 We're back, we're live at 12 o'clock rock on a given Monday. This is a big day for me, no Marco and me, it's a big day for energy. This is a moment of history, it's energy history being made even as we speak. Some people like the decision of the PUC, others do not like it at all. One of the national news organizations found over the weekend that Hawaii was the 49th state in terms of being friendly to business, 49. And what happened with next era energy Hawaii is a part of that somehow. So we have lots to go before we sleep. Meena Marco and me, we're gonna discuss what happened here and what it means. Welcome to the show you guys, Meena Marco, welcome to the show. Well thank you very much Jay and as Dorothy said when she arrived in Munchkin land, I have a feeling we're not in Kansas anymore, Toto. Whether we're over the rainbow or not yet, Jay and Meena remains to be seen, but we're sure it's not in Kansas anymore. Well as one person said when I told him that we're 49 out of 50, he said, well we still have one we're better than, whoever that is. What were you gonna say Meena? No, I just wanted to thank you guys for including me and having me back after a long hiatus. You're part of our show, you're part of the title of our show Meena. We miss you, we miss you very much Meena, it's great to have you back. So let's talk first about the appointment of Tom Gorak. What happened there? I mean the newspaper made me very nervous about the process that was employed at the PUC for that appointment. Well I'm going to be really careful here because I am the plaintiff. And I just want to say that the position speaks for itself. That I am concerned about the process. And even though the merger decision is out, I think that this is a legal question that needs to be resolved by the court. And we're having a special teacher appointment as well as with this current one. You're referring to the lawsuit that you filed immediately after the court ruled on Friday, rather the PUC ruled on Friday to the effect that that merger would be rejected. So that's the lawsuit we're talking about. And that lawsuit, you are questioning whether Gorak's appointment is appropriate and valid. And I guess you're asking, what court are you asking for a ruling? It goes to the first circuit court and so I believe the death of the plaintiff is Brad Moschino. Okay, so what's the next step that's going to happen in that case? So this is in part a petition that goes through the court to ask Gorak the question on what legal authority he has to take that office. Okay. So Gorak, as a respondent, has to answer to the court what gives him the legal right to take that office. I take it that this is about the phrase in the statute that says he has to be appointed and qualified before he can replace the previous commissioner. Right. The question here is whether a vacancy was created. And the short answer is I don't believe our vacancy has been created because the statute is clear that the commissioner, the sitting commissioner whose term ended, sits as a holdover until the successor is appointed and qualified. The governor is arguing that the constitution gives him the right to appoint when a vacancy is created. And I agree with that. When a vacancy is created, the governor does have a right to appoint. But given the appointment process and an earlier section in the constitution, it looks like the gasses of the constitution sort of anticipated this, you know, a member's term ending and addressed that by saying that the incumbent member sits until the successor is appointed and qualified to avoid a vacancy. Who's your lawyer, Mina? Oh, so my attorney is Mark Bennett, the former attorney general. I did see that. That's why he used to be the attorney general of the state under Lindell Dingell for two terms. He has plenty of experience in state attorney general issues. Marco, what do you think? What do you think about this? Well, I'm not qualified to get into the legal parts of it, Jay, not being an attorney. I mean, just one of these things that you've got different attorneys that apparently are saying different things with the state attorney general, Douglas Chin, who rendered his opinion to the governor, who said that David E. Gay was within his rights to do what he did in terms of replacing Mike Champley with Tom Gorak from a more kind of practical perspective. I hope that there is some type of resolution to Mina's suit sooner rather than later, because one of the things I fear is that if this takes a while to get a court to issue some type of opinion or decision that kind of freezes the commission to some extent or puts the cloud of illegitimacy on commission votes or commission's decisions that Tom Gorak were to be a part of. And as pretty much everyone agrees, I mean, yes, the next year, HCI attempted acquisition is now in the history books. That was the big docket, which was taken up so much of the oxygen in the room for so long, but there's a lot of other really important stuff out there. In terms of open dockets before the Public Utilities Commission that we really very much need guidance and answers from them sooner rather than later. So