Hu Honua Bioenergy LLC completed a rate term sheet with Helco for approximately 22MW firm capacity. The purpose of this letter is to present facts about their parent company and why this information is important for any financial review of Hu Honua. I also present reasons to doubt Hu Honua’s past and current financial representations.

Executive Summary.

During 2008 and 2009, Hu Honua Bioenergy LLC and MMA Renewable Venture LLC executives and advisors met on numerous occasions with Pepeekeo residents, Helco representatives, County Planning representatives, local ILWU, Senator Akaka, Representative Hirono, Representative Neil Abercrombie, other government officials, and the media.

Representations were made by these executives that were not true at the time, and had never been true. These claims were made to persuade the listener of their ability to complete the renovation, refurbishing, operation, and licensing of a biomass power plant located in Pepeekeo, Hawaii.

There should be significant doubt about Hu Honua’s ability to perform on any agreement, since it no longer belongs to MMA Renewable Ventures, but remains an asset of the parent company, MuniMae, whose reorganization plan is to own and manage portfolios of tax-exempt and market rate bonds and loans. The ownership and operation of a biomass power plant is inconsistent with their plan. Further, the employees with the abilities to plan, manage, and operate renewable power plants are now employed by Fotowatio Renewable Ventures.

Discussion and Facts

Organization prior to May 2009:

Municipal Mortgage & Equity, LLC , or MuniMae, (parent), traded on the New York Stock Exchange: MMAB
MMA Renewable Ventures (wholly owned division)
Hu Honua Bioenergy, LLC (division is majority shareholder)
Ethanol Research Hawaii, LLC (partner of Hu Honua)

Current organization after sale of assets:

Municipal Mortgage & Equity, LLC (parent), traded over the counter: MMAB.PK
Hu Honua Bioenergy, LLC (including biomass plant)
Ethanol Research Hawaii, LLC (inactive)

Enclosed are excerpts of Municipal Mortgage & Equity’s (aka MuniMae) current 10-K submissions to the Securities and Exchange Commission (SEC), a 210 page document, which can be downloaded and/or printed in full at the SEC website, http://www.sec.gov.

Status of the company 2008 and 2009 were bad years for raising money, even for renewable energy projects. The company slowed down their investment in renewable energy projects as early as Q1 2008.

April 2009, 10-K report, page 11:
“During 2008 and the first part of 2009, we have been unable to form new funds, and in good part our business activities have been limited to providing multifamily loans in our business of originating mortgage loans for sale to, and servicing loans for, government sponsored enterprises and agencies, and new solar projects in our renewable ventures business (although even this aspect of our business was substantially reduced during 2008).”

“We had remained actively engaged through the first quarter of 2008 in our renewable energy finance and development activities. However, beginning in the second quarter of 2008, we reduced the pace at which we were investing in renewable energy projects, partly because of a slowdown in our ability to obtain funds for investments, and partly because of investor uncertainty caused by Congress’ delay in finalizing legislation extending tax credits that were scheduled to reduce significantly at the end of 2008 (but now have been extended). “ Page 16

April 2009, 10-K report, page F-89
“The Company is currently managing its businesses in a manner to conserve capital and reduce costs and has been working with all of its lenders to restructure as many of its creditor agreements as possible in order to satisfy its ongoing liquidity needs and obtain forbearance agreements… In the event management’s plans are not successful, the Company could consider seeking relief through a bankruptcy filing. …If we complete the sales of our Agency Lending business and our Tax Credit Equity business, our only significant remaining activities will be owning and managing portfolios of tax-exempt and market rate bonds and loans. This will enable us to reduce significantly the number of people we employ (in addition to the personnel of the businesses we sell who become employees of the buyers or whose services are no longer required because we do not operate those businesses).“ page 11


Dog & Pony Show. Executives of MMA Renewable Ventures visit Hawaii to discuss the strength of their company, and their ability to make a significant investment in the community.

July 9, 2008 Hu Honua and MMA Renewable Ventures meet with Pepeekeo residents:
I asked them about the 46% drop in MuniMae stock price and the recent class action lawsuits accusing management of financial fraud and they said they had no comment about internal legal issues of their parent company. Noticeably, they did not say they were unaware of the issues. Since MuniMae was the largest stockholder of both entities, it seems that these executives would be interested in the drop in the value of their personal assets, i.e., MuniMae stock. Further, it is inconceivable that the parent company would not be issuing statements to its employees explaining their position on the reason for the stock decline as well as the 10 class action lawsuits. Being silent with employees could only jeopardize morale, productivity, and possibly employee turnover.

