Every objective review which has occurred with regard to the proposed acquisition of Kaua’i Electric (KE) by the Kaua’i Island Utility Co-op (KIUC) has condemned as excessive the $270 plus million price which KIUC agreed to pay. The principal and
Every objective review which has occurred with regard to the proposed acquisition of Kaua’i Electric (KE) by the Kaua’i Island Utility Co-op (KIUC) has condemned as excessive the $270 plus million price which KIUC agreed to pay. The principal and interest on the debt borrowed to pay this price would amount to around $700 million over the loan term, and together with probably rising electric rates, would be an unbearable burden for the people of Kaua’i to have.
These financial concerns have been well-publicized, but others are less known.
In the normal case of a cooperative formation, a group of people unite as a way to serve a common purpose. In the instance of KIUC, a small cadre of organizers created the corporation, which made the very large purchase and borrowing commitments but carefully defined in its governing documents that it would have no members until after the completion of these transactions. Thus, despite the massive obligations to which it has agreed, KIUC is not now a cooperative, as it has no members.
And in addition to denying its prospective membership a voice in the deals it negotiated, the organizers arranged matters so that they would maintain control over the operation for an indefinite future time and continue in effect the lockout of its general membership from any meaningful participation in the business.
It is established business practice that persons offering ownership interests in businesses to the public must provide in detail the benefits and risks involved. Our Securities and Exchange Commission has extensive rules about this. But the organizers of KIUC, in their information campaign to the people of Kaua’i, chose to emphasize the cooperative benefits (there are some) but to ignore the disadvantages and abuse of to-be members.
A minor example is the claim made that KIUC would qualify to be treated as a corporation exempt from payment of income taxes. While this could be true, the organizers never told us that if a sufficient number of the electric power customers chose not to be KIUC members and more than 15 percent of KIUC revenues were received from non-members, the tax-exempt status would be lost.
Similarly, KIUC elected to remain silent about the limitations it imposed on members’ governance rights and about the commitments it made in the KE purchase agreement to assume Citizens Utilities’ environmental obligations and other risks.
We owe a tremendous debt of gratitude to the federal, state and county authorities who intervened in the proceedings to approve the transaction, analyze it carefully and unanimously and forcefully opposed it.
There are occasions when government works effectively, and this was one of them. If KIUC remains as a potential buyer of KE, it appears most likely that the transaction will be restructured to correct its deficiencies. Unless the Public Utilities Commission chooses to ignore the good advice it has received, we can expect a considerably brighter future for our island than that which would result from the agreement Citizens Utilities exacted from the inexperienced KIUC organizers.
WALTER LEWIS, Princeville