the possibility of having one or more of these possible decisions coming from the commission that somehow would be delegitimized by the cloud that's over Gorak's appointment is of a concern to me. It strikes me that the governor moved very quickly on this. He could have let Champley stay, but I think although they all deny it, I think there had to be some consideration of how Champley would have voted had he been able to vote. And that's a very interesting question because arguably, and I say arguably because at the end Gorak did not, apparently he abstained, he did not actually vote on the decision. But what strikes me is this is an unusual appointment also in the sense that you have counsel for the PUC who arguably was there, arguably saw at least some of the proceedings, arguably saw the paper and that deals with the concern that this is a guy who hadn't been around and you're relieving a guy who has been around and listened to all of the testimony and the evidence and replacing him with someone who doesn't. On the other hand, he was there, Gorak was there. What I would throw into the hopper on this though is that Gorak was not there as commissioner. He might have been there as counsel, he might have been there as a staffer, but he was not there as a commissioner and it's different. If you've ever been in a position of judicial, judicial authority as Mina has, you know that when the mantle is on you, you think a certain way, you listen to the evidence a certain way, you incorporate the whole process into your very being so you can make the right decision. And counsel or a staffer simply doesn't occupy that special fiduciary kind of role. So it doesn't really answer the question of, you know, was he there or not there? Is he qualified to rule on something simply because he was counsel? And that's just a factual matter. I don't know if that has any legal moment, but it strikes me that that doesn't really answer the problem. And so what we have is decision ultimately, which was a, was it an abstention? So you had both Randy Iwasi, the chair, and the other commissioner, Lorraine Iquiba, voting against the merger. That was interesting because the press had indicated that if Champley remained, he would swing Iquiba and they would vote against Iwasi and they would, they would have accepted the merger. So some really strange stuff happened at the PUC around the nomination of this third commissioner. Don't you think any reaction to that? Mina, you want to take a, take a shot at that? Yeah, I mean, you just, you know, if Champley was still there, you have to wonder what the order would look like, you know, what would be Iquiba's position at that time. Yeah, at this point, it's really hard to speculate what would have come out. Yeah, Marco? Well, I mean, I agree with you, Jay. There was a tremendous amount of bloviating and hyperventilation about, about, you know, reading the tea leaves and who was going to vote in which direction and where Mike was reigning before he left or before he departed from his office essentially on the 30th of June. But to what degree there was any fire behind that smoke that we were seeing or that we were thinking that we were seeing, you know, I really, I really don't know. I was, I was surprised about the decision in terms of, as I was kind of gaming out the possibilities, I would not have, I was not predicting two to zero with Gorak abstaining. So just when you think you've, you've thought about all the reasonable possibilities to anticipate and lo and behold, as human nature, you find something that whaps you between the eyes and, oh, I didn't even think of that. How, how interesting is that? But I'll, you know, substantively, I'll just add briefly, and I've read through the, the decision in order, which goes on to 200 plus pages on including appendices. And what's really kind of striking to me is they cited a lot of kind of specific data points. But what I found most most interesting was the overall kind of subjective standard that the commission cited here, and I'll just read briefly one sentence here. The commission finds and concludes that applicants have not sufficiently demonstrated by a preponderance of the evidence that the change of control would be, and here are the operative words, would be reasonable and in the public interest, reasonable and in the public interest. So, I mean, inherently, I think, reasonable and public interest is subject to a fair amount of subjectivity. So they tried to be, I mean, there's a lot of meat in that, in that, you know, the decision order as well. But I think where they really kind of caught my eye was reasonable and the public interest and what that means for the future, as far as this commission, the future commission is applying that type of criteria to other deals of this type of nature one day, as they, as I'm sure they're going to be. Yeah, I mean, I don't know what reasonable means. Reasonable is a hard word legally. And I didn't know that reasonable was the test here. I thought it was in the public interest. But reasonable, it's hard to take that up on appeal. No, but the, you know, the reason of all this has to be, has