Driven by an order from the Hawaii Public Utilities Commission (PUC), Hawaiian Electric Industries Inc. (HEI) and Juno Beach, Fla.-based NextEra Energy Inc. have terminated their plans to merge.
NextEra initially announced its bid to take over HEI in December 2014 through a deal valued at approximately $4.3 billion. NextEra will now pay HEI a $90 million termination fee and up to $5 million for reimbursement of expenses associated with the transaction.
After payment of taxes, the net amount of $60 million will help to fund Hawaii’s clean energy efforts, the companies say. In addition, a special, one-time cash dividend of $0.50 per share of HEI common stock, which would have been paid had the merger closed, will not be issued.
In a 2-0 decision on Friday, the PUC dismissed the companies’ joint application. Based on its review of the record, the commission concluded that although the applicants demonstrated that NextEra is fit, willing and able to perform the services currently offered by HEI and its three electric utilities, the applicants failed to demonstrate that the merger would be reasonable and be in the public interest.
In reaching this conclusion, the PUC focused on five areas of concern: benefits to ratepayers, risks to ratepayers, applicants’ clean energy commitments, the proposed change of control’s effect on local governance and the proposed change of control’s effect on competition in local energy markets.
With respect to the state’s clean energy goals, the PUC concluded that notwithstanding NextEra’s management capabilities, experience and finances, the applicants had failed to put forth near-term commitments for specific action tailored to Hawaii’s unique circumstances and clean energy goals. Rather, the applicants’ commitments were in the nature of providing “best efforts” and maintaining existing practices and standards, according to the commission.
Additionally, the PUC noted the companies’ lack of specific commitments relating to distributed energy resources – which runs contrary to Hawaii’s status as a leader in integrating distributed solar photovoltaic systems, the commission says. Accordingly, though possessing potential to accelerate the state’s clean energy goals, the proposed commitments in this area were simply too broad and vague to be consistent with the public interest, says the PUC. Last year, Hawaii Gov. David Ige expressed similar concerns about the potential merger.
In dismissing the application, the commission emphasized that it is not precluding HEI from seeking another partner or from renewing discussions with NextEra.
“We wish Hawaiian Electric the best as it serves the current and future energy needs of Hawaii, including helping the state meet its goal of 100 percent renewable energy by 2045,” says Jim Robo, chairman and CEO of NextEra Energy, in a statement. “Looking forward, NextEra Energy remains extremely well positioned to execute on our strategy and deliver exceptional results for our customers and shareholders.”
As a result of the terminated deal, American Savings Bank (ASB), an HEI subsidiary, will remain part of HEI; a spin-off was contingent upon the completion of the merger, says HEI.
HEI – which supplies power to approximately 95% of Hawaii’s population through Hawaiian Electric Co. Inc., Hawaii Electric Light Co. Inc. and Maui Electric Co. Ltd. – has reaffirmed its 2016 earnings per share guidance range of $1.62 to $1.75 per share.
In a statement, Connie Lau, president and CEO of HEI and chairman of the boards of Hawaiian Electric and ASB, says, “While the merger would have provided significant benefits for Hawaii, HEI remains a strong company that is well positioned to achieve our goals and provide long-term value for our customers, community, employees and shareholders.”
Citing NextEra’s “unwillingness to transition to a clean energy utility of the future,” Earthjustice, the Hawaii Solar Energy Association, the Hawaii PV Coalition, the Sierra Club of Hawaii and the Alliance for Solar Choice are jointly praising the rejection of the takeover. In a release, they say NextEra’s “utility track record of investing in dirty energy and opposing rooftop solar makes it incompatible with the modern energy infrastructure that lawmakers and consumers are demanding.”
“Instead of envisioning a 21st-century grid that enables customer options like rooftop solar, NextEra wanted to double-down on its ‘build more, pay more’ monopoly business,” explains Hajime Alabanza, executive assistant for the Hawaii Solar Energy Association, in the release. “The commission understood this isn’t the right direction for Hawaii’s customers.”
More on the PUC’s decision can be found here.