Rob Parsons

Biofueling the Fire

BlueEarth Biofuels files suit against Hawaiian Electric, et al

by Rob Parsons

November 6, 2008

Michelle Anderson Maui County Council Member

MECO and HECO’s biofuel dream has turned into
a legal nightmare.

Back in February 2007, Maui Electric Company (MECO) announced it would be partnering with a company new to Hawaii on a project to build and operate the world's largest biodiesel refinery. At MECO's Maui Waena site on Pulehu Road, BlueEarth Biofuels LLC, registered in Nevada, would construct a facility capable of processing 40 million gallons of biodiesel yearly by 2009, and 120 mgy by 2011.

A Maui News headline trumpeted, "$61 million project a start to ending use of petroleum." Mayor Charmaine Tavares, who campaigned on a platform including renewable energy, called the undertaking "a huge and gigantic step in the right direction." With such a project, MECO could begin to replace some 72 million gallons of petroleum combusted at their generating plants in 2006.

Local observers questioned the track record of an unknown company that had never built a biodiesel refinery of any size, and cautioned that the volume of feedstock oil could likely be derived only by importing palm oil from Malaysia and Indonesia, where the industry is an ongoing driver of massive deforestation. Many residents called for utilizing local renewable energy resources such as wind, waves and solar, not another imported fuel. But MECO and parent company Hawaiian Electric Company (HECO) were undaunted. They claimed they would set new criteria for sustainable palm oil and that the facility would induce local production of biofuel crops.

Now, less than two years later, the proverbial shine is off the apple. Environmental groups and community members awaiting a Draft Environmental Impact Statement promised in September 2007 recently found an entirely different sort of document to scrutinize. US District Court documents filed October 6, 2008 in Dallas, Texas indicate that BlueEarth Biofuels, LLC is bringing breach of contract complaints against HECO, MECO, Aloha Petroleum and Karl Stahlkopf, Senior Vice President for Energy Solutions and Chief Technology Officer of HECO.

The complaint attests that BlueEarth had signed Non-Circumvention and Non-Disclosure Agreements with MECO, HECO and Aloha Petroleum, whom BlueEarth had introduced as a potential operator of a fuel terminal facility, which was not part of the original project. Further, BlueEarth, HECO and MECO had executed a "Confidential and Proprietary Memorandum of Understanding?.to Proceed with Evaluation and Development of a Biodiesel Production Facility," on MECO's Waena site.

The complaint claims that HECO and MECO are in breach of the memorandum by failing to negotiate and work exclusively with BlueEarth in good faith.

"Shortly after BlueEarth shared its confidential information regarding the details of the Project with Aloha (Petroleum)," the filing states, "Stahlkopf informed BlueEarth that based upon numerous private meetings between HECO and Aloha in June of 2008, HECO was unilaterally terminating investment talks with the Project's potential equity investor in order to provide Aloha with a key investment role in the project. This key investment role, promised to Aloha by HECO included the opportunity to purchase a majority interest in the Project." The complaint attests that HECO and MECO now refuse to continue working with BlueEarth to develop viable investments for the project, and "have no intention of completing the Project with BlueEarth."

Page ten of the filing states that "Stahlkopf induced and conspired with HECO, MECO, and Aloha to breach their contracts with BlueEarth; therefore, Stahlkopf is liable for inducement to breach contracts, interference with contracts, and conspiracy."

BlueEarth's lawyers are asking for a jury trial, for damages measured by lost profits and for an injunction in producing or procuring biodiesel from any entity not approved of by BlueEarth. They also ask that the defendants pay "Exemplary damages in an amount sufficient to deter them and others from engaging in such conduct in the future."

Renewable energy proponent Lance Holter, chair of the Sierra Club-Maui Group, related that the information regarding the Texas court filing was e-mailed to him anonymously. The sender gave no clue as to why the message was sent, except as a warning to taxpayers.

