Department of Hawaiian Home Lands

HHC Finalizes KIUC Solar Agreement

On Tues., Feb. 18th, the Hawaiian Homes Commission (HHC) approved the issuance of a general lease to Kaua’i Island Utility Cooperative (KIUC) for its Anahola Solar Project (“Project”) on 60 acres of Hawaiian home lands located in Anahola, Kaua’i to replace and improve upon the existing license that was first issued to both KIUC and the Homestead Community Development Corporation (HCDC) back in Oct. 2011.

Stated Hawaiian Homes Commission Chair Jobie Masagatani, “This was a difficult but necessary decision that the Commission needed to make in order to maximize our financial return to help meet the needs and demands of all of our beneficiaries throughout the state in the years to come.”

BACKGROUND

At its meeting held on Oct. 17, 2011, the Hawaiian Homes Commission (HHC) approved the issuance of a 25-year license to Kauai Island Utility Cooperative (KIUC) and the Homestead Community Development Corporation (HCDC) for the proposed Anahola Solar Project (Project) located in Anahola, Kaua’i.

The proposed Project consists of:

• A 53-acre Solar Farm made up of photovoltaic (PV) panels, inverters, and transformers providing up to 12 megawatts of electrical energy to KIUC’s electrical grid.
• An adjacent 2-acre substation which will be used for control equipment for the solar farm and to raise the boost power from the 12 kilovolts (kV) delivered by the PV system to the 57/69 kV voltage of KIUC’s electrical transmission system, with battery storage and connection to the grid
• A 5-acre service center will include access driveway, public and employee parking, storage yard for poles and truck parking, and improvements to Kūhiō Highway.

The shift from a license to a general lease occurred when KIUC’s President, David Bissell, submitted a formal request to the DHHL in a letter dated Sep. 26, 2013 seeking to convert the existing License No. 765 to a longer-term General Lease in order to leverage the leasehold interest for financing purposes and for permission to sublease a portion to its subsidiary, KIUC Renewable Solutions One LLC (KRS One).

The Department and KIUC had engaged in active negotiations since Sep. through Jan. regarding lease terms and payments and the types of benefits this solar project would bring to the community of Anahola and for our beneficiaries statewide. After months of negotiations, DHHL and KIUC were able to formulate a proposed agreement to bring forth before the Commission for its consideration and approval.

However, before going to the Commission for approval, both the Department and KIUC wanted the opportunity to update the Anahola Community on the proposed terms of the conversion to a lease agreement, which they did at a beneficiary informational meeting held on Kaua’i on Feb. 4, 2014 at Kapa’a Elementary School.

As shared with beneficiaries and applicants during this meeting, the proposed General Lease will be subject to the following conditions:

1. The total area under the General Lease is 60 acres: 53 acres for the solar farm, 2 acres for an electrical substation, and 5 acres for a future KIUC service center.

NOTE: These 60 acres were first identified in the Kaua’i Island Plan, dated May 2004, for commercial and community uses. These lands were further defined in the Anahola Town Center Plan, dated Jul. 2009, for homestead community, homestead commercial, and other commercial uses. In both cases, these lands were never identified for residential or agricultural homesteading purposes.

Subsequent to the Commission’s approval of the license in Oct. 2011, it was determined that some of the approved land uses were inconsistent with the existing Land Use Designations per the Kaua’i Island Plan and the Anahola Town Center Plan, so an amendment to the Land Use Designation was needed, and a beneficiary consultation meeting was conducted on Nov. 21, 2011.

Then in Feb. 2012, the Hawaiian Homes Commission approved the amendment to the Anahola Town Center Plan that clarified and designated the 7 acres (service center and substation) as “commercial” use, and the 53 acres (solar farm) for “light industrial” use.

2. The term of the General Lease is twenty-five (25) years, effective upon the date the Project is placed into service.

3. The annual ground lease rent for the initial five years of the lease term is as follows:

• 53 acres solar farm: $97,149.00
• 2 acres substation: $37,800.00
• 5 acres service center: $9,165.00
• Total: $144,114.00

4. The commencement date of the annual ground lease rent shall be the date the Project is placed into service, or Feb. 1, 2015, whichever is sooner.

5. KIUC has up to five years from lease effective date to request for an extension to the General Lease term for an additional 30 years to 55 years, pursuant to the authority under §171-36(b), Hawaii Revised Statutes, as amended, and all requirements associated with such authority, and this request is subject to the approval of the Hawaiian Homes Commission

6. Should KIUC’s request for extension be approved, the annual ground lease rent shall be adjusted as follows:

• 53 acres solar farm: $97,149.00
• 2 acres substation: $37,800.00
• 5 acres service center: $94,500.00
• Total: $229,449.00

7. The annual ground lease rent will be adjusted on Year 11, Year 16, and Year 21, based on the schedule established under the current License.