August 8, 2008 Hawaii Tribune-Herald “Power Facility: No Coal”, interviews Tim Lasocki, (then Vice President for Business Development MMA Renewable Ventures, and now Executive Vice President Hu Honua). “Hu Honua's operation is expected to cost between $25 million and $40 million. The money would come from long-term loans typically used to finance power plants, Lasocki said.” Surely Mr. Lasocki was aware that MuniMae was cutting back on their renewable investments as was recounted above in the paragraph entitled “Status of the company”.

Oct 2008 Hu Honua’s PowerPoint presentation to Pepeekeo Community:
• “Parent company MuniMae has $19 billion in assets under management”
• “$3.5 billion in new financing annually”

I find this entirely false, because the company did not have any unencumbered assets at that time, and the company was finding it difficult to raise money and slowed down its investment in renewable projects in Q1 as cited above under “Status of the company”. Further, there were no financial reports made by the company for 2008 and numerous lawsuits filed in 2008 cast doubt on any financial information.

“All of our businesses require significant access to borrowed funds and as such we have almost no assets that are unencumbered at December 31, 2008... Because we were not able to deliver financial statements in a timely manner, most of our debt that is not part of a bond securitization transaction was in default, and most of our lenders could have required us to repay the indebtedness.” Page 25, April 2009 10-K report

Hu Honua executives continue to represent that they the parent company will provide the funds for their project, however, the parent company has not filed any required financial reports to the SEC for 2007, 2008, or Q1 2009. They restated their prior SEC submissions for 2004, 2005, and 2006. So how can a reasonable person believe Hu Honua’s representations of their financial capacity to perform on this project? Further, How could these executives believe that they could pull off this project when their parent company was slowing down its investment in renewable projects and was finding it difficult to raise money?

“This Report does not contain quarterly information for years ended December 31, 2006 and 2005 nor do we plan to provide this information through subsequent Securities and Exchange Commission (“SEC”) filings. Preparing and providing this information would be costly, would be only marginally beneficial to our investors and would serve only to delay the filing of this Report as well as future filings which will provide our 2007 and 2008 financial position and results of operations.” Page 5.

Investor Beware. The renewable energy projects that MMA Renewable Ventures LLC funded, built, and operated before being sold to Fotowatio followed a similar approach. Money was raised from institutional investors and set aside in designated funds, such as Solar I, Solar II, Solar III, and Solar IV. Each fund was formed as a general partnership with limited partnership shares. Each fund was used to build and operate a specific project facility. Over $200Million was raised in 2007 and 2008 for these committed solar projects. MMA Renewable was sold for $19.7 million earlier this year, a fraction of what those projects cost. What happens to the investors holding limited partnership interests? Well, MuniMae committed to guarantee its obligations, but, that seems a hollow promise given their current condition. So, what sort of institutional investor will invest in more renewable energy projects, given the sorry experience of MMA Renewables? The risk seems too great in today’s market.

Conclusion. I do not believe any representations made by Hu Honua Bioenergy LLC or former executives of MMA Renewable Ventures. I do not believe that they can raise $40 million or even $80 million (as told to one government official). I hope that any financial information presented to Helco, PUC, EPA, or DOH, be given a full audit by Hawaii State auditors. I hope that a rigorous risk analysis be conducted on any agreement with this company. It seems likely that MuniMae will sell Hu Honua, so the State auditors should look any exposure, should that occur. Any new owner should provide audited financials as part of the due diligence process.

CO2 Carbon Dioxide

Thanks to Patti & Bob Ferrazi for pointing us to greenhouse gas emissions. Check out the box on the right "Coal Plant Lawsuits" and you'll see some interesting rulings about coal plants in other states requiring a permit for co2 emissions. Does anyone know about Hawaii's plans to regulate these emissions? Can someone research?

Waiver for Competitive Bidding - PUC

Stacey Djou, chief legal counsel, Public Utilities Commission, told me today that on July 16, 2008 Helco and Heco filed a waiver to suspend competitive bidding on the HuHonua Bioenergy Project. The PUC cannot disclose anything about the filing, and will rule on it once they receive a Statement of Position from the Consumer Advocate, with in the Department of Consumer Avocacy, 808-586-2800

link

Coastal Zone Management

I spoke with Doug Tom, program director for the state's Coastal Zone Management Program. He says he's introducing legislation that would tighten SMA rules, because many abuses have been caused because of the broad definition of "development". However, he says that the counties are opposed to the state's "interfering" in their activities. He says that the proposed legislation is aimed at stopping speculation, for instance, where something has not been used continuously and becomes a vehicle for speculators.

He recommends we look into the Ocean Resources Plan and determine any inconsistencies with it and the power plant situation.

Air Permit Status

Permit 0229-02-C is a Covered Source Permit, issued by the Clean Air Branch, State Dept of Health, transferred from Hilo Coast Power Company to Pacific Rim Energy Partners LLC on 7/19/2005; again transferred on 11/30/2007 to Ethanol Research Hawaii, LLC; and again transferred on 10/17/08 to Hu Honua LLC. The "covered source" is the Babcock & Wilcox steam boiler and diesel generator. The fuel covered is coal and diesel.