to fit within the typical standards and precedents that are used. And, you know, those standards are still unable to do no harm. You know, so, so I think, you know, there's a lot of logic within this order. And I, it's really hard for me to call this a decision. A decision would have been a straight up or down, I mean, an up or down boat based on the narrative of the application. You know, it wouldn't have strong findings of facts either way. You know, what you have is just a pain or dismissal and come back. And you see when you use a dismissal, it means that the application is flawed or incomplete or, but, you know, I mean, is it, do you think the order is flawed? What's that? You think the order is flawed? Well, I think, I mean, I see it as a way around without giving a decision. You know, if they helped make stairs to a high standard, that high standard would have set a precedent that's been applicable to all other changing control applications, you know, electricity, the water utility, any change of control application. So I think to get around this, they dismiss the application, but there's no precedent involved. No precedent, but I mean, really, could this be appealed? I mean, is the term reasonable supported or not? Is the term reasonable the right standard? I know about best interests of the public, but reasonable, that's a hard one to appeal from if you give the commissioners any discretion at all. So it sounds like to me, just off the side, it sounds like to me, is whatever they decided is very subjective, as Marco says. It's totally subjective, reasonable, and it's really not capable of an appeal. Yeah, I mean, the thing is, you know, again, to take stuff up to a cure, you know, there has to be a, they usually defer to the administrative agency, you know, there has to be some kind of procedural flaw to really get their foot in the door. Yeah, yeah. Well, so I wake up this morning, and lo and behold, now there's an article to the effect that XTERRA and Hawaiian Electric have terminated their negotiations, that they treat this, and it's driven by their own words by this decision. And they have separated from their, you know, their respective roles. They are terminating negotiations, whatnot. And his department surprised me, and that XTERRA was paying Hawaiian Electric $95 million. I thought this would not apply at this point in the game, because there was a quasi-judicial rejection. But I guess they were still obligated to pay that much. Do you anything about it, Marco? Well, I think, I mean, I've read the merger agreement, Jay, and it's the type of merger agreement that I think you have to be a lawyer making $500, $600, $700 an hour to figure it out. It's really, really thick. But regarding the termination fee, I think it's, from my very layman's perspective, I think it is unambiguous that if XTERRA is and was and now is unsuccessful and essentially closing the deal in terms of getting regulatory approval that they are on the hook for $90 million termination fee plus the max $5 million in expenses, which I got to believe HCI hit quite a while ago. So I think, again, from my limited understanding of the law, that it is clear that they did not meet their hurdle of closing the deal, getting a regulatory approval. And as I'm reading Jim Robo's words, Chairman of XTERRA, we have terminated our merger agreement. So it seems to me unambiguous. And under the terms of the merger agreement XTERRA will pay Hawaiian Electric Industries a $90 million breakup fee and up to $5 million for reimbursement of expenses associated with the transaction. So they're not playing hardball. They're not pushing back. They're saying, we're done. Here's the check. Adios. Best of luck. Yeah, that's what they're saying. That's for sure. And I think that's the civilized way to go. I mean, I think they've been very civilized about this, but I don't think they've been treated very well. In any event, Meena, what do you think about that? What do you think about this termination fee and departure decision to terminate the deal and close it down right now, one day after the decision was announced? Well, I think, you know, you have to look at the landscape. It's a perverse political and regulatory environment. Do you think perverse? Perverse, yes. Perverse, okay. Yeah. And there's no win-win situation. Yeah. How long can we drag this out? Well, I don't think they could have been optimistic about the future. I think they were probably fairly optimistic at the outset 18 months ago, but as time wore on and all those things happened to them, and in my view, they were mistreated in so many ways, I think they became less optimistic. And at this point, sort of like Superfairy, when the Supreme Court said, no, you can't operate without an EIS, they said, okay, and you can't operate. You must stop. They said, okay, we're stopping. We're out of here. Goodbye. We're terminating operations and we're closing the company. And it's the same thing here. I don't think they have any confidence that they could do any better if they took further action to try to get approval. It's over. I mean, who would want a recent application in