December 14, 2014

The Honorable David Ige

Governor, State of Hawaii

Hawaii State Capitol

Honolulu, Hawaii 968

Dear Governor Ige,

We believe the “combination”1 of HEI [Hawaiian Electric Industries, the

parent company and its subsidiaries Hawaii Electric Company (HECO), Maui

Electric Company, Ltd. (MECO) and Hawaiian Electric Light (HELCO),

hereinafter referred collectively as (“HECO”) to NextEra Energy is not in the best

interest of the State of Hawaii and the customers serviced by HECO based on

information that has, to date, been disclosed.

The State of Hawaii granted HECO the sole franchise to provide electric

utility service on the islands of Oahu, Maui County, Kauai and the Big Island of

Hawaii. Electric utility service by HECO as a single entity should not be

approved by the Hawaii Public Utilities Commission, hereinafter referred to as

(“HPUC”) until a full and through investigation is completed. We recommend

that a Legislative Task Force be convened to conduct this investigation.

The “combination” of HECO and NextEra Energy, a robust, financially

stable and capable utility, is an attempt to mask and erase longstanding

complaints of HECO’s non-performance as a public utility. The infusion of

capital by this business relationship will yield but a temporary improvement to

HECO’s balance sheet and net worth. The public relations campaign by HECO

to capture solidarity and support of the “combination” of HECO and NextEra

Energy on close inspection of HECO Annual Reports filed with the United States

Securities and Exchange Commission, hereinafter referred to as (“SEC”) and

reports filed with the Federal Energy Regulatory Commission, hereinafter

referred to as (“FERC”) and the Office of the Comptroller of Currency,

hereinafter referred to as, (“OCC”) reveals a picture of an ailing mismanaged

business. Please refer to my enclosed Testimony on HB 1999 (2014) regarding the

establishment of a Legislative Utility Review Task Force to review franchises

held by investor-owned electric utilities.

1 Letter from Alan Oshima, President & CEO, Hawaiian Electric Company, dated

December 3, 2014, Mass Mailed letter received December 14, 2014.

Governor David Ige

December 14, 2014

Page 2 of 9

Testimony of HPUC Chair Hermina Morita on H.B. 1999, January 30, 2014:

“H.B. No. 1999 does raise significant issues related to

Hawaii’s current electricity service model under the

traditional regulatory compact between established

utilities and electricity ratepayers as regulated by the

State.

Hawaii's current electric utility model evolved

pursuant to what is known as the traditional

regulatory compact. Under this arrangement electric

utilities are granted a franchise by the Legislature and

are provided the opportunity to earn a reasonable

return on capital in exchange for an obligation to

commit the necessary capital to serve all comers. In

other words, the franchised utility is made

responsible for providing all aspects of electric

service, including generation, transmission, and

distribution for the public good, while the customer

who used those services would pay the utility for

those services. Under this compact, the customers

purchased all, or a major portion of, their electricity

needs directly from the utilities. Today, the

proliferation of distributed generation, independent

power producers, and other advancements in the

energy sector have led to a far more complicated

electric system. While the majority of customers

remain completely reliant on the electric utilities for

electrical service, a growing number of customers are

capable of generating their own electricity can send

excess power back to the grid but also take standard

electric service from the grid in varying degrees

especially when unable to generate electricity.”

Governor David Ige

December 14, 2014

Page 3 of 9

“Furthermore, various policies adopted by our State

have led to the incorporation of greater amounts of

energy, both fossil and renewable resources, supplied

by independent power producers who sell generated

power to the electric utility who, in turn, use that

power to supply electricity to their customers.

Therefore, the traditional regulatory compact does

not encapsulate the range of relationships that today’s

electric system incorporates. In light of the changing

landscape and complexity of the modern electric

system, the Commission believes that a review of

the fundamental electric utility-customer

relationship is warranted.”

[Emphasis Supplied]

HECO TESTIMONY:

“My name is Kevin Katsura2 and I am testifying on behalf of

Hawaiian Electric Company and its subsidiary utilities

Maui Electric Company and Hawai‘i Electric Light

Company in opposition to H.B. 1999.” (January 30, 2014)

TESTIMONY BEFORE THE HOUSE COMMITTEE ON

ENERGY AND ENVIRONMENT.

