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Hawaii's Affiliate Transactions

The Hawaii Public Utilities Commission has approved new affiliate transaction requirements (ATRs) to govern the Hawaiian Electric Companies’ interaction with subsidiaries and their corporate parent, HEI. The ATRs expressly prohibit affiliates, including the utilities’ parent holding company, HEI, from causing the utilities to violate or circumvent the ATRs or acting as a conduit to provide non-public information to another affiliate. As a result, the companies’ ability to pass along certain information to HEI is limited, as is HEI’s ability to pass along certain information to its subsidiaries.

The rules expressly recognize that “affiliate transactions” encompass a broad range of utility interactions, including interactions with the utilities’ parent holding company and entities contemplating acquiring or investing in an affiliate designed to address all potential situations in which the utility may gain or provide an unfair benefit by virtue of its relationship with other entities.

The commission declined, however, to expand the scope of the ATRs to other public utilities beyond the Hawaii Electric Companies. It said that as compared to other regulated utilities operating in the state, the Hawaiian Electric Companies present an immediate concern, due to their unique position in Hawaii’s energy market, possessing monopolistic control over transmission and distribution services and providing the vast majority of energy production in their service territory. The commission found that the companies’ dominant position in Hawaii’s energy market creates the frequent opportunity for marketplace abuse, and at the same time, the companies are tasked with a number of challenging responsibilities, such as incorporating increasing amounts of renewable energy and meeting the State’s Renewable Portfolio Standards.

The rulemaking gained steam as a result of recent moves by HEI that the commission found might have an effect on competitive energy markets in the state, including HEI’s interactions with a newly-formed subsidiary, Pacific Current LLC (Pacific Current). The commission had earlier warned that because HEI has access to its operating companies’ marketplace information and data, there have been reasonable concerns that such information could be used by HEI to form a subsidiary which enjoys unfair advantages over its competitors, such as access to competitor bid information, contract pricing terms, or other highly confidential information. In approving the new rules, the commission pointed out that recently, HEI’s formation of Pacific Current had generated such concerns when it assumed ownership of the Hamakua Energy Partners power plant on the Hawaii Island. Re Instituting a Proceeding to Establish Affiliate Transaction Requirements, Docket No. 2018-0065, Decision & Order No. 35962, Dec. 19, 2018 (Hawaii P.U.C.)


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