Any modification to the fuel type, including wood chips, requires a modification process with the Clean Air Branch. The process is a technical review against the federal and state emission guidelines. It is not a review of the merits of the project.

Process requires a 30 day public notice period for public comment. Notices are published in Honolulu and east and west Hawaii papers. There is no modification in process at this time. This information was given to me by Nolan Harrari, engineer supervisor on 7/29/08.

Obtaining a copy of the existing permit is underway.

Community Noise Control

Title 11, Chapter 46, Hawaii Administrative Rules

Noise limits are set by the zoning classification, i.e., agricultural has a much higher decibel level limit than residential, which has a lower limit during nighttime.

Noise Control Branch of the state DOH has an inspector for the site who will come with equipment and take measurements from the property of the complaining party, and not from the plant premises.

PUC (Public Utilities Commission)

energy related

Helco's Integrated Resource Plan

Helco IRP

Helco's IRP 3 Report

documents submitted to the Public Utilities Commission
Appendix T. Scenario Analysis

Hawaii's Energy Policy

website
energy efficiency options

State Energy Coordinator: Theodore F. Liu, Director, Department of Business, Economic Development and Tourism
contact information

Water Permits- Clean Air Branch, Dept of Health

Joanna Seto, engineer at the Clean Water Branch, phone (808) 586-4309, says that the new plant operator must obtain two national pollution discharge permits (NPDES and ZOM) - see details on this title's link. Once HuHonua submits applications, the Clean Air Branch issues a draft permit and requires HuHonua to issue a public notice. The public can send comments to the Clean Air Branch during the notice period and all comments will be responded to before a final permit is issued.

Background Information

The link above is the research done in 2004-5 when PREP tried to open the plant.

The Best Solution is Conservation!

We can save much more than 225,000 bbl oil if ONLY the Mayor and Helco made a major campaign to conserve. Compared to other states, we spend more for energy and get less because we waste what we have.
slideshow

Hawaii County Facts
1. According to a 2007 study done for the county, "Energy planners at Hawaii Electric Light Company (HELCO) believe the greatest single
residential end-use application of electricity to be water heating on the eastern side of the island
and air conditioning on the western side".

2. Hawaii currently has 300 MW of electrical generating capacity and plans to add 30 MW to 60 MW over the next 20 years.

Hawaii Energy Policy Forum's 10 Point Plan

“Smart energy solutions to sustain a
healthy, secure and prosperous
Hawaii”

1. Expand Renewable Energy Opportunities
2. Promote Conservation and Energy Efficiency
3. Reduce Green House Gas Emissions in Hawaii
4. Foster Civic Action and Participation
5. Enhance Regulatory Goals and Protections
6. Encourage Culturally Appropriate and Sustainable Energy Planning
7. Improve Energy Efficiencies and Options in Transportation
8. Support research and development of alternative energy sources (hydrogen, wave energy, etc.)
9. Support sustainable development and use of biofuels
10. Ensure the security and reliability of energy supply and distribution.

Hawaii Energy Policy Forum and County Research Reports

HELCO's Reputation with the State is Poor vis a vis New Facilities
The process of obtaining all necessary permits and approvals for a major energy facility is
formidably difficult. The response of state agencies to applications in Hawaii is not coordinated or
efficient.
An example is the recent process on the Island of Hawaii to select, permit and build HELCO’s
latest large power generation unit addition. HELCO was not able to build its own proposed
expansion at its Keahole plant site. DLNR and HELCO battled in court regarding Keahole
permitting issues. Several independent power producers (IPP’s) clamored for the opportunity to
force HELCO to negotiate a contract under the provisions of federal law. Each IPP filed a
complaint docket with the PUC. The utility was forced to simultaneously negotiate with several
IPP’s and appear before the PUC regarding the complaints as well as respond in a docket
investigating contingency options for delays in adding new generation. Even though it was clear
that only one power plant would eventually be built, the Hawaii Department of Health was forced to
process several simultaneous voluminous PSD air quality permit applications which severely
overtaxed its staff. Meanwhile, in lieu of timely addition of new generation, HELCO was forced to
build contingency generation units, utilize high-cost and polluting power sources and its electric
system reliability was reduced. This was not a model of regulatory efficiency.
Hawaii Energy Utility Regulation and Taxation Report

Noise Abatement

What exactly is being implemented?

Air Permit

Please post your research here. Can we get a copy of the existing air permit? What are the standards it enumerates? What about children's tolerance for these chemicals? Details of who talked to whom, when, discussed?

Solid Waste Permit

Please post your research here. We need to know if a solid waste permit is needed if a plant burns biomass. Please document who talked to whom, when, and what was discussed.