, Hawaii regulators walked a fine line, ruling that while NextEra’s leadership would not likely damage HEI operations, it would not benefit the state overall.
“After reviewing the entire record, the Commission concluded that while NextEra is fit, willing, and able to step into the shoes of the HECO Companies without a loss in performance, the Application for the proposed Change of Control is not in the public interest,” PUC staff wrote in a summary of the decision
As the merger was debated, Hawaii energy policy underwent profound changes. The state enacted the first and only 100% renewable energy mandate in the U.S., to be met by 2045, and the commission imposed the first replacement of retail rate net metering with a reduced incentive package.
Separate proceedings edged forward on the energy mix the HEI utilities should be developing and how best to create standards and incentives for a new system based on distributed energy resources (DER).
In light of those policy imperatives, the PUC decision on the merger raises the question of which company — and which utility business model — would serve Hawaii residents best. Stakeholders reached by Utility Dive gave no definitive answer in the week after the rejection, but many pointed to the need to align consumer and utility interests, and the new opportunity the decision could represent to reform HEI.
“What came out of the merger debate was a public awareness that didn’t previously exist about what’s possible,” State Rep. Chris Lee (D) told Utility Dive. “For the first time, we see the opportunity to decide for ourselves the direction we want to go and everybody wants to be part of that.”
The regulators’ logic
In its decision, the commission listed five basic “areas of concern.”
First, regulators concluded, NextEra’s promises of rate credits, investment funds, and a rate increase moratorium would not provide adequate benefits to ratepayers.
The promise of $60 million in rate credits was too small and “conditional” on a promised moratorium on rate cases, which regulators said was subject to changes itself that could terminate the credits. The promise of an estimated $464.4 million in savings to ratepayers and an estimated $496.1 million in derivative benefits were contingent on unsatisfactorily substantiated assumptions, regulators wrote.
Second, NextEra failed to offer financial measures that would alleviate risks to ratepayers from the change of control. Specifically, regulators wrote NextEra’s involvement put the HEI companies under some threat of a bankruptcy that would lead to the utilities being run by a bankruptcy court.
That was perhaps the commission’s most striking finding — that NextEra’s extensive utility industry experience was nevertheless inadequate to run HEI. The company was not prepared, regulators decided, to deal with “specific and unique renewable energy issues facing Hawaii, such as integrating very high levels of distributed energy resources – particularly residential rooftop solar PV systems – into isolated island grids.”