2 Kevin M. Katsura, Associate General Counsel, Legal Department

Hawaiian Electric Company, Inc.

Governor David Ige

December 14, 2014

Page 4 of 9

“My name is Kevin Katsura and I am testifying on behalf of

Hawaiian Electric Company and its subsidiary utilities Maui

Electric Company and Hawai‘i Electric Light Company in

opposition to H.B. 1999, Proposed H.D. 1.” (February 4,

2014) TESTIMONY BEFORE THE HOUSE COMMITTEE ON

ENERGY AND ENVIRONMENT

“My name is Kevin Katsura and I am testifying on behalf of

Hawaiian Electric Company and its subsidiary utilities Maui

Electric Company and Hawai‘i Electric Light Company in

opposition to H.B. 1999, H.D. 1.” (February 10, 2014)

TESTIMONY BEFORE THE HOUSE COMMITTEE ON

CONSUMER PROTECTION & COMMERCE

“My name is Kevin Katsura and I am testifying on behalf of

Hawaiian Electric, Company and its subsidiary utilities

Maui Electric Company and Hawai‘i Electric Light Company

in opposition to H.B. 1999, H.D. 2.” (February 20, 2014)

TESTIMONY BEFORE THE HOUSE COMMITTEE ON

FINANCE

HOUSE COMMITTEE REPORTS

H.B. No. 1999 H.D. 1

“The purpose of this measure is to ensure that the public good is given

priority in the operation of an electric utility by requiring the utility to be

licensed by the Public Utilities Commission

The Sierra Club of Hawaii and a few individuals testified in support of the

Proposed Draft. Hawaiian Electric Company, Inc., and an individual

testified in opposition of the Proposed Draft.”

Governor David Ige

December 14, 2014

Page 5 of 9

“The Public Utilities Commission and Division of Consumer Advocacy,

Department of Commerce and Consumer Affairs commented on the

Proposed Draft.

[Y]our Committee is in accord with the intent and purpose of H.B. No.

1999, as amended herein, and recommends that it pass Second Reading in

the form attached hereto as H.B. No. 1999, H.D. 1, and be referred to the

Committee on Consumer Protection & Commerce.”

Chris Lee, Chair, House Committee on Energy & Environmental Protection

H.B. No. 1999 H.D. 2

“The purpose of this measure is to ensure adequate provision of electric

utility services to the public by establishing a Legislative Oversight Task

force to review franchises held by investor-owned electric utilities.

Hawaii Solar Energy Association, Blue Planet Foundation, and several

individuals testified in support of this measure. Hawaiian Electric

Company and its subsidiary utilities Maui Electric Company and Hawaii

Electric Light Company testified in opposition to this measure. The Public

Utilities Commission and Division of Consumer Advocacy of the

Department of Commerce and Consumer Affairs provided comments on

this measure.

[Y]our Committee is in accord with the intent and purpose of H.B. No.

1999, H.D. 1, as amended herein, and recommends that it be referred to

the Committee on Finance in the form attached hereto as H.B. No. 1999,

H.D. 2.”

Angus L.K. McKelvey, Chair, House Committee on Consumer Protection &

Commerce

Governor David Ige

December 14, 2014

Page 6 of 9_

H.B. No. 1999 H.D. 3

“Sierra Club of Hawaii and a concerned individual testified in support of

this measure. Hawaiian Electric Company, Inc., Maui Electric Company,

Limited, and Hawaii Electric Light Company, Inc., testified in opposition

to this measure. The Public Utilities Commission and the Division of

Consumer Advocacy of the Department of Commerce and Consumer

Affairs commented on this measure.

[Y]our Committee on Finance … is in accord with the intent and purpose

of H.B. No. 1999, H.D. 2, as amended herein, and recommends that it pass

Third Reading in the form attached hereto as H.B. No. 1999, H.D. 3.”

Sylvia Luke, Chair, House Committee on Finance

THE SIERRA CLUB HAWAII CHAPTER -- TESTIMONY TO THE HOUSE

COMMITTEE ON ENERGY & ENVIRONMENTAL PROTECTION --

(February 4, 2014)

“The Sierra Club, Hawaii Chapter, with over 12,000 dues

paying members and supporters statewide, supports HB

1999 HDl. This measure asserts legislative control over the

licensing of franchises held by the current utilities.”

