In re The Application Of The Gas Company, LLC dba Hawaii Gas For Approval Of Rate Increases And Revised Rate Schedules And Rules. ( 2020 )

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Electronically Filed
Supreme Court
SCOT-XX-XXXXXXX
09-JUN-2020
08:43 AM
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---oOo---
________________________________________________________________
IN THE MATTER OF THE APPLICATION OF THE GAS COMPANY, LLC
dba HAWAII GAS FOR APPROVAL OF RATE INCREASES AND
REVISED RATE SCHEDULES AND RULES
________________________________________________________________
APPEAL FROM THE PUBLIC UTILITIES COMMISSION
(Agency Appeal)
SCOT-XX-XXXXXXX
JUNE 9, 2020
RECKTENWALD, C.J., NAKAYAMA, McKENNA, AND POLLACK, JJ.1
OPINION OF THE COURT BY McKENNA, J.
I. Introduction
In this appeal, Life of the Land and Hui Aloha ʻĀina o Ka
Lei Maile Aliʻi (“LOL” and “KLM,” respectively, or sometimes
1 Pursuant to Hawaiʻi Revised Statutes (“HRS”) § 602-10 (2016), titled
“Full court; oral argument; substitute justices,” the parties before this
court “shall be entitled to consideration by a full court.” Further, under
that statute, “Oral argument shall be before a full court. . . .” “After
oral argument of a case,” however, “if a vacancy arises or if for any other
reason a justice is unable to continue on the case, the case may be decided
or disposed of upon the concurrence of any three members of the court without
filling the vacancy or the place of such justice.” The full court
(consisting of Chief Justice Recktenwald and Justices Nakayama, McKenna,
Pollack, and Wilson) heard oral argument on this case on January 23, 2020.
After oral argument, Justice Wilson recused himself. Therefore, this case is
hereby decided by Chief Justice Recktenwald and Justices Nakayama, McKenna,
and Pollack.
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collectively “Appellants”) challenge whether the Public
Utilities Commission (“PUC”) fulfilled its statutory and
constitutional obligations in reviewing an application for a
rate increase submitted by Hawaiʻi Gas (“HG”). HG sought to pass
on to its customers the costs of its two recently established
liquid natural gas (“LNG”) projects. HG began importing LNG
from the mainland to lessen its reliance on synthetic natural
gas (“SNG”) manufactured in Hawaiʻi. LNG displaces a portion of
SNG in HG’s operations.
Concerned about LNG’s effects on climate change, as well as
climate change’s impact upon native Hawaiians, LOL and KLM moved
to intervene in HG’s rate case. The PUC denied them intervenor
status but allowed them to participate in the proceedings on a
limited basis. Specifically, LOL and KLM were allowed to
address only “whether the [PUC] should disallow as unreasonable
[HG’s] LNG costs due to the effects of [HG’s] use of imported
LNG on the State’s reliance on fossil fuels2 and greenhouse gas
emissions” (“GHG emissions”)3. The PUC expressly considered the
2 Under HRS § 243-3.5 (2017), “fossil fuel” is defined as “a hydrocarbon
deposit, such as coal, natural gas, or liquefied natural gas, derived from
the accumulated remains of ancient plants or animals and used for fuel;
provided that the term specifically does not include petroleum product.”
3 The regulations implementing HRS Chapter 342B (2010) (titled “Air
Pollution Control”), contain the following definition of “Greenhouse gases”:
“the air pollutant defined as the aggregate group of six greenhouse gases:
carbon dioxide, nitrous oxide, methane, hydrofluorocarbons,
perflu[o]rocarbons, and sulfur hexafluoride.” Hawai̒i Administrative Rules
(“HAR”) § 11-60.1-1 (2014).
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following issue to be “outside the scope of this rate
proceeding”: “The participants’ asserted interest in a clean
and healthful environment beyond the State’s borders, given the
Hawaii Constitution’s limited application and scope to a clean
and healthful environment within the State’s borders.”
Ultimately, the PUC approved HG’s rate increase in Decision
and Order No. 35969. It adopted HG’s representation that the
two LNG projects would decrease GHG emissions in-state. LOL and
KLM appeal, raising statutory and constitutional challenges to
the PUC’s Decision and Order. HG continues to challenge whether
LOL and KLM have standing to bring this appeal.4
In summary, the issues raised in this appeal, and this
court’s resolution of each issue, as appropriate, are as
follows:
A. Which standing test applies in this appeal, and
whether the Appellants have standing under the applicable
test.
Resolution: The two-part test for standing
applies, in which the Appellants must show that
they are “persons aggrieved” who “participated”
in the contested case. Appellants meet this
test, because they demonstrated their members’
right to a clean and healthful environment was
specially, personally and adversely affected by
the PUC’s Decision and Order, and they were
participants in HG’s contested case.
4 HG had raised standing in an earlier motion to dismiss. This court
denied the motion to dismiss without prejudice to re-visiting the issue upon
consideration of the merits of the appeal.
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B. Whether the PUC fulfilled its obligations under HRS
§ 269-6(b) (2007 & Supp. 2011), which provides the
following:
The public utilities commission shall
consider the need to reduce the State’s
reliance on fossil fuels through energy
efficiency and increased renewable energy
generation in exercising its authority
and duties under this chapter. In making
determinations of the reasonableness of
the costs of utility system capital
improvements and operations, the
commission shall explicitly consider,
quantitatively or qualitatively, the
effect of the State’s reliance on fossil
fuels on price volatility, export of
funds for fuel imports, fuel supply
reliability risk, and greenhouse gas
emissions. The commission may determine
that short-term costs or direct costs
that are higher than alternatives relying
more heavily on fossil fuels are
reasonable, considering the impacts
resulting from the use of fossil fuels.
Resolution: The PUC did not fulfill its
obligations under HRS § 269-6(b) because its
Decision and Order simply reiterated HG’s
representations that its LNG projects would
decrease GHG emissions. Further, the PUC’s
geographic limitation demonstrated that the PUC
did not intend to consider GHG emissions from
production, development, and transportation of
LNG occurring outside of the state. Without
that information, however, the PUC could not
have explicitly considered the hidden and long-
term costs of the state’s reliance on fossil
fuels.
C. Whether the PUC violated the Appellants’ due process
rights by not affording the Appellants a meaningful
opportunity to be heard concerning GHG emissions.
Resolution: The PUC violated the Appellants’
due process rights because the substantive
limitations on their participation in this rate
case rendered meaningless any opportunity to be
heard on the GHG emissions issue.
D. Whether the PUC abused its discretion in developing a
policy on measuring GHG emissions through adjudication
rather than rule-making.
Resolution: The PUC did not abuse its
discretion in proceeding through adjudication
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in this case. The PUC did not attempt to
bypass a rule, amended rule, or pending rule
concerning how it should measure GHG emissions.
Further, Appellants were not unduly burdened in
this rate case proceeding.
E. Whether the PUC fulfilled its affirmative
constitutional obligation to protect native Hawaiian
traditional and customary practices.
Because the PUC improperly curtailed
Appellants’ substantive participation, the
record is not sufficiently developed for us to
address this issue. On remand, the PUC should
consider its constitutional obligations.
F. Whether the PUC fulfilled its affirmative
constitutional obligation as trustee over natural resources
within the State’s public trust.
Again, because the PUC improperly curtailed
Appellants’ substantive participation, the
record is not sufficiently developed for us to
address this issue. On remand, the PUC should
consider its constitutional obligations.
II. Background
A. HG’s rate case application
In August 2017, HG filed an application with the PUC for
approval to increase its existing gas utility rates and to
revise certain rate schedules and rate rules. This “rate case”
was brought pursuant to HRS § 269-16 (2007 & Supp. 2014), titled
“Regulation of utility rates; ratemaking procedures.” Under
that statute, “All rates, fares, charges, classifications,
schedules, rules, and practices made, charged, or observed by
any public utility . . . shall be just and reasonable and shall
be filed with the [PUC].” HRS § 269-16(a) (2007 & Supp. 2014).
HG explained that it needed a total revenue increase of $14.962
million, “or 14.58% increase over revenue at present rates, in
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order for HG to have the opportunity to recover its reasonably
incurred expenses and earn its requested rate of return of 7.51%
on its prudently incurred investments in utility property” since
its last rate case in 2009.
Relevant to this appeal, HG sought to include the costs of
two new LNG projects in its rate base: the SNG Backup
Enhancement Project and the 30% SNG Conversion Project. HG
explained that there is “no indigenous natural gas in Hawaii or
access to natural gas distribution pipelines, which means that
gas must either be synthetically manufactured or imported.” HG
stated that it manufactures its own SNG through a catalytic
conversion process “utilizing a by-product of the oil refining
process known as naphtha (i.e., SNG Feedstock).” HG depends
upon Par Hawaii Refining, LLC to supply it with SNG Feedstock.
HG explained that this imported oil product subjects gas rates
to “meaningful price volatility.” Therefore, HG had secured PUC
approval to import LNG as a way to “diversify its fuel supply to
reduce its dependence on oil-based feedstock and local refinery
infrastructure.”
