KIUC transaction would be ‘disaster for Kaua’i’

The Forum article last week by Bob Mullins (“If not the co-op, then what?” TGI

6/26/00) about KIUC is an effort to prop up a fatally flawed project. While he

faithfully recites the usual points used to justify cooperatives, which are not

in dispute, he fails to address the real concerns.

The facts are that an

inexperienced small group who failed to use the resources which are regularly

employed in complex transactions of this nature, were induced to enter into an

agreement to purchase Kauai Electric at an excessive price and on terms which

were imprudent.

The three KIUC organizers, not realizing that they were

being manipulated in a rigged and perhaps collusive bidding process, committed

to future costs which will prevent KIUC from achieving their objective of

avoiding rate increases.

Mullins complains about “erroneous concerns

about the financial details” but he clearly has not studied the materials

in the PUC docket. The reality is that KIUC must be profitable at existing

rates to be able to maintain them. KIUC projects slight profits in its first

year, but its supporting data is not credible. Although KIUC is taking over the

KE personnel, its commitments and its methods of operations, it rashly contends

that it will cut KE’s operating costs in that year by $12 million. In addition

it erroneously understates interest costs by $2 million. Should KIUC results

approximate KE’s real life experience and interest costs are corrected, KIUC

would lose almost $14 million in the first year and substantial rate increases

would be on the way. Even if KIUC were to manage some cost savings, rates would

still climb, due to the pass through costs of $2 million from the KIUC’s

accepted new KPP plant in 2002.

The cause of these dreary expectations is,

of course, the huge interest costs KIUC will incur because of the unwise level

of the purchase price. (In spite of their putting off principle payments for 2

and 4 years on the CFC and RUS loans, each $113.25 million.)

Bob maintains

that it is a good idea to transition from fossil fuels to alternative energy

sources and says that KIUC is the best way to achieve this. He fails to take

into account that with the new massive costs in a fossil facility, KIUC will

need to amortize its investment and this factor will restrain it from pursuing

alternative energy ideas.

Bob says that there is no way it could be left to

the ratepayers to determine whether they approve the deal negotiated by the

three organizers. Obviously he feels that it is perfectly all right to

involuntarily thrust a $300 million commitment on people without giving them a

democratic voice in the matter. Will it take a class action lawsuit for these

fundamental rights to be protected?

Bob then raises his contention that

there is no alternative to the KIUC deal. Nonsense. The best thing that could

happen to the people and businesses on Kauai is to have the PUC reject the

deal. Citizens Utilities will still want to sell KE and KIUC would have the

opportunity to profit from the very considerable mistakes it has made and

negotiate a new deal, with a substantially reduced price and better terms. It

would have little or no competition, as the phantom bidder, Cap Rock Energy,

appears overcommitted elsewhere.

Finally Bob says, “we should trust” the

KIUC organizers. We have heard this type of request before, and we know that

trust needs to be earned not bestowed where it is not. People should look

beyond the perception that a cooperative is a good form for an electric utility

and view thoughtfully the shoddy negotiation, the misrepresentations made and

the abuses to members rights the organizers have imposed. This present

transaction will be a disaster for Kaua’i and we should not allow it to


P. Neil



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