The rise of distributed renewable energy is causing a

national discussion about the future of the utility business

model. The industry’s own think tank, the Edison Electric

Institute, recognized this with a white paper “Disruptive

Challenges: Financial Implications and Strategic Responses

to a Changing Retail Electric Business”. Vigorous debates

about the future of the utility are occurring in many states,

including Arizona and California.”

Governor David Ige

December 14, 2014

Page 7 of 9

“While we firmly believe there is a role for an electrical

utility in Hawai’i’s future, the business model of yesterday

may no longer work for tomorrow. This measure gives the

Legislature the opportunity to reexamine the utility business

structure and longterm plan and ascertain if there may be

better entities that can serve the needs of Hawai’i’s residents.

We suggest it may be worthwhile to also direct the PUC to

investigate and report back to the Legislative Task Force.

The utility model is a regulatory compact. If our existing

utilities are not adequately serving Hawai’i’s customers, this

legislature has an obligation to pursue other options.”

MEASURE STATUS:

http://www.capitol.hawaii.gov/Archives/measure_indiv_Archives.aspx?billtype=

HB&billnumber=1999&year=2014

3/4/2014 H

Passed Third Reading as amended in HD 3 with none voting aye with

reservations; Representative(s) Hanohano voting no (1) and none excused

(0). Transmitted to Senate.

3/6/2014 S Received from House (House. Com. No. 285).

3/6/2014 S Passed First Reading.

3/6/2014 S Referred to ENE3/CPN4, WAM5.

3 Senate Committee on Energy and Environment (2014) 4 Senate Committee on Commerce and Consumer Protection (2014)

5 Senate Committee on Ways and Means (2014)

Governor David Ige

December 14, 2014

Page 8 of 9

12/3/2014 / PRNewswire: “NextEra Energy, Inc. (NYSE: NEE) and

Hawaiian Electric Industries, Inc. (NYSE: HE) (HEI) today announced

a definitive agreement under which the companies have agreed to combine.

The transaction, which is valued at approximately $4.3 billion, includes the

assumption of $1.7 billion in HEI debt and excludes HEI's banking subsidiary.

In connection with the agreement, HEI separately today announced a plan to

spin off ASB Hawaii, the parent company of American Savings Bank (ASB), to

HEI shareholders and establish it as an independent publicly traded company.

The American Savings Bank spinoff is expected to be tax-free to HEI

shareholders and to be completed immediately prior to and contingent upon

the combination of NextEra Energy with HEI.” [Emphasis Supplied]

Clearly apparent and evident is a purposeful and intentional maneuvering

by HECO to disrupt and to delay any investigation into its business practices,

particularly and specifically, a Legislative Task Force investigation initiated

pursuant to timely passage of H.B. 1999 HD 3.

The transparency of the HECO – NextEra Energy “combination” is not

totally and completely revealed. A full and thorough investigation is mandated.

Thank you very much.

Respectfully submitted,

Electronically Signed

Clifton M. Hasegawa

President and CEO

Clifton M. Hasegawa & Associates, LLC

Enclosure: Testimony on H.B. 1999

Governor David Ige

December 14, 2014

Page 9 of 9

Copies provided to:

United States Senator Maize Hirono

United States Senator Brian Schatz

United States Congresswoman Tulsi Gabbard

United States Congressman Mark Takai

Lieutenant Governor Shan Tsutsui

Senate President Donna Mercado Kim

House Speaker Joseph Souki

Members of the Hawaii State Senate

Members of the Hawaii House of Representatives

Mayor Kirk Caldwell, City & County of Honolulu

Mayor Alan Arakawa, County of Maui

Mayor Billy Kenoi, County of Hawaii

Mayor Bernard Carvalho, County of Kauai

ENCLOSURE

TESTIMONY ON HOUSE BILL NO. 1999

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

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.

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.

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. 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-says-

kahuku-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-on-nine-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-farm-still.html

“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-begins- work-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)].

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.corporate-

ir.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