The first of the two new LNG projects was the SNG Backup
Enhancement Project. It involved the purchase of close to one
million dollars in equipment, including three LNG ISO
containers, a trailer chassis, a trailer-mounted mobile re-
gasifier, and certain improvements to Pier 38, the location of
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the backup system. In 2014, the PUC issued an order that, inter
alia, did not preclude HG from including these costs in its next
rate case (PUC Docket No. 2013-0184).
The second of the two new LNG projects was the 30% SNG
Conversion Project, which uses imported LNG to displace 30% of
HG’s SNG production. The PUC previously approved the project in
2016 (PUC Docket No. 2014-0315). HG estimated the project cost
to be $13.9 million for ISO containers, LNG regasification and
injection equipment, relocation of a plant maintenance building,
and the ISO container site.
B. PUC Order No. 35112 setting the rate case issues
On December 18, 2017, via Order No. 35112, the PUC
identified the issues raised by HG in its Application. All of
the issues pertained to the economic reasonableness of the rate
increase. The only other party to this proceeding was the
Consumer Advocate, an ex officio party pursuant to HRS § 269-51
(2007 & Supp. 2014) (“The executive director of the division of
consumer advocacy shall be the consumer advocate in hearings
before the public utilities commission. The consumer advocate
shall represent, protect, and advance the interests of all
consumers . . . of utility services. . . . The consumer advocate
shall have full rights to participate as a party in interest in
all proceedings before the public utilities commissions.”). See
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also HAR § 6-61-62(a) (1992) (“The consumer advocate is, ex
officio, a party to any proceeding before the commission.”).
C. This court’s MECO opinion
Four days before the PUC set its procedural schedule in
Order No. 35112, this court issued its opinion in In re
Application of Maui Elec. Co., 141 Hawaiʻi 249, 408 P.3d 1 (2017)
(“MECO”). In MECO, we held that there is a “protectable
property interest” in the “right to a clean and healthful
environment guaranteed by article XI, section 9 and defined by
HRS Chapter 269,” which governs the PUC. 141 Hawaiʻi at 253,
271, 408 P.3d at 5, 23. We also examined the legislative
history of HRS § 269-6(b), as amended in 2011, which revealed
the legislature’s intent “to require the [PUC] to consider the
hidden and long-term costs of reliance on fossil fuels, which
subjects the State and its residents to ‘increased air
pollution’ and ‘potentially harmful climate change due to the
release of harmful greenhouse gases.’” 141 Hawaiʻi at 263, 408
P.3d at 15. We further held that “HRS § 269-6(b)’s requirement
to reduce reliance on fossil fuels and to consider greenhouse
gas emissions applies to the fulfillment of all of the
Commission’s duties.” Id.
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D. Motions to intervene
Weeks after the MECO opinion was filed, in January 2018,
LOL and KLM5 each moved to intervene in this rate case. LOL
asserted it had an interest in the environment and in climate
change. KLM stated that it represented native Hawaiian
interests.
HG opposed both LOL’s and KLM’s motions to intervene. In
both filings, HG challenged whether LOL and KLM had standing,
arguing that neither met the traditional three-prong test for
standing ((1) injury in fact; (2) causation; and (3)
redressability)). Further, HG argued that the PUC had already
approved the “current importation of LNG, as a displacement to
[HG’s] existing oil-based naphtha fuel source,” in previous
dockets, Docket No. 2013-0184, the SNG Backup Enhancement
Project, and Docket No. 2014-0315, the 30% SNG Conversion
Project. HG noted LOL was granted participant status in the 30%
SNG Conversion Project and “had an opportunity to meaningfully
advocate its position” then. HG also argued that, if KLM wanted
to oppose the HG’s importation of LNG, it should have done
likewise. HG concluded its oppositions stating it was not
5 Another non-profit group, 350 Hawaiʻi, also moved to intervene. 350
Hawaiʻi is not a party to the instant appeal.
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opposed to having the PUC grant LOL and KLM participant status
in the proceedings.
E. PUC Order No. 35267 denying LOL’s and KLM’s motions to
intervene but granting LOL and KLM participant status
limited to sub-Issue No. 1h
In February 2018, the PUC denied the Appellants’ motions to
intervene; on its own motion, however, the PUC granted the
Appellants participant status in this rate case. In its Order
No. 35267, the PUC limited their participation to addressing
only the following issue, which the PUC added to the rate case
proceeding as “sub-Issue No. 1h”:
1. Whether HG’s proposed rate increase is reasonable,
including, but not limited to:
. . . .
h. With respect to [HG’s] purchase and use of
imported [LNG] as part of its gas utility operations,
HRS § 269-6(b)’s requirement that:
In making determinations of the reasonableness
of the costs of utility system capital
improvements and operations, the commission
shall explicitly consider, quantitatively or
qualitatively, the effect of the State’s
reliance on fossil fuels . . . and greenhouse
gas emissions. The commission may determine
that short-term costs or direct costs that are
higher than alternatives relying more heavily
on fossil fuels are reasonable, considering the
impacts resulting from the use of fossil fuels.
In effect, whether the commission should disallow as
unreasonable [HG’s] LNG costs due to the effects
of [HG’s] use of imported LNG on the State’s
reliance on fossil fuels and greenhouse gas
emissions.
The PUC restricted LOL and KLM’s input on the GHG emissions
issue as follows:
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Concomitantly, issues outside the scope of this rate
proceeding (Docket No. 2017-0105) include, but are not
necessarily limited to:
The participants’ asserted interest in a clean and
healthful environment beyond the State’s borders,
given the Hawaii Constitution’s limited application
and scope to a clean and healthful environment within
the State’s borders.
Evidence of a causal connection between greenhouse
gas emissions and climate change.
Instead, this commission, pursuant to HRS § 91-10(4)
(taking notice of judicially recognizable facts) and
HAR § 6-61-48 (official notice of matters as may be
judicially noticed by the courts of the State), takes
official notice of:
A. Act 32, part I, Session Laws of Hawaii
2017, by which the Legislature: (i) recognizes
that “[c]ountless scientific studies have
concluded that greenhouse gas emissions are a
leading contributing factor to global
warming[;]” and (ii) finds that climate change
is “real.”
B. HRS chapter 342B, part VI, Greenhouse Gas
Emissions, including HRS § 342B-71, which
states:
Statewide greenhouse emissions limit, adoption.
A statewide greenhouse gas emissions limit to
be achieved by 2020 is hereby established that
is equal to or below the level of the statewide
greenhouse gas emissions in 1990, as determined
by section 3 of Act 234, Session Laws of Hawaii
2007; provided that for the purposes of this
Act greenhouse gas emissions from airplanes
shall not be included.
HRS § 342B-71.
Whether [HG’s] importation, purchase, and use of LNG
should be banned or prohibited by federal or State
law or by the commission.
Whether fracking should be banned or prohibited by
federal or State law or by the commission.
Whether all new coal, oil, and gas projects,
including “climate intense” projects, should be
banned by federal or State law or by the commission.
The PUC rejected HG’s argument that LOL should be barred
“from asserting a HRS § 269-6(b) review under the specific
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circumstances of the subject proceeding” simply because LOL did
not participate in the SNG Backup Enhancement Project docket
before the PUC, and participated on a limited basis in the 30%
SNG Conversion Project docket before the PUC. Likewise, the PUC
stated that KLM was not similarly barred from asserting an HRS
§ 269-6(b) review in this case simply because KLM did not move
to intervene or otherwise participate in the two prior LNG
dockets. The PUC explained that it read MECO’s standing
requirement as “appl[ying] to whether an entity has the
requisite standing to appeal,” not whether an entity has “met
its burden of proving that it is entitled to intervene or
participate in a [PUC] proceeding, pursuant to the applicable
provisions of HAR §§ 6-61-55 and 6-61-56.”
F. LOL’s notice and the PUC Order No. 35346 addressing that
notice
On March 5, 2018, LOL filed a “Notice” with the PUC,
challenging Order No. 35627’s “exclusion of the entire section
of Act 234 [of the 2007 Legislative Session] regarding the
global nature of emissions.” Act 234 established a “Greenhouse
gas emissions reduction task force” and directed it to create a
“work plan” that “shall include but is not limited to the
following objectives: . . . . Recommendations to minimize
‘leakage’ or a reduction in emissions of greenhouse gases within
the State that is offset by an increase in emissions of
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greenhouse gases outside the State. . . .” Act 234, 2007 Haw.
Sess. Laws, at 700. LOL stated that the PUC should have also
taken judicial notice of the global nature of emissions instead
of limiting sub-Issue No. 1h to the Participants’ interest in “a
clean and healthful environment within the State’s borders,” and
not “beyond the State’s borders.”