this kind of environment? I mean, there's no certainty about it. There's a lot of discussion and no certainty. Yeah, hostile. And that's why I think Hawaii is considered 49 out of 50. Well, and then, I mean, just to state or to repeat something really important, which is they would be required to get yet again a 75% or more percent shareholder approval, which was kind of a squeaker vote last year in terms of this very lucrative deal. I mean, I don't think anybody can argue that $4.3 billion that it was a low ball purchase price if the deal had gone through. And that just barely made it over the 75% shareholder approval bar. So that's the heavy lift in general. And that's something that's huge, I think, from the perspective of any Huey or other group, whether they're local, whether they're in California or New York or wherever they happen to be, in terms of getting over that bar. Anybody look at how the stocks are doing next era and Hawaiian Electric? Yeah, in fact, it's... Go ahead, Mina. Yeah, I mean, you know, it closed today at $30.10. So since July 1st, what I calculated is, June 29th to 4 o'clock today, when the stock market closed, the estimated local value destruction is about $120 million. Yeah, wow. Well, I mean, that's just for the shares in Hawaii. Yeah. Well, I recall hearing that 75% of the... Is it... Am I right about this 75% of the shares are held by Hawaii residents? No, it's the other way around. 25% are held by Hawaii residents and 75% by people offshore. And whoever might have made money because of the $4.3 billion buyout has lost that possibility. I mean, I suppose you could have sold your share before this happened. And, you know, you would have avoided the loss. But now, I think people who hold the shares are going to lose some money. Well, if you look back to right before the announcement in the end of... I'm just looking at the stock table right now. Let's say December or November 20th, November 28th, 2014. So it's about a week before the announcement of the acquisition. You can see the bump in the stock chart. $28.19, $28.19 before the announcement of the change of control. So there's still... Of course, we don't know what it's going to be tomorrow, but the HEI stock is still in a relatively safe zone and it certainly hasn't cratered like I think a number of analysts think thought it would once next year decided to go home. Any effect on next era? No, I'm kidding. Maybe this is just too small a deal for them. But what people should be aware of is the people's credit rating. And that right now, there's triple B minus when not above non-investment grade with a mutual outlook and now with the unstable regulatory environment, unfriendly business climate, without a strong financial partner, there's very little Christian or safety net for them. All this is also high across the capital. Which means higher rates for consumers? Exactly. And what you don't have right now is the offset. When we note that significant investment needs to be made, with the merger application, they were proposing great credit to help offset bills for new investments. You know, not that offset is gone. So for now, you're looking at higher interest rates for access to capital, plus oil prices going up, you know. So race could go up, will go up. So what about another suitor? What about another buyer? I mean, isn't this a good opportunity for somebody come in and make another proposal and go down the same track, hopefully do better with the PUC and the public? Okay, in your right mind, I mean, how would any credible company come in, look at the situation in Hawaii, and think it would be a good idea. I mean, next down was ranked 183 out of Fortune 500. It was the top performing utility in the nation this year. It's the premier renewable energy developer. Yeah, it's hard to believe anybody else is going to come around after what happened. And it's hard to believe anybody credible will come around. Yeah. Yeah. And then, you know, in the star advertiser, in the star advertiser, you know, talked about the 21st century utility that was interested. You could do the background stuff on those guys. It's a startup. It has no history. It was started up in 2015. Yeah, that's not going to work. Marco, do you have something on this? Marco? I'm just going to say the other side of the equation is not just having an eager buyer, a credible buyer, but also a willingness on the part of the HEI company, the HEI board, the eco companies to start this process all over again. I mean, I think it doesn't take someone with a PhD in psychology to observe that there's most likely quite a bit of merger fatigue in that company after the past 20-some odd months. So to what extent they're going to be ready and willing to jump back on a merry-go-round with a credible willing seller, I think is a question. Yeah. Well, and yeah, and then Wall Street, I mean, this is another example of Hawaii rejecting foreign investment, offshore investment. And I don't think we fare very well in the eyes of Wall Street. So it's not just this deal. It's not just utilities or energy. It's offshore investment. That's why we're late. That's why we rated 49 