Mayor: County doesn’t really want to own Kaua’i Electric

Issues, options emerging in selling of utility

BY PAUL C. CURTIS

TGI

Staff Writer

LIHU’E — Several things are known about the proposed sale of

Kaua’i Electric to Kaua’i Island Utility Cooperative:

l The previously

agreed-upon $270 million sale price is too high for many citizens and all three

levels of government to concur with.

l A lower price has been negotiated by

Kaua’i Electric (KE) parent company Citizens Communications and the co-op,

which has been conveyed to Kaua’i County but won’t be disclosed until it is

found palatable to the county.

l The county has a price limit under which

it will approve of the sale of KE to the co-op, but officials won’t divulge

that price, either.

l People who are paying among the highest rates for

electricity in the U.S. (including county government, which pays nearly $4

million a year for power) want reliable, lower-cost electricity.

l The

county, which appeared to be positioning itself to become the owner of KE

(through costly, time-consuming condemnation and eminent domain proceedings),

now says it would rather not buy KE.

l There are still concerns that the

co-op’s board of directors will shut out certain segments of the public from

its discussion and decision-making processes.

l The co-op still has access

to low-cost federal funding for the entire purchase price, whatever that ends

up being.

l Cooperatives, municipally owned utilities and their respective

national trade organizations are interested in alternative forms of

energy.

l Gregg Gardiner, recently re-elected as chairman of the Kaua’i

co-op’s board of directors, has nothing to gain financially if the group

purchases KE.

l And finally, if the county bought KE, the co-op management

model wouldn’t work here, largely because it wouldn’t allow for one of the

fundamental principles of the co-op model: The money being used to run the

utility belongs to the ratepayers and, eventually, some of that will be given

back to the ratepayers based on electricity usage levels.

At yesterday’s

meeting of the Committee on Governance of an Island Utility, committee members

and about 20 citizens heard of the benefits of both co-op and municipal

ownership of KE.

After the meeting, Mayor Maryanne Kusaka said while the

county hasn’t ruled out buying KE, it would rather someone else bought it for a

lower price than the $270 million which was rejected by the state Public

Utilities Commission, the county and federal officials earlier this

year.

“We’re looking at all the possibilities, and that’s certainly one of

the possibilities,” Kusaka said. “We just want the price down. Our preference

is not to purchase it.”

Kusaka said the entire acquisition process has been

a learning experience for those involved, including the co-op organizers, who

know now that they need public support and input to be successful. That public

support includes backing from elected officials, she added.

The main

purpose of the governance committee meetings, she reiterated, is to advise the

administration and County Council on the best form of governance of KE when it

moves from investor ownership to either a municipal or member-owned

entity.

The best method, she added, is the lowest-cost

model.

Representatives from the National Rural Electric Cooperative

Association, led by Martin J. Lowery, executive vice president of external

affairs, advocated exploring alternatives to burning oil to generate

electricity.

Among Gardiner’s lofty goals is one to see solar panels on top

of every home on the island, something that will take government

financing.

He reported yesterday that Kaua’i is being considered as a test

site for alternative energy programs, and Lowery reported there are ample

federal funds through the U.S. Department of Energy to back such an

initiative.

The case for a municipally owned electric company was made by

Dave Penn, deputy executive director of the American Public Power Association,

a trade association for government-owned electric companies which, like

cooperatives, have millions of miles of transmission and distribution lines

across the mainland (and Puerto Rico and the U.S. Virgin Islands), as well as

massive generation capabilities.

Both municipal and cooperative-owned

utilities say that local ownership is a major plus. Penn said that if the

county bought KE, it could use in-place billing and meter-reading staff to

generate electric bills for customers.

A difference is that a

municipal-owned utility, in the mainland cases at least, has an elected or

appointed board, usually independent of county government, while under county

ownership, all records and paperwork are public documents, Penn explained. That

generates “rate-payer trust,” he said.

Penn and Lowery, whose agencies work

together on issues such as keeping Federal Emergency Management Agency (FEMA)

disaster funding and other assistance and tax breaks available, agree that the

decision facing the island is likely the largest one it will ever

make.

“It’s a huge decision,” Penn said.

The things needed for the

county to become owner of KE, Penn said, including a soon-to-be-underway

independent appraisal of assets to be acquired (something that opponents of the

first co-op-KE deal say wasn’t done by KIUC);

l An economic and engineering

feasibility study.

l Even more comprehensive financing document preparation

studies covering engineering, economic and legal matters to satisfy rating

agency, underwriter, trustee and, perhaps, bond insurer requirements.

l

Access to books and records, and to physical inspection of plant and other

facilities to determine risks and fair asset price.

Penn said KE employees’

morale may surge with the fresh start, non-profit, public-service outlook, with

an increased emphasis on safety, as former Long Island Lighting Company

employees felt when they switched to Long Island Power Authority and the

employees reformed as the organization Keyspan to provide operations for the

new entity.

Committee members and the public peppered Penn and Lowery with

questions. Committee member Fran Brennan asked the likelihood of the buyer

having to borrow upward of $330 million to finance the sale, then seeing rates

go up, potentially leading to large customers generating their own power, going

off the grid and leaving the remaining ratepayers to pay even higher rates to

keep the utility going, eventually leaving the new owner bankrupt.

Penn and

Lowery said those cases rarely happen. But Lowery said if it did, it would be

the governing body, not the ratepayers, who would be liable to creditors.

Penn said in almost every case, when an investor-owned utility is

purchased by a government, the result is lower rates. Lowery said the co-op

could show “immediate” benefits to Kaua’i ratepayers, as well.

Later, Penn

was more blunt about ratepayers eventually footing the bill for an owner’s

misstep.

“Make no mistake about it. One way or another, you’re going to

pay,” he said.

Walt Barnes asked about environmental liability for a new

owner of KE. Lowery and Penn answered that a thorough investigation of all of

KE’s assets — and potential liabilities — is necessary long before a sales

agreement is ever signed.

They said they know of no instance involving

municipal or co-op-owners in which an environmental disaster was discovered

after purchase and led to a lawsuit which bankrupted the new owner.

Ed Coll

said the co-op’s bylaws put the organization in a position to “hijack” the

board makeup, leaving opposition voices like his with nowhere to be

heard.

Lowery responded that to allow a co-op board to position itself to

exclude any voices would be “ruinous,” and that the national trade organization

has recommended bylaws to allow for full public comment in most co-op

business.

Penn stated that Hawaii’s sopen-meetings “sunshine law” would

mean just that — open meetings — in a municipal-owned model.

Regarding

the issue of state Utilities Commission governance over any new owner of KE, a

question raised by Walter Lewis, Lowery responded that most co-ops are

self-regulated, and that government regulation sometimes adds costs. But around

half of all co-ops on the mainland are regulated by some governmental

agency.

Penn said the American Public Power Association advocates

self-regulation, but municipal-owned utilities in six mainland states are

subject to state utility regulation.

The governance committee is scheduled

to meet each Monday from 2 to 5 p.m. through Dec. 18, either in the council

chambers in the Historic County Building or Lihu’e Civic Center.

Staff

Writer Paul C. Curtis can be reached at pcurtis@pulitzer.net or 245-3681 (ext.

224).