In Order No. 35346, dated March 16, 2018, the PUC addressed
LOL’s Notice. It reaffirmed its limitation in sub-Issue No. 1h
to a clean and healthful environment within, not beyond, the
State’s borders by citing to article XV, section 1 of the Hawaiʻi
State Constitution, which is titled “Boundaries” and provides
the following:
The State of Hawaii shall consist of all the islands,
together with their appurtenant reefs and territorial and
archipelagic waters, included in the Territory of Hawaii on
the date of enactment of the Admission Act, except the
atoll known as Palmyra Island, together with its
appurtenant reefs and territorial waters; but this State
shall not be deemed to include the Midway Islands, Johnston
Island, Sand Island (offshore from Johnston Island) or
Kingman Reef, together with their appurtenant reefs and
territorial waters.
The PUC also cited to section 2 of the Admission Act, which
similarly provides as follows:
The State of Hawaii shall consist of all the islands,
together with their appurtenant reefs and territorial
waters, included in the Territory of Hawaii on the date of
enactment of this Act, except the atoll known as Palmyra
Island, together with its appurtenant reefs and territorial
waters, but said State shall not be deemed to include the
Midway Islands, Johnston Island, Sand Island (offshore from
Johnston Island), or Kingman Reef, together with their
appurtenant reefs and territorial waters.
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G. Joint information requests and HG’s responses
In February 2018, LOL and KLM6 filed joint information
requests to HG seeking answers to 85 questions, the vast
majority of which HG refused to answer. Of importance to this
appeal, LOL and KLM asked HG the following question, labeled
JP-IR-49 (“information request 49”): “What [are] the cumulative
lifetime greenhouse gas emissions associated with each project
seeking rate recovery in this instant docket[?]” HG first
objected to the question as being “vague, ambiguous, irrelevant
and outside the scope of sub-Issue No. 1h.” HG ultimately
answered the question, however, and represented that the LNG
projects would result in decreased GHG emissions as follows:
Without waiving any right or objection thereto, HG states
as follows with respect to the LNG-related projects:
Currently for the 30% [SNG] Conversion Project, which
displaces quantities of SNG with LNG, greenhouse gas
emissions associated with the SNG Plant’s stationary
equipment fuel use (reported to the EPA under Subpart C)
would decrease due to the amount of SNG displaced with LNG.
In other words, greenhouse gas emissions associated with
SNG production would decrease because less SNG is produced.
Greenhouse gas emissions associated with LNG sold to HG
customers (reported to the EPA under Subpart NN) would be
nearly identical to displaced SNG because LNG is chemically
similar to the SNG produced at the SNG Plant. The life of
the 30% [SNG] Conversion Project has not been determined.
Currently for the [SNG] Backup Enhancement Project, a
similar displacement principle would be applicable.
However, because the amount of vaporized LNG injected into
the transmissions pipeline will vary according to the
number and length of SNG Plant shutdowns, the actual amount
is difficult to quantify. For every therm of vaporized LNG
6 Another organization, Hawaiʻi 350, was also included in the joint
filing, but it is not a party to the present appeal. See supra, note 5.
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injected into the pipeline to back up the SNG Plant, the
total amount of greenhouse gas emissions would decrease due
to the reduction in stationary equipment fuel necessary to
create the displaced SNG. The life of the [SNG] Backup
Enhancement Project has not been determined.
H. Joint participants’ testimony and exhibits
In March 2018, LOL and KLM jointly7 filed testimony and
exhibits. KLM highlighted the following impacts of climate
change on native Hawaiian cultural practices:
(1) storms and rising sea levels will destroy navigation
points for Hawaiian seafarers;
(2) “forced migration of Polynesian communities [will]
exacerbat[e] culture, identity, social welfare, and self-
determination efforts”;
(3) “rising temperature and ocean acidification [will]
alter[] marine species distribution, impacting lawaiʻa, and
their cultural knowledge and practices”;
(4) “Papahānaumokuākea Marine National Monument will lose
nesting [and pupping] sites for Hawaiian Monk Seal[s],
Green Turtle nesting areas and Laysan Finch habitat”;
(5) “coastal erosion and rapid sea level rise . . . [will]
threaten[] the cultural practice of burying ̒iwi kupuna
along Hawaiʻi’s shores, which prevents the ʻuhane from
joining the ʻaumakua, interrupting the delicate balance
between salt and fresh water in loko iʻa, flooding and loss
of burial grounds, home sites, fishponds, historic trails,
heiau, and petroglyphs, the loss of salt cultivation, beach
erosion, and contamination of crops and freshwater
resources”;
(6) “declining health of the forests, [including] ʻōhiʻa
lehua losses from Rapid ʻŌhiʻa Death, ʻāhinahina species on
Mauna Loa, Mauna Kea and Haleakalā under threat, avian
malaria infected mosquito populations moving up mountains
ruining [the] few remaining disease-free refuges for native
birds”; and
(7) “mountains are under attack[,] resulting in the loss of
the snow season on Mauna Kea, the loss of the home of
Poliʻahu.”
7 Another organization, Hawaiʻi 350, was also included in the joint
filing, but it is not a party to the present appeal. See supra, notes 5&6.
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KLM characterized climate change’s effect upon native Hawaiians
as “another overthrow.”
LOL’s written testimony focused on two kinds of accounting
methodologies by which GHG emissions can be measured. The first
is the “Production-Based GHGE Accounting System” (“PAS”), and
the second is the “Customer-Based GHGE Accounting System”
(“CAS”). LOL testified that the PAS method determines “the
greenhouse gas emissions at a power plant per BTU of power
generated,” while the CAS method determines “the embedded
greenhouse gas emissions per BTU of power generated.” In other
words, CAS takes into account greenhouse gases produced not
simply upon the use of fuel (as PAS does), but also greenhouse
gases produced upon making the fuel itself. LOL asserted HG’s
“fuel has large, hidden emissions which distort the value of
their fuel.” LOL stated that the PUC had yet to adopt any
particular accounting methodology for measuring GHG emissions.
It urged the PUC to adopt the CAS methodology. LOL also
asserted that the “participants would expect that they would
have due process rights to review any other proposed system
before its adoption.”
I. Briefing on sub-Issue No. 1h
In June 2018, HG and the Consumer Advocate settled on a
reasonable rate increase; therefore, the evidentiary hearing
scheduled for that month was waived by the parties and
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participants. In lieu of an evidentiary hearing on the
remaining sub-Issue No. 1h, HG and the participants agreed to
file opening and reply briefs.8
In its opening brief, HG argued that the PUC should not
disallow, as unreasonable, HG’s LNG costs “due to the effects of
HG’s use of imported LNG on the State’s reliance on fossil fuels
and greenhouse gas emissions,” because (1) the PUC “ha[d]
already determined that HG’s expenditures for LNG [we]re prudent
and in the public interest in Docket Nos. 2014-0315 [30% SNG
Conversion Project] and 2013-0184 [SNG Backup Enhancement
Project]”; (2) HG’s response to information request 49 was that
its LNG projects would decrease GHG emissions; and (3) LOL and
KLM did not introduce any contrary evidence and, instead,
offered only generalized statements regarding broad policy
issues. In their joint reply brief, LOL and KLM counter-argued
that HG “presented no data on life cycle emissions to
substantiate [the] claim” that its two LNG projects would
decrease GHG emissions, as it asserted in its response to
information request 49.
In their joint opening brief, LOL and KLM cited MECO, 141
Hawaiʻi 249, 408 P.3d 1, to hold the PUC to its statutory
obligation under HRS § 269-6(b) to consider the “hidden and long
8 The Consumer Advocate, while a party, did not take a position on sub-
Issue No. 1h.
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term costs” of HG’s LNG projects. To that end, they called on
the PUC to adopt the CAS methodology for measuring “life cycle”
GHG emissions. They noted, for example, that LNG fracked9 out-
of-state releases methane, which is “34 times stronger than
[carbon dioxide] in trapping heat over a 100-year period and 86
times stronger over 20 years.” LOL and KLM also urged the PUC
to fulfill its obligations under Hawaiʻi state constitutional
provisions protecting (1) Hawaiʻi’s natural resources, which are
held in public trust, (2) the right to a clean and healthful
environment, and (3) native Hawaiian traditional and customary
rights. LOL and KLM accused HG of recklessly expanding LNG use
in Hawaiʻi without providing clear information about its GHG
emissions. In its reply brief, HG pointed out that it did not
seek to expand the use of LNG; rather, the LNG projects had
already been approved, and HG sought only to include those
projects in its rate base.
J. PUC Decision and Order No. 35969
On December 21, 2018, the PUC handed down its Decision and
Order No. 35969. It approved HG and the Consumer Advocate’s
stipulation upon settlement, granting HG an increase of
$8,896,152, or approximately 8.39% over revenues at present
rates . . . .” The PUC specifically found that both the 30% SNG
9 The record does not indicate where or how HG’s imported LNG is sourced.
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Conversion Project and the SNG Backup Enhancement Project were
“used and useful for public utilities purposes” and granted as
“reasonable” the stipulated cost recovery for both projects.
