HONOLULU (Legal Newsline) – A bio-renewable energy group is seeking to amend and supplement resurrected antitrust litigation against Hawaiian Electric, arguing that its continued anti-competitive conduct is tantamount to “high-handed, monopolistic dominance” that has secured more than 90% of Hawaii’s power generation market.
Hu Honua Bioenergy, LLC of Pepe’ekeo, Hawaii filed suit in the U.S. District Court for the District of Hawaii on Nov. 16 versus Hawaiian Electric Industries, Inc., Hawaiian Electric Company, Inc., Pacific Current, LLC, Hamakua Holdings, LLC and Hamakua Energy, LLC, all of Honolulu, Hawaii, plus Hawaii Electric Light Company, Inc. of Hilo, Hawaii.
The underlying case, originally filed in 2016, was administratively closed in June 2019, and the claims against Hawaiian Electric Company (HECO) were paused when Hu Honua and certain HECO entities entered into a conditional settlement in May 2017, which is now null and void.
Since Hu Honua last amended its pleading in early 2018, it says the defendants’ “anti-competitive scheme has not ceased, and the motivations underlying it, and the anti-competitive effects and antitrust injuries resulting from it, have been more fully revealed and clarified.”
“HECO is a monopolist. On Hawaii Island, it currently controls a share of the wholesale market for firm energy generation in excess of 90%. Firm energy (also known as “firm power”) means electricity that is generated constantly (i.e., available 24/7), as opposed to intermittent energy, which is generated only part of the time (e.g., wind and solar). HECO has expanded its monopoly power over the wholesale market for firm power generation by an anti-competitive acquisition and the exclusion of its rivals, including Hu Honua,” the suit says.
“HECO also is a monopsonist. It is the only purchaser of wholesale firm energy generated on Hawaii Island, including the energy HECO itself generates. HECO has exercised and leveraged its monopsony power over the purchase of wholesale firm energy to exclude its rivals, including Hu Honua, and maintain and extend its monopolistic dominance in that wholesale market. HECO has used and abused its monopoly and monopsony power with shameless arrogance and disregard not just for competition but for the people, economy and environment of Hawaii Island. For HECO, maintaining its monopoly is paramount over all other considerations.”
The suit adds while Hu Honua owns a renewable, dispatchable firm energy biomass power plant on Hawaii Island, it has sat idle since 2017 due to the defendants’ conduct despite Hawaii’s need for firm energy, which it says is “given the rising risks of power interruptions, blackouts and outages that have resulted from HECO’s high-handed, monopolistic dominance of the market.”
While the Hu Honua Facility would consume biomass feedstock from, among other sources, woody invasive plant species on Hawaii Island, the defendants’ facilities through the burning of oil – which the plaintiff says has resulted in a deteriorated energy reserve margin, that has markedly increased Hawaii Island’s risk of blackouts.
“HECO has used and abused its monopoly and monopsony power by seeking to foreclose or acquire existing independent rivals and exclude or delay new competitive entry into the wholesale market for the generation of firm energy on Hawaii Island. It has done so, among numerous other acts, by anti-competitively terminating the Power Purchase Agreement for Renewable Dispatchable Firm Energy and Capacity that HECO had voluntarily entered into with Hu Honua and that was approved by the Hawaii Public Utilities Commission (PUC) almost a decade ago,” the suit states.
“While HECO has claimed it terminated the Power Purchase Agreement because Hu Honua missed certain contractual milestones, that assertion is pretext. In fact, terminating the Power Purchase Agreement was a competitively irrational act that sacrificed short-run gains and endangered system reliability; HECO would not have taken that step but for the prospect of obtaining higher profits in the long run from the exclusion of competition as alleged in this complaint.”
According to the suit, HECO’s “audacious course of conduct has given [it] control of over 90% of the wholesale market over the last decade” when by all rights, “HECO’s market share should have been trending down to 50% or less, as it should have retired (or, at a minimum, significantly reduced the use of) its outdated fossil fuel generating plants in favor of new – and renewable – sources of firm power” to meet regulatory standards.
But the litigation asserts that “HECO foreclosed every option to substitute renewable (or any new non-HECO) firm capacity for its antiquated oil-fired plants”, while “not just delaying the retirement of its own plants, but actually increasing its hold over the market’s existing capacity.”
“HECO initially intended to offset the new renewable capacity that Hu Honua would bring to the market by using its purchasing (monopsony) control to reduce energy output from the independent power plant (the “Hamakua plant”) owned by Hamakua Energy Partners, L.P. (owner of the plant) and Hamakua Land Partnership, L.L.P. (owner of the land, and together with Hamakua Energy Partners, L.P., “Hamakua Partners”), HECO’s biggest rival in the generation of firm power. When HECO concluded that it could instead buy the Hamakua plant, it shifted strategy: Just three weeks after signing a contract to purchase Hamakua, it moved to terminate the Hu Honua PPA on pre-textual grounds,” the suit continues.
“With Hu Honua and all other potential entrants foreclosed, and with Hamakua in its grip, HECO proceeded to cement near total control over the market. Today, HECO faces only one operating competitor in the market – and an enfeebled one at that. HECO has succeeded in delaying the retirement of all of its outdated plants, which continue to generate power (and a high level of emissions) by burning oil. And the energy produced by those plants has become painfully expensive, as oil prices have spiked toward levels not seen in a decade or more.”
For counts of violating the Sherman Antitrust Act, Clayton Act, Hawaii Antitrust Act, breach of contract, breach of the covenant of good faith and fair dealing, unfair methods of competition and conversion, the plaintiff is seeking a declaration that the defendants’ conduct violates the aforementioned laws, injunctive relief restraining and enjoining defendants from continuing their unlawful conduct and restoring competition in the relevant market, including by ordering the divestiture or other appropriate disposition of the Hamakua Plant to a truly independent power producer, treble damages, compensatory damages, costs, disbursements, expenses, and reasonable attorneys’ fees in bringing this action and for any such other or further relief that this Court deems just and proper.
The plaintiff is represented by Barry W. Lee and Christian E. Baker of Manatt Phelps & Phillips, in Honolulu, Hawaii and San Francisco, Calif., Ian L. Sandison of Carlsmith Ball, plus Kelly Anne Higa Brown, Margery S. Bronster, Rex Y. Fujichaku of Bronster Fujichaku Robbins and Wil K. Yamamoto of Yamamoto Caliboso Heatherington, all in Honolulu, Hawaii, J. Michael Luttig in Lake Forest, Ill., plus Theodore J. Boutrous, Daniel G. Swanson, Rachel S. Brass, Kahn A. Scolnick and Ashley E. Johnson of Gibson Dunn & Crutcher, in Los Angeles, Calif. and Dallas, Texas
The defendants are represented by Catherine Fairley Spillman, Corey W. Roush and David A. Applebaum of Akin Gump Strauss Hauer & Feld in Washington, D.C., David M. Louie, Joseph A. Stewart and Nicholas R. Monlux of Kobayashi Sugita & Goda in Honolulu, Hawaii, James Pearl, Raul A. Campillo and Sarah A. Pfeiffer of O’Melveny & Myers in Los Angeles and Newport Beach, Calif., Kenneth R. O’Rourke of Wilson Sonsini Goodrich & Rosati in Washington, D.C., plus Paul Alston and Claire Wong Black of Dentons U.S. in Honolulu, Hawaii.
U.S. District Court for the District of Hawaii case 1:16-cv-00634
From Legal Newsline: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com