The e-mail contained a link to the US District Court website, where pages of the legal filing could be downloaded for a nominal fee. The sender also added a comment: "Landis Maez, President of BlueEarth Biofuels is still working with HECO while his [Chief Financial Officer] partner Bob Wellington files a law suit on BlueEarth's behalf in Texas? Landis has not separated himself from BlueEarth Biofuels. This can't turn out good for the Tax Payer who is on the hook for $60 Million in revenue bonds for this deal. More corporate lies and deceit? TAX PAYER BEWARE!"

It should be noted that Hawaii taxpayers are not on the hook for $59 million in Special Purpose Revenue Bonds (SPRB) that were approved to assist the BlueEarth/MECO project by the 2007 state legislature when they passed Senate Bill 1718. The purpose of such bond assistance is not an actual expenditure of state funds, but an opportunity to extend the state's bond credit rating to a prospective firm seeking to do business in Hawaii.While SB1718, providing SPRB assistance for BlueEarth, passed the Senate despite lopsided testimony opposing it, another challenge was launched before Governor Lingle signed the bill into law. A Hawaii coalition of eco groups opposed to importation of palm oil to fuel local electric plants sent the word far and wide, and more than 8,000 e-mails arrived at the Governor's office asking her to veto the bill. Unblinking, she signed it into law.

HECO and the Natural Resources Defense Council engaged in a quasi-public process of seeking community input on setting criteria for procuring "sustainable palm oil." A HECO press release from June 2007 acknowledged their procurement policy and noted that "palm oil cultivation has also been responsible for widespread clearing of primary tropical forests, draining of peat soils, catastrophic fires in Southeast Asia, and a number of other negative social and environmental impacts?"

The press release continued, "NRDC and HECO recognize that voluntary certification is not a panacea. There are limits to the effectiveness of voluntary certification in addressing the problems of today's commodity market for palm oil, in particular, and vegetable oils in general. However, by enacting this policy, we will be taking the first step towards creating a working model for sourcing sustainable palm oil. We hope that this model sends a powerful market signal and helps to create a foundation for the development and expansion of mandatory sustainability standards across the marketplace."

Others disagree with the assumptions made by HECO and NRDC. Kelly King, vice president of Pacific Biodiesel, which has produced fuel since 1997 from recycled vegetable fryer oil, was outspoken about palm oil imports and the proposed size of the BlueEarth refinery. In a July 2008 Hawaii Business magazine feature article titled "Maui's Bumpy Road to Renewable Energy," King said, "The amount of fuel they're talking about processing, we don't have that much land. It will always be dependent on imports at that level.

"As soon as it leaves the shores and gets shipped across the world to Hawaii, that's not a good thing and that's not sustainable for us," King continued. "It's not a resource we can rely on."

MECO has also announced plans to partner with a firm doing tests in Kona for an algae-to-biodiesel project near their Ma`alaea generating facility. Yet most industry experts agree that the high hopes of commercial scale production at an economically viable price are years away, if indeed the are attainable at all.

Curiously, the recently announced Hawaii Clean Energy Initiative, jointly signed by the Governor, HECO and the Office of the Consumer Advocate, shows a timeline to 2030 that does not include any renewable generation from biofuels on Maui. The timeline for Oahu, however, indicates there are plans for 110 megawatts to be generated using biofuels by 2010, and 308mw by 2015.

So what is the future of BlueEarth Biofuels LLC, or of any other entity taking over the biodiesel refinery project proposed last year? As of press time, calls had not been returned from the offices of Ed Reinhardt, President of MECO, and Stahlkopf, named as one of the defendants in the lawsuit.

Life of the Land's Henry Curtis is a staunch advocate for appropriate local renewable energy sources who has challenged HECO's impending contract to import palm oil for biodiesel. Said Curtis, "We find it interesting that this lawsuit was filed on October 6, 2008, the start of the evidentiary hearing for the Biofuels Docket at the Public Utilities Commission. Is HECO fiddling while their biofuel plans burn?"