The PUC specifically found and concluded, “The [S]NG Backup
Enhancement System increases the reliability of [HG’s] SNG
operations in the event of planned and unplanned SNG Plant
outages, to the customers’ benefit.” It also appeared to adopt,
in its specific findings and conclusions, a prior
“articulat[ion]” that the 30% SNG Conversion Project would
increase Hawaiʻi’s “fuel diversity” in two ways: first, by
diversifying the State’s fuel supply by adding LNG; and, second,
by diversifying the State’s sources of fuel, because HG planned
to purchase LNG from “two different suppliers through different
ports in difference regions,” in the event one supplier were to
become unavailable.
The PUC’s Decision and Order contains a separate section
addressing sub-Issue No. 1h, titled “In Making Determinations of
the Reasonableness of the Costs of Utility System Capital
Improvements and Operations, the Commission Shall Explicitly
Consider, Quantitatively or Qualitatively, the Effect of the
State’s Reliance on Fossil Fuels on Price Volatility, Export of
Funds for Fuel Imports, and Fuel Supply Reliability Risk, and
Greenhouse Gas Emissions,” which tracks the language of HRS
§ 269-6(b). The commission stated that it “explicit[ly]
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consider[ered], weigh[ed], and balanc[ed] . . . the four
specified criteria” before “find[ing] reasonable [HG’s] 2018
Test Year LNG utility system capital improvements and operations
costs.” The PUC therefore “decline[d] to disallow [HG’s] 2018
Test Year LNG costs.” The PUC made “specific[] find[ings] and
conclu[sions]” concerning the four specified criteria, grouping
its analysis of “price volatility” and “fuel supply reliability
risk” together, then addressing “export of funds for fuel
imports,” and “greenhouse gas emissions.”
As to GHG emissions, the PUC appeared to adopt HG’s
representation that the 30% SNG Conversion Project and SNG
Backup Enhancement Project would result in decreased GHG
emissions:
A. For the 30% [SNG] Conversion Project (i.e., Docket No.
2014-0315), greenhouse gas emissions associated with the
SNG Plant’s stationary equipment fuel use will decrease
(i.e., reported to the EPA under Subpart C), while
greenhouse gas emissions associated with LNG sold to
customers (i.e., reported to the EPA under Subpart NN) will
be nearly identical to displaced SNG; and
B. For the [S]NG Backup Enhancement . . . Project (i.e.,
Docket No. 2013-0184), a similar displacing SNG with LNG
principle will apply.
14. As [HG] specifically explains:
Currently for the 30% [SNG] Conversion Project, which
displaces quantities of SNG with LNG, greenhouse gas
emissions associated with the SNG Plant’s stationary
equipment fuel use (reported to the EPA under Subpart C),
would decrease due to the amount of SNG displaced with LNG.
In other words, greenhouse gas emissions associated with
SNG production would decrease because less SNG is produced.
Greenhouse gas emissions associated with LNG sold to HG
customers (reported to the EPA under Subpart NN) would be
nearly identical to displaced SNG because LNG is chemically
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similar to the SNG produced at the SNG Plant. The life of
the 30% [SNG] Conversion Project has not been determined.
Currently for the [SNG] Backup Enhancement Project, a
similar displacement principle would be applicable.
However, because the amount of vaporized LNG injected into
the transmissions pipeline will vary according to the
number and length of SNG Plant shutdowns, the actual amount
is difficult to quantify. For every therm of vaporized LNG
injected into the pipeline to back up the SNG Plant, the
total amount of greenhouse gas emissions would decrease due
to the reduction in stationary equipment fuel necessary to
create the displaced SNG. The life of the [SNG] Backup
Enhancement Project has not been determined.
The PUC then found and concluded, “Participants have not
produced any credible evidence: (A) which contradicts [HG’s]
evidence; or (B) that [HG’s] use of LNG as part of its utility
operations will increase greenhouse gas emissions.” The PUC
continued, “Instead, Participants rely on general assertions,
without credible evidentiary support, that [HG’s] use of
imported LNG will increase greenhouse gas emissions.”
The PUC included a separate section in its Decision and
Order titled “Commission’s Response to the Legal Arguments
Raised.” The PUC first concluded that “HRS § 269-6(b), by its
plain language, does not mandate the [PUC’s] adoption of the
Customer-Based GHGE Accounting System (i.e. CAS) described by
[LOL and KLM].” Next, with respect to the Hawaiʻi State
Constitution’s rights to due process and to a clean and
healthful environment, the PUC expressly acknowledged MECO’s
holding that “HRS Chapter 269 is a law relating to environmental
quality that defines the right to a clean and healthful
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environment under article XI, section 9 of the Hawaii
Constitution, by providing that express consideration be given
to reducing greenhouse gas emissions in the [PUC’s] decision-
making (specifically citing to HRS § 269-6(b)). . . .” The PUC
also acknowledged MECO’s due process holding that a clean and
healthful environment is a protected property interest, and that
the PUC has “authority to set limitations in conducting the
proceedings so long as the procedures sufficiently afford an
opportunity to be heard at a meaningful time and in a meaningful
manner on the issue of [a utility’s proposed] impact on the
asserted property interest.” The PUC then concluded that LOL
and KLM were afforded an opportunity to be heard at a meaningful
time and in a reasonable manner on sub-Issue No. 1h, due to
their extensive participation in the rate case proceedings. LOL
and KLM timely appealed the PUC’s Decision and Order.
III. Standards of review
A. Agency appeals
This court reviews appeals from PUC decisions under HRS
§ 91-14(g), which states the following:
Upon review of the record, the court may affirm the
decision of the agency or remand the case with instructions
for further proceedings; or it may reverse or modify the
decision and order if the substantial rights of the
petitioners may have been prejudiced because the
administrative findings, conclusions, decisions, or orders
are:
(1) In violation of constitutional or statutory provisions;
(2) In excess of the statutory authority or jurisdiction of
the agency;
(3) Made upon unlawful procedure;
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(4) Affected by other error of law;
(5) Clearly erroneous in view of the reliable, probative,
and substantial evidence on the whole record; or
(6) Arbitrary, or capricious, or characterized by abuse of
direction or clearly unwarranted exercise of discretion.
Conclusions of law are reviewed de novo, pursuant to
subsections (1), (2) and (4); questions regarding procedural
defects are reviewable under subsection (3); findings of fact
(FOF) are reviewable under the clearly erroneous standard,
pursuant to subsection (5); and an agency’s exercise of
discretion is reviewed under the arbitrary and capricious
standard, pursuant to subsection (6). Matter of Haw. Elec.
Light Co., 145 Hawaiʻi 1, 10-11, 445 P.3d 673, 682-83 (2019)
(“HELCO”) (citation omitted). “Mixed questions of law and fact
are ‘“reviewed under the clearly erroneous standard because the
conclusion is dependent upon the facts and circumstances of the
particular case.”’” HELCO, 145 Hawaiʻi at 11, 445 P.3d at 683.
(citation omitted).
B. Statutory interpretation
We review the circuit court’s interpretation of a
statute de novo. State v. Pacheco, 96 Hawaiʻi 83, 94, 26 P.3d
572, 583 (2001). Our statutory construction is guided by
established rules:
When construing a statute, our foremost obligation is to
ascertain and give effect to the intention of the
legislature, which is to be obtained primarily from the
language contained in the statute itself. And we must read
statutory language in the context of the entire statute and
construe it in a manner consistent with its purpose.
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96 Hawaiʻi at 94, 26 P.3d at 583 (citations omitted).
C. Constitutional law
Questions of constitutional law are reviewed de novo, under
the right/wrong standard. Blair v. Harris, 98 Hawaiʻi 176, 178,
45 P.3d 798, 800 (2002).
D. Agency rule-making
An agency possesses broad discretion to proceed by general
rule-making or by adjudication. Application of Hawaiian Elec.
Co., 81 Hawaiʻi 459, 467, 918 P.2d 561, 569 (1996). This court
reviews for an abuse of discretion an agency’s decision to
proceed by adjudication rather than by rule-making.
IV. Discussion
A. LOL and KLM have standing to appeal the PUC’s decision and
order.
HG once again argues LOL and KLM lack standing to bring
this appeal, contending they do not satisfy the traditional
three-prong test for standing used in MECO, 141 Hawaiʻi 249, 408
P.3d 1: (1) injury in fact, (2) causation, and (3)
redressability. LOL and KLM counter-argue that the applicable
test for standing in administrative appeals is the two-prong
test used in HELCO, 145 Hawaiʻi 1, 445 P.3d 673: (1) “one must
be a person aggrieved . . . by a final decision and order in a
contested case,” and (2) “the aggrieved person must have
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participated in the contested case from which the decision
affecting him resulted.”
