Proposed sale of Kaua’i Electric invites full oversight

LIHU’E — Even if state law didn’t require the state Public Utilities

Commission to regulate the Kaua’i Island Utility Co-op, the co-op would

voluntarily seek that PUC regulation, said Dick Heitman.

Heitman, team

leader working toward a smooth transition from investor-owned Kaua’i Electric

to customer-owned KIUC in a $270 million sale awaiting PUC approval or denial,

addressed the regulation issue and others during a recent


“There’s a lot of things that are in the law that pretty much

require that we remain regulated by the PUC,” Heitman said.

“I don’t know

whether there ever will be a desire to be anything other than regulated,” he

said. “I think it would take a change in the law to allow that to


At various town meetings held to discuss the proposed sale,

opponents of the sale worried that the co-op could raise electric rates

immediately upon finalization of the sale if the PUC didn’t regulate


The PUC must approve most rate increases.

In the transfer documents

currently before the PUC, Kaua’i Electric and the co-op ask not only for PUC

approval of the sale, but for all KE rules, regulations (including PUC

regulation), tariffs and rates to remain the same after the sale is finalized.

Still, a bill in this year’s state Legislature that would have mandated

PUC regulation of utility cooperatives died in a state House


State Rep. Ezra Kanoho (D-13th District) said the bill was

killed in committee because the PUC and KIUC both believed the bill wasn’t

necessary because the co-op would fall under commission regulation


The bill was introduced near the deadline for proposing new

legislation, to make sure there was a bill in existence in case it was needed

to help the sale become a reality, Kanoho said.

A former Kaua’i Electric

worker, now retired, said his friends in the International Brotherhood of

Electrical Workers (the union which represents many KE employees) who are

employed by Hawaiian Electric Co. (HECO) say HECO company officials are hoping

KIUC fails, so Hawaiian Electric can buy KE for a lower price that HECO

originally bid.

According to a company spokesman, the bid by Hawaiian

Electric was substantially lower than the asking price for KE, so HECO didn’t

get invited to a second round of bidding.

The retired KE employee, speaking

anonymously, further said that if KIUC or anyone wants to get a truly accurate

assessment of how the people of Kaua’i feel about KIUC buying KE, some

questions should be put on an upcoming election ballot.

The questions would

be, in his view: Should KIUC pay $270 million to buy KE? Should KIUC pay $160

million to buy KE? and Should KIUC buy KE at all?

To get such questions on

a Kaua’i County ballot for the November general election would have required

the signatures of just over 16,000 registered voters who voted in the 1998

elections. The signatures had to be turned into the county clerk by the end of

last month.

The sale of Kaua’i Electric to the co-op for $270 million

needs PUC approval before it can be finalized, and buyer and seller have

petitioned the commission for that approval.

There is no timetable on when

the PUC might issue its decision, but the buyer and seller have requested a

decision by the end of September.

On another matter, some information

printed in a recent letter to the editor in The Garden Island indicated that in

the sale agreement between Citizens Communications (formerly Citizens

Utilities) and KIUC, there was a clause holding Citizens harmless for any

environmental damage the KE operations may cause or may have caused.


cost of cleaning up such an environmental mess could easily exceed the $270

million purchase price, according to the letter writer.

But Heitman, citing

the sale agreement, said the hold-harmless clause pertains only to co-op

representatives entering KE property to do environmental investigation.


those representatives are killed or injured during such investigations, KIUC

could not sue Citizens, he explained.

But as far as Heitman knows, if

Citizens pollutes, they can’t evade responsibility for that pollution.


don’t know what it’s like in the state of Hawai’i, but in the state of

Washington, you can’t get rid of that. If you’ve polluted, that’s your

liability,” said Heitman, who also wouldn’t feel at ease with KIUC assuming

environmental liability for all of Citizens’ actions in the past.


who managed an electric co-op in Washington state before coming here to lead

the transition team, reiterated an earlier statement that none of the KIUC’s

board members have put up any of their personal funds to help make the proposed

deal happen.

There was speculation that there was a $13.5 million,

non-refundable down-payment KIUC had to come up with — roughly 5 percent of

the proposed purchase price — and that the money came from individual board


“There was a 5-percent-down clause, that’s non-refundable under

certain conditions,” Heitman said. “But if the regulators say ‘no,’ nobody has

to pay that.”

The money exists as a letter of credit to KE from the

National Rural Utilities Cooperative Finance Corp., Heitman


According to documents presented to the PUC supporting the sale,

the depreciated book value of KE at the end of last year was just over $174

million, while the original cost of the KE assets as of the end of last year

was just under $280 million.

The difference between the book value and bid

price for KE — close to $100 million — has been a cause of concern for

federal, state and county officials who have gone on record opposing the

proposed sale.

Co-op officials, however, contend:

* That properties

other than electrical utilities are often sold for prices higher than book


* That an unsuccessful bidder bid more than $270 million for


* And that at any price over $270 million, KIUC couldn’t make the deal

without raising customers’ electric rates.

Business Editor Paul C.

Curtis can be reached at 245-3681 (ext. 224) or


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