Rep. Morita, let’s change laws on cooperatives

Open letter to state Rep. Hermina Morita: The recent decision by the state Public Utilities Commission denying the proposed takeover of Kaua’i Electric (KE) by Kaua’i Island Utility Co-op ((KIUC) on the grounds that the purchase price was excessive saved the people and businesses of Kaua’i from a disastrous result, but obscured a glaring deficiency in our corporate laws which needs correction.

In the circumstances involved, KIUC was formed as a corporation under state laws relating to consumer cooperatives, and its directors proceeded to enter into commitments to purchase KE and to borrow great sums of money to finance the KE purchase. The directors contrived to defer the creation of the KIUC membership until after the contemplated consummation of the commitments made. Thus, while KIUC remained a corporate shell and before it became a cooperative by admission of members, it sought to make its members be responsible for the effect of its commitments but denied such members any voice or opportunity to approve the arrangements made.

Despite this memberless status, legal counsel for KIUC was prepared to opine that KIUC has all requisite corporate power to perform its obligations under the commitments made.

In the utilities commission proceedings seeking the approval of KIUC’s ownership of KE, one of the intervenors asked the perceptive question as to whom the KIUC board of directors was accountable prior to enlisting members.

The response was to the effect that such accountability was to themselves, which avoided the obvious answer of no one and pointed up that although there are checks and balances in other business forms and in the case of public officials, in the KIUC situation when the major commitments were being made, the powers of its directors were absolute.

The KIUC circumstances must not be allowed to recur. In the case of a utility cooperative, its members must necessarily meet the burdens of the commitments made because of the monopoly power conferred on the utility. Where such members have had no voice in the content of such commitments, there has been an abuse of corporate power.

You are urged to initiate legislation by the state which will remedy this profoundly unjust situation. In my view, such legislation should include requirements that a cooperative must establish its membership prior to the commencement of its business operations, and that such members shall be entitled to approve all major undertakings in the cooperative’s business plan.

If these simple provisions had been in place it is highly doubtful that the KIUC application for regulatory approval would ever have been made.

WALTER LEWIS, Princeville

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