The two-prong test for standing applies. MECO applied the
traditional three-prong standing test on appeal because the
appellants there challenged a PUC order denying them intervenor
or participant status in the first instance. 141 Hawaiʻi at 256,
408 P.3d at 8. In this case, HG did not appeal the PUC’s order
granting LOL and KLM participant status. Rather, this is an
appeal brought by LOL and KLM, who participated in the contested
rate case and are aggrieved by the PUC’s final decision and
order. They are bringing an administrative appeal. Therefore,
we apply the well-established two-prong standing test, most
recently re-affirmed in HELCO, for intervenors or participants
who are appealing final decisions and orders of the PUC. See
also Life of the Land, Inc. v. Land Use Comm’n, 61 Haw. 3, 6,
594 P.2d 1079, 1081 (1979) (holding there are “two basic
requirements” for standing to appeal an agency decision:
“first, one must be a person aggrieved and second, the aggrieved
party must have participated in a contested case.”); Application
of Hawaiian Elec. Co., 56 Haw. 260, 265, 535 P.2d 1102, 1106
(1975) (“[W]here the appellants have been ‘aggrieved’ by the
action of the PUC, and where they were involved as
‘participants’ during the agency hearings, and where the PUC
staff (the agency through which they participated at the
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hearings) has failed to appeal the decision of the PUC, the
appellants may challenge the order of the PUC in this court.”);
City & Cty. of Honolulu v. Pub. Utils. Comm’n., 53 Haw. 431,
433, 495 P.2d 1180, 1182 (1972) (per curiam) (“HRS § 91-14(a),
which provides ‘(a)ny person aggrieved by a final decision and
order in a contested case . . . is entitled to judicial review
. . .’, is clear and unambiguous that the person aggrieved must
have been involved in the contested case before the PUC.”).
In this case, Appellants have sufficiently alleged that the
PUC’s decision “specially, personally, and adversely affected”
their members. HELCO, 145 Hawaiʻi at 21, 445 P.3d at 693. LOL
is a Hawaiʻi nonprofit organization with members who live, work,
and recreate in Hawaiʻi and are “deeply concerned” about the
environmental and financial impacts of climate change in
Hawaiʻi. LOL asserts that sea level rise as a result of climate
change and increased GHG emissions will result in over 20,000
Hawaiʻi residents in need of new homes and could “generate
substantial social, infrastructure, and economic impacts with
ripple effects throughout the State,” which will invariably harm
its members. Similarly, KLM is a Hawaiʻi nonprofit dedicated to
protecting native Hawaiian rights, with members who reside in
Hawaiʻi and have an interest in protecting native Hawaiian
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traditions and culture. It asserts that the combined effects of
climate change will adversely impact its members. For example,
saltwater intrusions into the freshwater aquifers, coastal
erosion and rapid sea level rise [will] threaten[] the
cultural practice of burying ʻiwi kupuna along Hawaiʻi’s
shores, which prevents the ʻuhane from joining the ʻaumakua,
interrupting the delicate balance between salt and fresh
water in loko iʻa, flooding and loss of burial grounds, home
sites, fishponds, historic trails, heiau, and petroglyphs,
the loss of salt cultivation, beach erosion, and
contamination of crops and freshwater resources.
Thus, Appellants have demonstrated they are “persons aggrieved”
who participated in the contested case; therefore, they have
standing to appeal.
B. The PUC did not fulfill its statutory obligations under HRS
§ 269-6(b).
Appellants argue the PUC failed to carry out its mandate
under HRS § 269-6(b), which states the following (with emphases
added):
The public utilities commission shall consider the need to
reduce the State’s reliance on fossil fuels through energy
efficiency and increased renewable energy generation in
exercising its authority and duties under this chapter. In
making determinations of the reasonableness of the costs of
utility system capital improvements and operations, the
commission shall explicitly consider, quantitatively or
qualitatively, the effect of the State’s reliance on fossil
fuels on price volatility, export of funds for fuel
imports, fuel supply reliability risk, and greenhouse gas
emissions. The commission may determine that short-term
costs or direct costs that are higher than alternatives
relying more heavily on fossil fuels are reasonable,
considering the impacts resulting from the use of fossil
fuels.
First, the Appellants contend that the PUC’s consideration of
GHG emissions should not have been geographically limited to
those emissions occurring within the State’s borders. Second,
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the Appellants assert that the PUC’s Decision and Order merely
adopted, without substantiating, HG’s representations in
information request 49 that its LNG projects would result in
decreased GHG emissions.
As to the Appellants’ first point, HG and the PUC respond
that the plain language of HRS § 269-6(b) does not require the
PUC to consider GHG emissions beyond the State’s borders. As to
the Appellants’ second point, HG and the PUC counter-argue that
the PUC made express findings on the GHG emissions issue in the
section of its Decision and Order titled “Greenhouse Gas
Emissions,” and that HG’s answer to information request 49 is
the “only credible evidence in the record.”
Appellants are correct. In interpreting HRS § 269-6(b), we
look to “the language contained in the statute itself,” which
must be read “in the context of the entire statute and
construe[d] . . . in a manner consistent with its purpose.”
Pacheco, 96 Hawaiʻi at 94, 26 P.3d at 583 (citations omitted).
We note that the plain language of HRS § 269-6(b) does not limit
the PUC’s consideration of GHG emissions to those only occurring
within the state. Also, elsewhere in the HRS, where the
legislature has intended to limit consideration of certain GHG
emissions, it plainly does so. For example, HRS § 342B-71
(2010) sets a “[s]tatewide greenhouse gas emissions limit” at
“equal to or below the level of the statewide greenhouse gas
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emissions in 1990,” but it specifically excludes “greenhouse gas
emissions from airplanes.” It is “generally presumed that the
legislature acts intentionally and purposely in the disparate
inclusion or exclusion” of terms in its statutes. State v.
Savitz, 97 Hawaiʻi 440, 447, 39 P.3d 567, 574 (2002) (holding
that the legislature could have drafted a statute to include a
limitation on the court’s discretion, and noting that “[t]he
fact that it did not do so manifests its intent that it chose
not to do so”). If the legislature intended HRS § 269-6(b) to
exclude from the PUC’s consideration GHG emissions generated
out-of-state by imported fossil fuels, it would have done so.
We have also already extensively examined the purpose of
HRS § 269-6(b), as amended, in MECO, 141 Hawaiʻi 249, 408 P.3d 1.
In that case, we noted “a primary purpose” of the statute is to
“require the [PUC] to consider the hidden and long-term costs of
reliance on fossil fuels, which subjects the State and its
residents to ‘increased air pollution’ and ‘potentially harmful
climate change due to the release of harmful greenhouse
gases.’” MECO, 141 Hawaiʻi at 263, 408 P.3d at 15 (citing H.
Stand. Comm. Rep. No. 1004, in 2011 House Journal, at 1332)
(emphasis added)).
Appellants contend HG has quite literally “hidden” the GHG
emissions impact of its imported LNG. The “hidden” GHG
emissions impacts Appellants are concerned with include GHG
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emissions from the extraction, development, production, and
transportation of imported LNG, which occur out-of-state, but
which, nonetheless, impact Hawaiʻi due to the global nature of
GHG emissions. We agree with this contention.10 In MECO, this
court noted that “it is commonly understood that ‘[a]ir
pollution is transient’ and is ‘heedless’ of even ‘state
boundaries.’” 141 Hawaiʻi at 268, 408 P.3d at 20 (citing E.P.A.
v. EME Homer City Generation, L.P., 134 S.Ct. 1584, 1592
(2014)).
Over a decade before we issued our MECO opinion, the
legislature had already expressed its concern about the impact
on Hawaiʻi of GHG emissions produced out-of-state. In 2007, the
legislature committed the state to reduce, by January 1, 2020,
10 We note the Appellants and HG touch on the Commerce Clause of the
United States Constitution in their briefing. Under the Commerce Clause,
Congress has the power to “regulate Commerce with foreign Nations, and among
the several States, and with the Indian Tribes.” U.S. Const. art. I, § 8,
cl. 3. The Commerce Clause “has long been understood to have a ‘negative’
aspect that denies the States the power unjustifiably to discriminate against
or burden the interstate flow of articles in commerce.” Or. Waste Sys., Inc.
v. Dep’t of Envtl. Quality of State of Or., 511 U.S. 93, 98 (1994).
HG argues that interpreting HRS § 269-6(b) to take into account out-of-
state GHG emissions produced by its imported LNG is extra-territorial
legislation, and per se unconstitutional under Healy v. Beer Inst., 491 U.S.
324, 336 (1989), because it attempts to regulate GHG emissions beyond
Hawaiʻi’s borders. Failing that, HG argues in the alternative that
interpreting HRS § 269-6(b) this way violates the commerce clause under Pike
v. Bruce Church, Inc., 397 U.S. 137 (1970), because the burden imposed on
interstate commerce outweighs any putative local benefit to Hawaiʻi.
To the extent the dormant Commerce Clause is even implicated in this
case, it is not violated. HRS § 269-6(b) tasks the PUC only with
explicitly “considering” GHG emissions from HG’s imported LNG, not regulating
GHG emissions extra-territorially. Further, the burden associated with
“considering” out-of-state GHG emissions is minimal compared to the local
benefit at stake: the constitutional protection of a clean and healthful
environment.
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“statewide greenhouse gas emissions to levels at or below the
best estimations and updates of the inventory of greenhouse gas
emissions estimates for 1990.” Act 234, H.B. 226, 24th Leg.,
Reg. Sess. (2007) (enacted), available at
https://www.capitol.hawaii.gov/session2007/
bills/GM1005_.PDF, also available at https://perma.cc/TH44-RFPQ.