out of 50 for being business-friendly. So what about the implications here? I recall that Hawaiian Electric was going to take the, a good part, most of the 95 million and was going to apply that to developing the grid. Furthermore, it found 125 million on top that, which was going to apply to developing the grid. What's all that about? How is this going to how is it going to play out with Hawaiian Electric going forward? Marco? Oh, sorry. I think it will remain to be seen. I mean, it's going to be whatever they'll net will be after taxes, of course. There'll probably be somewhere on them. I guess somewhere in the 60 million range. And I'm sure there will be plenty of discussions there at the company in terms of where to spend the money. And there will be plenty of cries from the peanut gallery, various peanut galleries in terms of it should go here. It should go there. Don't you dare spend it on executive compensation, all sorts of other populist red meat stuff. But I mean, 60 million is a lot of money to the common folks, certainly is to me. But as far as being able to do something dramatic with the eco infrastructure, that's not going to happen. So I would hope that there's going to be a careful discussion as to where they can get the most bang for these not not so much freebie bucks, but certainly something of a windfall. So I hope they spend it wisely and I think they will. Mina, isn't there a fair chance we're going to go back to what was happening before the deal began? That is everybody criticizing Hawaiian Electric about everything. Oh, sure. There are easy big targets to pick. And, you know, there is a real lack of understanding of, you know, the role of the public utility. And, you know, right now, the special interest group, you know, present company exclusive, you know, really trying to promote rooftop solar as the solution. But, you know, that's just one part of the total equation. And, you know, this is what is troubling that you can't take a linear approach here. And you have to have a capable, viable, technical savvy utility leading the charge right now. Yeah, we have to empower them again. We have to turn our attention to them and help them. I think the Civil Beat article, most of you guys must have seen it. This is actually a series of articles to describe their history and their relationship. I always thought, you know, Hawaiian Electric is Hawaii's, you know, utility. It's Hawaii's electric company. And we ought to treat it with some reverence in that regard. But, you know, Marco, you know, you were an intervener for all these 18 months. You saw a lot of things happen. And you created the backdrop of the possibility of a co-op on Hawaii Island. How does this affect your effort to build that co-op? Well, I mean, this is a day that we've been waiting for in the sense of we've been neither for nor against the merger. But now that the reality is that it's not going to move forward. We will continue to do what we've done in the past. We've had very cordial and friendly communications with the folks at Hawaiian Electric. And that will continue. You know, one thing I suppose is good is we all talked about, let's get through this already, because, you know, it was such a cloud on the initiative. And now it's done. Better or worse, some people think better. Some people think worse. It's done and we move on. But, Meena, let me ask you, you know, how has this changed the environment? How has it changed the evolution of energy, clean energy in Hawaii? How has it changed the initiative? And what will happen going forward? Well, I think, you know, you know, it will make it harder to achieve our goals, because what is missing is the rapid change that could have happened in the HECO organization to be more responsive, analytical within the organization to deal with these fast changes, quick and brief changes. So, you could have taken a model from elsewhere and helped with the organization, needed organization changes within HECO dealing with properties. So, that's removed from the table. And so I think it will take us, as Alan or Sheema has always said, we can get there. It's going to be a slower process. You know, they saw the merger as expediting it. You know, as we talked about earlier, you know, it's going to be a more expensive proposition. You know, with higher cost. So we may not be able to do everything we want as quickly as possible. Well, thank you, Mina. Thank you, Marco. We're out of time. We, what we need to cover, we need to cover this again soon. And I'll try to schedule something with you guys again in the near future. We've only just seen these events take place. This is history in the making today, Monday, the 18th. And we need to look at it more carefully. We need to look at the reaction all around town to see what happens. It's unfolding as we speak. Thank you so much, Mina Morita, former chair of the PUC and Marco Mangelsdorf of Provision Solar in Hilo. It's great to get your take on all these things. We'll be back with another show shortly. That's Mina, Marco and me. We're talking about moments of history, the energy industry, energy history being made today. Aloha.