County should plug into Kaua’i Electric

At present, the people and businesses of our county pay the highest electric

rates in the nation. With the federal, state and county intervenors united in

concluding that the Kaua’i Island Utility Co-op-proposed takeover of Kaua’i

Electric would be at a grossly excessive price and would further increase our

rates, it appears likely that the Public Utilities Commission will act in the

near future to deny the KIUC takeover application. In this setting, the county

has begun an exploration of alternatives.

From a financial perspective, the

county would be very well-placed to serve its citizens by acquiring Kaua’i

Electric. Local governmental ownership of electric utilities is quite general,

occurring in over 2,000 locations.

The county has some unique advantages.

Let us consider them. If Kaua’i Electric could be acquired at a price in the

range of its current financial statement net worth, the county would have,

assuming the expected RUS loan of $113 million, only about $11 million in

annual borrowing costs compared with about $14 million for a cooperative under

the same assumption, and over $25 million in rate of return allowance for an

investor-owned utility.

In addition, the county would be exempt from the

public utility tax of 7 percent of revenues, or about $5.5 million per year.

Based on the most recent operating results of Kaua’i Electric, revenues would

exceed costs by over $10 million if the operation were county-owned, providing

the potential for an immediate rate reduction of up to 10 percent. Is that good

news or is that good news?

The KIUC negotiations to acquire KE were

seriously flawed by an inadequate investigation of the KE assets and business.

A prudent buyer should carefully examine the factors that might determine the

value of properties to be acquired. Such an effort takes some time and money.

The county should fund an appropriate investigation of KE as a preliminary to

any commitment made to buy it.

Some of our citizens are properly concerned

about the county’s ability to manage the business in a good and prudent manner.

We can all agree that if the utility were run with businesslike objectives, it

would be much better than if it were politicized into a county department. The

key to retaining cost controls and good business practices for the KE business

is to have an independent board of directors and skilled management for the

operation. These purposes can be met if, following the county acquisition,

well-qualified persons are selected for its board and top management.

With

a separate and independent corporation and county and citizen cooperation in

the designation of the initial board and an experienced and competent chief

executive officer, a county-owned electric utility will be in a position to

operate efficiently.

County ownership of the Kaua’i Electric business can

bring relief to the long-suffering Kaua’i ratepayers, and it can provide a

window toward diversification away from total dependence on fossil fuel as our

energy source. To achieve these benefits, we need a financially sound

enterprise with a management and board which are not enslaved by fossil fuel

commitments, but rather open to the opportunities which other energy sources

may provide.

If soundly oriented, county ownership of the Kaua’i Electric

business can achieve very attractive reductions in our electric bills, both in

the immediate future and in the years ahead. Let us encourage our county to

take the initiative to act as may be necessary to make the Kaua’i Electric

operation a locally owned and controlled enterprise.

Walter Lewis is a

Princeville resident and a frequent contributor to The Forum.

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