To that end, Act 234 established the Greenhouse Gas Emissions
Reduction Task Force “to prepare a work plan and regulatory
scheme for implementing the maximum practically and technically
feasible and cost-effective reductions in greenhouse gas
emissions from sources or categories of sources of greenhouse
gases to achieve the statewide greenhouse gas emissions limits
by 2020.” Id. The legislature specifically directed the Task
Force to craft “[r]ecommendations to minimize ‘leakage’ or a
reduction in emissions of greenhouse gases within the State that
is offset by an increase in emissions of greenhouse gases
outside the State. . . .” Id. at PDF p. 11. The Task Force’s
work plan, in turn, “strongly insist[ed] the life-cycle impact
of energy sources be considered in any adopted energy laws,”
because “even though an energy technology may be relatively
clean-burning within the boundaries of Hawaii, the process in
which it is made elsewhere is also of importance.” The
Greenhouse Gas Emissions Reduction Task Force, Work Plan for
Greenhouse Gas Emissions Reductions 14 (Dec. 30, 2009),
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http://energy.hawaii.gov/wp-content/uploads/2016/03/2015-
greenhouse-gas-program.pdf, also available at
https://perma.cc/5EZQ-LK9Z. Thus, since Act 234, part of this
state’s GHG emission reduction strategy has included taking into
account out-of-state GHG “leakage” resulting from our energy
choices.11
In this rate proceeding, HG and the PUC have largely
disregarded any possible GHG emission leakage from imported LNG.
The PUC’s geographic limitation in Order No. 35112 indicates
that it did not intend to, and in fact did not, explicitly
consider out-of-state LNG-related GHG emissions in discharging
its duties under HRS § 269-6(b). The PUC’s action was contrary
to law and, therefore, an abuse of discretion.
11 It is important to note that the EPA, California, and Oregon have all
adopted, in some form, Argonne National Laboratory’s “Greenhouse gases,
Regulated Emissions and Energy use in Transportation” (or “GREET”) Model, see
https://greet.es.anl.gov/, also available at https://perma.cc/TQ7Q-XYGM, to
calculate life-cycle GHG emissions. See Rocky Mountain Farmers Union v.
Corey, 730 F.3d 1070, 1081-82 (9th Cir. 2013) (explaining California’s CA-
GREET Model); Am. Fuel & Petrochemical Mfrs. v. O’Keeffe, 903 F.3d 903, 908-
09 (9th Cir. 2018) (explaining Oregon’s OR-GREET model); and Regulation of
Fuels and Fuel Additives: Renewable Fuel Standard Program (“RFS”), 72 Fed.
Reg. 23900, 23907 (May 1, 2007) (codified at 40 C.F.R. pt. 80) (explaining
how the EPA utilized GREET in calculating life-cycle GHG emissions for its
RFS Program). California’s CA-GREET modeling can be found at
https://ww2.arb.ca.gov/resources/documents/lcfs-pathway-certified-carbon-
intensities, also available at https://perma.cc/U3VB-R898. Oregon’s OR-GREET
modeling can be found by accessing the link for the “carbon intensity values”
Excel worksheets located at
https://www.oregon.gov/deq/aq/programs/Pages/Clean-Fuel-Pathways.aspx, also
available at https://perma.cc/VLX9-AU3. The EPA’s RFS GREET modeling can be
found at https://www.epa.gov/fuels-registration-reporting-and-compliance-
help/lifecycle-greenhouse-gas-results, also available at
https://perma.cc/647V-YVPA. Thus, life-cycle GHG emission information is
available to participants. See also note 13, infra.
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Next, the PUC’s limited and perfunctory review of GHG
emissions in this rate case is evident in the Greenhouse Gas
Emissions section of its Decision and Order No. 35969. Instead
of making any independent factual findings concerning the GHG
emissions of HG’s LNG-related projects, the PUC simply repeated
HG’s representation (made in HG’s response to the Appellants’
information request 49) that GHG emissions from its SNG plant
will decrease where LNG displaces SNG. There is no GHG
emissions information about the LNG HG uses. Therefore, the PUC
could not have fulfilled its “affirmative duty ‘to reduce the
State’s reliance on fossil fuels through energy efficiency and
increased renewable energy generation,’” as HRS § 269-6(b)
requires, because the PUC could not have “‘explicitly
consider[ed]’ the effect of the State’s reliance on fossil fuels
on the level of ‘greenhouse gas emissions.’” MECO, 141 Hawaiʻi
at 269 n.36, 408 P.3d at 21 n.36 (emphasis added).
Further, as Appellants point out, the PUC did not conduct a
“quantitative or qualitative analysis” that substantiates its
finding that HG’s LNG projects will decrease GHG emissions. In
this way, this case is closely analogous to HELCO, 145 Hawaiʻi 1,
445 P.3d 673. In that case, HELCO sought the PUC’s review of an
amended power purchase agreement (“Amended PPA”) between it and
Hu Honua Bioenergy, LLC, in which Hu Honua would construct and
operate a biomass-fueled energy production facility, and HELCO
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would purchase energy from the facility. 145 Hawaiʻi at 5-6, 445
P.3d at 677-78. LOL moved to intervene in order to assert its
environmental interests in the project, but the PUC granted it
participant status instead. 145 Hawaiʻi at 6, 445 P.3d at
678. The PUC limited LOL’s participation to addressing business
aspects of the project (whether the energy price components
properly reflect the cost of biomass fuel supply, and whether
HELCO’s purchase power arrangements were prudent and in the
public interest); LOL’s limited participation did not allow it
to address environmental aspects of the project. 145 Hawaiʻi at
7, 445 P.3d at 679. As a result, HELCO and Hu Honua refused to
answer LOL’s information requests concerning GHG emissions as
beyond the scope of LOL’s participation. 145 Hawaiʻi at 8, 445
P.3d at 680.
The PUC in HELCO ultimately approved the Amended PPA. 145
Hawaiʻi at 9, 445 P.3d at 681. In its findings and conclusions,
the PUC merely “restated HELCO’s representations that the
biomass facility could potentially save approximately 15,700
barrels of fuel per year and contribute to the State’s
[renewable portfolio standard] goals,” but “it made no express
findings or conclusions regarding the biomass facility’s GHG
emissions.” 145 Hawaiʻi at 24, 445 P.3d at 696. LOL appealed,
arguing that the PUC did not explicitly consider GHG emissions
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in determining whether the costs of the Amended PPA were
reasonable, in violation of HRS § 269-6(b), and that it was
denied due process to protect its right to a clean and healthful
environment due to the PUC’s limitation on its
participation. 145 Hawaiʻi at 10, 445 P.3d at 682.
In HELCO, this court held that the PUC needed to do more
than restate HELCO’s representation about energy savings;
instead, this court required the PUC to “substantiate this
finding by addressing the hidden and long-term environmental and
public health costs of reliance on energy produced at the
proposed facility.” 145 Hawaiʻi at 24, 445 P.3d at
696. HELCO continued, “These costs include the ‘potential for
increased air pollution as a result of GHG emissions’ directly
attributed to energy generation at the facility, as well as GHG
emissions produced at earlier stages in the production process,
such as fuel production and transportation.” Id. (citing MECO,
141 Hawaiʻi at 263, 408 P.3d at 15).
The HELCO court further noted that “[a]n agency’s findings
should be ‘sufficient to allow the reviewing court to track the
steps by which the agency reached its decision.’” HELCO, 145
Hawaiʻi at 11, 445 P.3d at 683. Where they are not, a “remand
pursuant to HRS § 91-14(g) is appropriate,” as the “agency’s
findings are incomplete and provide no basis for review.” 145
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Hawaiʻi at 24, 445 P.3d at 696 (citations omitted). In this
case, the PUC similarly restated HG’s representation that its
LNG projects will decrease GHG emissions, but it did not
substantiate those findings in a manner that would allow this
court to track the steps by which it reached its
decision.
The PUC contends that this case was just a rate case, and
that the PUC had already fulfilled the requirements of HRS
§ 269-6(b) in the earlier dockets approving the LNG
projects. The PUC, however, specifically granted the Appellants
participant status to address HRS § 269-6(b) with respect to GHG
emissions. Also, MECO stated that “HRS § 269-6(b)’s requirement
to reduce reliance on fossil fuels and to consider greenhouse
gas emissions applies to the fulfillment of all of the
Commission’s duties.” 141 Hawaiʻi at 263, 408 P.3d at
15 (emphasis added). See also MECO, 141 Hawaiʻi at 269, 408 P.3d
at 21 (“[T]he consideration of whether energy charges are
reasonable or a business arrangement is prudent would
necessarily involve an evaluation of the hidden and long-term
costs of the activities . . . , including consideration of the
potential for harmful greenhouse gas emissions.”).
In this case, the PUC did not fulfill the statutory
requirements of HRS § 269-6(b) because (1) it did not explicitly
consider all of the GHG emission impacts of HG’s LNG projects,
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having erroneously previously determined that the out-of-state
GHG emissions from HG’s imported LNG were beyond the scope of
the rate proceeding, and, (2) upon considering the limited
evidence submitted in this case, merely restating, without
substantiating, HG’s representation that its LNG projects would
decrease GHG emissions.