8. For the extended term, the annual ground lease rent shall be reopened and redetermined on Year 26 and every ten years, thereafter; the reopened and redetermined rent shall be based on the fair market rent at the time of reopening, and shall not be less than the scheduled rent for the previous period.

9. KIUC agrees to relocate/remove Array 12B further back, thus leaving the frontage on Kūhiō Highway open. DHHL has the option to withdraw this area (approximately 2.5 acres) anytime during the term of the Lease for other potential revenue generating projects.

10. Should KIUC decide to proceed with construction of the service center, KIUC must initiate construction within the first five years of the lease. Beginning in Year 6, DHHL has the option to withdraw the five acres proposed for the service center from the Lease.

11. KIUC shall keep these two open areas (former 12B Array location – 2.5 acres – and the 5-acre service center) in a clean and well-maintained condition. Should DHHL exercise its option to withdraw any of these two areas from the Lease, the annual ground lease rent shall be adjusted accordingly and the maintenance responsibility shall be terminated.

12. In addition to the annual ground lease rent, KIUC agrees to provide DHHL with $1 million for a roadwork and facility fund for the Anahola region; payment for this infrastructure support shall be due with the initial ground annual lease rent (once the Project is placed in service).

13. In addition to the annual ground lease rent, KIUC agrees to construct as part of the solar farm development, a gated, paved, service road improvement to allow for future access from Kūhiō Highway to DHHL lands on the Kapa’a side of the Project.

14. KIUC shall provide metes and bounds descriptions and maps of the 60-acre parcel, further subdividing it into five separate lots (See Exhibit “D”):

• Lot 1) Solar Farm (50.935 acres);
• Lot 2) Substation (2 acres);
• Lot 3) Service Center (approximately 4.527 acres);
• Lot 4) Array 12B area (2.065 acres); and
• Lot 5) the Roadway Lot (0.473 acre),

each with its own metes and bound description and map.

15. KIUC may sublease the leased premises or a portion of the lease to its wholly-owned subsidiary KIUC Renewable Solutions One, LLC for financing purposes.

16. DHHL has the option to withdraw the lands under the solar farm at the end of Year 25; and have KIUC transfer the solar farm to DHHL. DHHL can initiate negotiation for a new Power Purchase Agreement with KIUC OR possibly convert the solar farm to a Micro-Grid operation to service DHHL beneficiaries in the Anahola region.

17. KIUC agrees to provide the ability to utilize the micro-grid capabilities with its substation and the distribution system, and to provide technical assistance to DHHL regarding conversion to a Micro-Grid system.

18. KIUC and DHHL agree that at the end of the lease term, the decommissioning cost shall be transmitted to DHHL as a payment; provided that the decommissioning cost be determined by a mutually agreed-upon third party which shall determine the cost to restore the site to its original condition.

19. KIUC agrees to provide programs, incentives, grants, etc. targeting the reduction of energy and utility costs that directly benefit the Anahola community.

20. KIUC shall maintain the existing infrastructure, including irrigation systems to ensure continued ability to operate these systems. KIUC shall repair, re-route, or replace any systems disturbed by KIUC during construction and throughout the lease term.

21. KIUC shall provide GIS/GPS and survey information to DHHL for the improvements and for existing infrastructure that is located or disturbed on the Project site.

22. Although the executed Homestead Benefits Agreement is a separate agreement between KIUC and the Homestead Community Development Corporation and not a part of this General Lease, in the interest of full disclosure, KIUC will be required to provide an annual report to DHHL regarding the amounts paid and the activities undertaken to benefit the Anahola beneficiary community. Such report shall be available to the public.

Continued Chair Masagatani, “We heard very passionate and impassioned pleas both for and against the project.  However, in the end, we believe going forward with the solar farm lease with KIUC provides DHHL with the greatest funding options and is in line with our initiatives to support financial stability for the trust and more alternative energy opportunities in our homesteads for our residents.  Additionally, the generous contribution from KIUC can be used to create a network of ag-standard roads to free up and improve the lands on the Kapa’a side of the project for subsistence agricultural purposes which we heard loud and clear from the Green Energy discussion.”

With the General Lease approval, construction for the Project is anticipated to start approximately the 2nd quarter of 2014 and service shall commence the 1st quarter of 2015.