A late July ruling by an environmental court in Hawaii nearly halved the amount of water permitted to an irrigation system partially owned by PSP Investments-backed Mahi Pono.
Mahi Pono acquired a 50 percent stake in East Maui Irrigation Company in late 2018 from Honolulu-headquartered real estate company Alexander & Baldwin. The deal contains a rebate provision which is triggered if EMI is legally prohibited from delivering less than 30 million gallons per day at any point within eight years after its closing.
Hawaii’s Environmental Court ruled on July 30 that EMI – which owns and operates an irrigation system supplying the 41,000-acre agricultural property Mahi Pono also acquired from A&B for $262 million at the same time as its EMI investment – would be entitled to a monthly average of about 25 MGD, effective immediately.
A&B and EMI had previously been permitted to divert up to 45 MGD from East Maui streams according to a November 2020 authorization from Hawaii’s Board of Land and Natural Resources, which was challenged by the non-profit Sierra Club of Hawaii in an environmental court.
According to a regulatory filing by New York Stock Exchange-listed A&B, the deal’s terms require A&B to pay Mahi Pono a $31 million rebate of an initial purchase price of $62 million if EMI is legally prohibited from delivering a minimum of 30 MGD at any point in the first eight years from the deal’s closing. The terms also include additional penalties related to further potential productivity loss.
First Circuit Court Judge Jeffrey Crabtree wrote in his ruling the BLNR had violated Sierra Club’s rights by refusing to conduct a contested case hearing as quickly as practicable. Citing a 2015 Hawaii Supreme Court decision stating contested case hearings are necessary in certain instances, he also denied a request that EMI and A&B’s existing permits be extended through the end of 2021.
Crabtree reviewed EMI’s monthly water use since 2017 and ruled the new limit will stay in place until a decision is rendered through a contested care hearing, or further order of the court. He also wrote the ruling would provide an opportunity to reduce “apparent or potential waste.”
“Just as upcountry Maui residents are being asked to conserve water right now, the court recognized that Mahi Pono also must do all it can to reduce waste in its own water usage,” Sierra Club for Hawaii director Marti Townsend said in a statement.
Summer Sylva is interim executive director and senior staff attorney at the non-profit Native Hawaiian Legal Corporation and argued the plaintiff’s case before the Hawaii Supreme Court in a separate May 2020 hearing regarding A&B’s long-term permitting for use of East Maui streams.
Sylva told Agri Investor Crabtree’s ruling prompted A&B to retract an environmental impact statement it had previously filed with the BLNR as final.
“I don’t think they or Mahi Pono contemplated a court ruling that would ever cap their use to such a low standard before they had any opportunity for any other type of recourse,” she said. “This is a real surprise and the fact that the judge has foreclosed any of the defendants from appealing the decision prematurely really blocks their ability to get out of this order.”
Tim O’Laughlin, an attorney specializing in water rights who moved to Hawaii in October 2019 to serve as Mahi Pono’s chief operating officer, relocated to California in February for a role focused in part on affiliate Pomona Farming.
Mahi Pono declined to discuss its role in managing EMI. It told Agri Investor via email the company plans to file its own environmental impact statement related to an application for long-term use of East Maui streams on August 26.
“We are in agreement that it would be more appropriate for our farm to operate under a long-term lease as opposed to annual renewals,” the representative wrote.
PSP declined to comment while Sierra Club and A&B representatives did not return messages seeking further detail.