C. The PUC’s limitations in sub-Issue No. 1h violated
Appellants’ due process rights.
The Appellants argue that the PUC violated their due
process rights, under the Fifth Amendment to the United States
Constitution, as well as under article I, section 5 of the
Hawaiʻi State Constitution, by denying them a meaningful
opportunity to be heard. “The basic elements of procedural due
process of law require notice and an opportunity to be heard at
a meaningful time and in a meaningful manner before governmental
deprivation of a significant property interest.” HELCO, 145
Hawaiʻi at 25, 445 P.3d at 697 (citations omitted). Under MECO,
141 Hawaiʻi 249, 408 P.3d 1, Appellants possess a protected
property interest in a clean and healthful environment under
article XI, section 9 of the Hawaiʻi State Constitution, which
states:
Each person has the right to a clean and healthful
environment, as defined by laws relating to environmental
quality, including control of pollution and conservation,
protection and enhancement of natural resources. Any
person may enforce this right against any party, public or
private, through appropriate legal proceedings, subject to
reasonable limitations and regulation as provided by law.
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HRS § 269-6(b) is a “law relating to environmental quality,” and
it requires the PUC to “explicitly consider, quantitatively or
qualitatively, the effect of the State’s reliance on fossil
fuels on . . . greenhouse gas emissions.”
Appellants acknowledge that MECO held that the PUC “has the
authority to set limitations in conducting the proceedings so
long as the procedures sufficiently afford an opportunity to be
heard at a meaningful time and in a meaningful manner” in a
proceeding before it, citing MECO, 141 Hawaiʻi at 270, 408 P.3d
at 22. They point to HELCO, however, as a case in which the
PUC’s limitations deprived participants of a meaningful
opportunity to be heard. Specifically, they state that this
court in HELCO found a due process violation where the PUC
limited participants to addressing two economic sub-issues, when
the participants’ asserted interest was environmental, not
economic. Analogizing HELCO to their case, the Appellants argue
that the PUC violated their due process rights by limiting the
scope of sub-Issue No. 1h to exclude Appellants’ interest in the
full consideration of the GHG emission impact of HG’s imported
LNG.
The PUC counters that it framed sub-Issue No. 1h to
“mirror” the language of HRS § 269-6(b); therefore, it argues,
the Appellants’ due process rights were not violated. Next,
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both HG and the PUC argue that Appellants were afforded a
meaningful opportunity to be heard in this rate proceeding, as
Appellants participated extensively by submitting joint
information requests, written testimony and exhibits, responses
to HG’s information requests, and opening and reply briefs on
sub-Issue No. 1h.
In this case, as discussed supra, Section IV.B, the PUC
limited its consideration of GHG emissions to those within the
boundaries of the state, truncating Appellants’ property
interest in a manner not required under the plain language of
HRS § 269-6(b), and in a manner contrary to MECO. See 141
Hawaiʻi at 268, 408 P.3d at 20 (“[I]t is commonly understood that
‘[a]ir pollution is transient’ and is ‘heedless’ of even ‘state
boundaries.’”) (citation omitted). In limiting the Appellants’
constitutionally protected interest in this way, the PUC
violated the Appellants’ due process rights. See HELCO, 145
Hawaiʻi at 25-26, 445 P.3d at 697-98 (holding that the PUC’s
limitation upon LOL’s participation to exclude its asserted
interest in a clean and healthful environment violated LOL’s due
process rights). Therefore, the PUC’s argument that it properly
framed sub-Issue No. 1h to “mirror” HRS § 269-6(b) fails.
Further, when the Appellants’ interest is limited in this way,
the “opportunities to be heard” cannot be said to be meaningful.
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D. The PUC did not abuse its discretion in adjudicating HG’s
rate case rather than proceeding through rule-making.
Also at issue in this case is whether the PUC improperly
created GHG emissions policy through the ad hoc adjudication of
HG’s rate case, where such policy should develop through the
rule-making procedures of HRS chapter 91, Hawaiʻi’s
Administrative Procedure Act (“HAPA”).12 This court has
previously explained the difference between rule-making and
adjudication as follows: “Rule making is agency action
governing the future conduct either of groups or persons or of a
single individual; it is essentially legislative in nature.
. . . Adjudication, conversely, is concerned with the
determination of past and present rights and liabilities.”
Foster Vill. Cmty. Ass’n, 4 Haw. App. at 475-77, 667 P.2d at
857-58. The parties acknowledge that “agencies are allowed the
broad discretion to choose whether to develop policy by rule-
making or adjudication.” In re Application of HECO, 81 Hawaiʻi
12 HAPA was enacted “to provide a uniform administrative procedure for all
state and county boards, commissions, departments or offices which would
encompass the procedure of rule making and adjudication of contested cases.”
Foster Vill. Cmty. Ass’n v. Hess, 4 Haw. App. 463, 475, 667 P.2d 850, 857
(1983) (citation omitted). Chapter 91 contains procedures for state agencies
to follow with respect to rule-making. HRS § 91-1 (2012) defines a rule as
“each agency statement of general or particular applicability and future
effect that implements, interprets, or prescribes law or policy, or describes
the organization, procedure, or practice requirements of any agency.” HRS
§ 91-3 (2012) requires an “adopting agency,” “prior to the adoption of any
rule authorized by law,” to, among other things, “[g]ive at least thirty
days’ notice for a public hearing,” and “[a]fford all interested persons
opportunity to submit data, views, or arguments, orally or in writing.”
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at 468, 918 P.2d at 570 (citation omitted). However,
“policymaking by adjudication is an abuse of discretion if: (1)
it is used to ‘circumvent the requirements of the Administrative
Procedure Act’ by amending a recently amended rule or bypassing
a pending rule-making proceeding; or (2) ‘an agency’s sudden
change of direction leads to undue hardship for those who had
relied on past policy.’” Id. (citation omitted).
In this case, only the second form of abuse of discretion
is at issue, as there is no rule, recently amended rule, or
pending rule-making proceeding concerning how the PUC shall
measure GHG emissions.13 As to when an agency engages in a
13 We note other states, as well as the federal government, have developed
rules for measuring GHG emissions using a life-cycle analysis, at least for
transportation fuels. See, e.g., Clean Air Act § 211(o), 42 U.S.C.
§ 7545(o)(1)(H) (2009) (defining “lifecycle greenhouse gas emission” as the
“aggregate quantity of greenhouse gas emissions (including direct emissions
and significant indirect emissions such as significant emissions from land
use changes), as determined by the Administrator, related to the full fuel
lifecycle, including all stages of fuel and feedstock production and
distribution, from feedstock generation or extraction through the
distribution and delivery and use of the finished fuel to the ultimate
consumer, where the mass values for all greenhouse gases are adjusted to
account for their relative global warming potential”); Cal. Code Regs. tit.
17, § 95481(a)(38) (2020) (defining “Life Cycle Greenhouse Gas Emissions” as
“aggregate quantity of greenhouse gas emissions (including direct emissions
and significant indirect emissions, such as significant emissions from land
use changes), as determined by the Executive Officer, related to the full
fuel life cycle, including all stages of fuel and feedstock production and
distribution, from feedstock generation or extraction through the
distribution and delivery and use of the finished fuel to the ultimate
consumer, where the mass values for all greenhouse gases are adjusted to
account for their relative global warming potential”); Or. Rev. Stat.
§ 468A.266(2)(b) (2018) (authorizing the Oregon Environmental Quality
Commission to adopt “[s]tandards for greenhouse gas emissions attributable to
the fuels throughout the lifecycles of the fuels, including but not limited
to emissions from the production, storage, transportation and combustion of
the fuels and from changes in land use associated with the fuels”).
As indicated in note 11, supra, the EPA, California, and Oregon have
all adopted models to calculate life-cycle GHG emissions. We also note with
(continued. . .)
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“sudden change of direction lead[ing] to undue hardship for
those who had relied on past policy,” two cases guide this
court’s inquiry: Application of Hawaiian Elec. Co., 66 Haw.
538, 669 P.2d 148 (1983) (“Lifeline Rates”), and In re
Application of HECO, 81 Hawaiʻi 459, 918 P.2d 561. Both are
cases in which this court held the PUC did not abuse its
discretion by proceeding through adjudication rather than rule-
making.
In Lifeline Rates, HECO initiated a rate case seeking to
increase its rates. 66 Haw. at 539, 669 P.2d at 150. Two
community groups intervened and asked the PUC to establish
lifeline rates under a federal statute. Id. Thereafter, the
PUC treated the case as a contested case, placing the burden of
proof on intervenors, holding an evidentiary hearing, and
entering detailed findings of fact and conclusions of law before
declining to implement lifeline rates. 66 Haw. at 540, 669 P.2d
(continued . . .)
approval that the PUC has recently asked the Hawaii Natural Energy Institute
(“HNEI”) to “conduct a study to provide estimates for the lifecycle
greenhouse gas (GHG) emissions of various energy products and production
technologies in Hawaii,” including SNG and LNG, to assist it in decision
making under HRS § 269-6(b). The PUC asked HNEI to develop the “boundary
conditions” to “explicitly identify processes to be included” in a life-cycle
analysis, such as “mining, transportation of raw and finished materials,
manufacturing, electricity production, and end-of-life disposal.” Letter
from James P. Griffin, Ph.D, chair of the PUC, et al. to Richard E.
Rocheleau, Director of HNEI (Aug. 28, 2019), available at
https://puc.hawaii.gov/wp-content/uploads/2019/08/08.28.19-Letter-to-
Director-Rocheleau_Lifecycle-Analysis-Task-Force-Request.pdf, also available
at https://perma.cc/38NK-MCWK.
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at 150. The intervenors appealed, arguing “that the [PUC]
should have somehow told them what they must prove.” 66 Haw. at
540, 669 P.2d at 151. This court framed the intervenors’
argument to be “that it was error for the [PUC] to proceed by
way of a contested case hearing (although they did not object
thereto) and that the [PUC] instead should have adopted rules
pursuant to § 91-3, HRS.” 66 Haw. at 541, 669 P.2d at 151.
This court affirmed the PUC’s order and rejected the
intervenors’ argument as follows:
In this case, the appellants accepted, without objection,
the contested case procedure and, in fact, took their
appeal based on statutes which provide for appeals from an
“order” in a contested case. That being so, we will not
here entertain their alternative contention that the
“order” entered was instead a “rule” which should have been
differently handled.
Moreover, if what appellants desired was the promulgation
of a “rule” by the PUC, they should have proceeded by
petition for the adoption of such rule pursuant to § 91-6,
HRS. The agency then would have been obliged within 30
days to either deny the petition, stating its reasons in
writing for the denial, or initiate proceedings in
accordance with § 91-3, HRS.
Id.
Similarly, in In re Application of HECO, this court again
rejected community intervenors’ argument on appeal that the PUC
impermissibly engaged in rule-making in the guise of
adjudicating a contested case. 81 Hawaiʻi 459, 918 P.2d 561. In
that case, HECO applied to the PUC for permission to commit
funds to construct high-voltage overhead transmission lines. 81
Hawaiʻi at 461, 918 P.2d at 563. The intervenors argued, among
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other things, that the transmission lines should be placed
underground. 81 Hawaiʻi at 463, 918 P.2d at 565. In its
Decision and Order, the PUC declined to require HECO to place
its transmission lines underground,
unless (1) there [was] a compelling reason (which outweighs
the cost) to place the lines underground or (2) there is a
stated public policy requiring the lines to be laid
underground or (3) the ratepayers as a whole consent to
bear the high cost of putting the lines underground. . . .
That placing the transmissions lines overhead may obstruct
one’s view plane, in and of itself, is not sufficient cause
to require the ratepayers to bear the cost of laying the
lines underground.
81 Hawaiʻi at 464, 918 P.2d at 566.
The intervenors appealed, arguing that the “PUC violated
HAPA by failing to properly promulgate rules to establish when
transmission lines will be placed underground.” 81 Hawaiʻi at
465, 918 P.2d at 567 (footnote omitted). In other words, they
argued “that what would qualify as ‘additional justification’ or
criteria is clearly a statement of policy by the PUC, thereby
requiring a rule-making proceeding prior to a contested case
hearing under HAPA.” 81 Hawaiʻi at 466, 918 P.2d at 568.
After analogizing the intervenor’s case to Lifeline Rates,
this court similarly concluded that no undue hardship existed,
because (1) intervenors participated in the contested case
without objection; (2) they took their appeal from the PUC’s
order pursuant to HRS §§ 91-14 and 269-16(f); (3) they should
have proceeded by petition for the adoption of a rule under HRS
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§ 91-6 if the promulgation of a rule was what they desired; (4)
the contested case process afforded them extensive procedural
opportunities to support their position; and (5) the PUC entered
detailed findings of fact and conclusions of law. In re
Application of HECO, 81 Hawaiʻi at 470-71, 918 P.2d at 572-73(footnotes omitted).
Similarly, in this case, the Appellants participated in the
contested case format without objection (by filing their motions
to intervene); took their appeal under statutes governing
appeals of contested case orders issued by the PUC, HRS §§ 91-14
(2012 & Supp. 2016) and 269-15.5 (2007 & Supp. 2016); should
have initiated a rule-making petition if that is what they
desired (as it appeared in LOL’s testimony early on that it
sought to have the PUC adopt the CAS methodology for measuring
GHG emissions); and were afforded the procedural benefits
(though limited) of participating in a contested case, through
the opportunities to, among other things, propound information
requests to HG and to brief sub-Issue No. 1h. Lastly, the PUC
entered detailed findings of fact and conclusions of law. Thus,
under both Lifeline Rates and In re Application of HECO, the
Appellants “cannot now be heard to complain that they suffered
undue hardship” due to whatever perceived rule-making they
believe the PUC engaged in. 81 Hawaiʻi at 471, 918 P.2d at 573
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(footnote omitted). In sum, the PUC did not abuse its
discretion in adjudicating HG’s rate case.
E. Native Hawaiian traditional and customary rights
The Appellants allege that the PUC did not fulfill its
constitutional obligation to protect KLM’s native Hawaiian
customary and traditional rights under article XII, section 7 of
the Hawaiʻi Constitution, which provides the following:
The State reaffirms and shall protect all rights,
customarily and traditionally exercised for subsistence,
cultural and religious purposes and possessed by ahupuaʻa
tenants who are descendants of native Hawaiians who
inhabited the Hawaiian Islands prior to 1778, subject to
the right of the State to regulate such rights.
As indicated above, Appellants assert various impacts to native
Hawaiian cultural practices.
In Matter of Conservation District Use Application HA-3568,
143 Hawaiʻi 379, 431 P.3d 752 (2018) (“Mauna Kea II”), we
reaffirmed “the State’s obligation to protect the reasonable
exercise of customary and traditionally exercised rights
of Hawaiians to the extent feasible.” 143 Hawaiʻi at 395, 431
P.3d at 768, citing Public Access Shoreline Hawaii v. Hawaiʻi
Cty. Planning Comm’n, 79 Hawaiʻi 425, 450 n.43, 903 P.2d 1246,
1271 n.43 (1995).
Because the PUC improperly curtailed Appellants’
substantive participation, the record is not sufficiently
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developed for us to address this issue. On remand, the PUC
should consider its constitutional obligations.
F. The State’s public trust resources
Appellants also argue that the PUC failed to fulfill its
affirmative obligations as a public trustee over the state’s
natural resources under article XI, section 1 of the Hawaiʻi
State Constitution, which provides the following:
For the benefit of present and future generations, the
State and its political subdivisions shall conserve and
protect Hawaii’s natural beauty and all natural resources,
including land, water, air, minerals and energy sources,
and shall promote the development and utilization of these
resources in a manner consistent with their conservation
and in furtherance of the self-sufficiency of the State.
All public natural resources are held in trust by the State
for the benefit of the people.
As we reiterated in Mauna Kea II, a state agency must
perform its functions in a manner that fulfills the State’s
affirmative obligations under the Hawaiʻi constitution. 143
Hawaiʻi at 387, 431 P.3d at 760. We also note, however, that HG
and the PUC’s reliance on the ICA’s decision in In re Molokai
Pub. Utils., 127 Hawaiʻi 234, 277 P.3d 328 (App. 2012), to argue
that a rate case does not trigger a state agency’s public trust
obligations where there is no change in use of the public trust
resource, is misplaced. That case was effectively overruled by
this court’s decision in Ching v. Case, 145 Hawaiʻi 148, 177–78,
449 P.3d 1146, 1175–76 (2019), in which we held that the state
has a continuing duty to monitor the use of trust property, even
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if the use of the property has not changed. See also Lānaʻians
for Sensible Growth v. Land Use Comm’n, 2020 WL 2511131, at *7
(Haw. May 15, 2020) (noting that the LUC possesses a continuing
constitutional obligation to ensure that measures it imposes to
protect public trust resources are implemented and complied
with). Thus, the PUC's constitutional obligations are ongoing,
regardless of the nature of the proceeding.
Again, because the PUC improperly curtailed Appellants’
substantive participation, the record is not sufficiently
developed for us to address this issue. On remand, the PUC
should consider its constitutional obligations.
V. Conclusion
For the foregoing reasons, we vacate the PUC’s Decision and
Order No. 35969 and remand this case to the PUC for further
proceedings consistent with this opinion.
Lance D. Collins /s/ Mark E. Recktenwald
for Appellants
/s/ Paula A. Nakayama
David Y. Nakashima
(Jeffrey T. Ono and /s/ Sabrina S. McKenna
John E. Dubiel with him
on the briefs) /s/ Richard W. Pollack
for Appellee Hawaiʻi Gas
Andrew D. Goff
(Clare E. Connors and
Bryan C. Yee with him
on the briefs)
for Appellee Public
Utilities Commission
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