Kauai Electric sale to KIUC gets backing from state’s consumer advocate, Navy

The state’s consumer advocate and the Department of the Navy are backing the proposed $215 million sale of Kauai Electric to the Kauai Island Utility Co-op.

Electric users on Kaua’i are also being promised potential cash returns in the future if the sale goes through.

In advance of today’s deadline for filing preliminary position statements by intervenors in the sale to the state Public Utilities Commission, a document including a joint statement of support for the sale was sent by the consumer advocate and the Navy, who are both intervenors, and the KIUC’ s board, to the PUC. The document was made public Thursday.

The agreement on support for the sale was underscored by the action of the Navy and the consumer advocate in agreeing to make their preliminary statement also their final opinion as intervenors on the sale.

Two years ago the PUC rejected KIUC’s application to buy Kauai Electric for $270 million. The concept of creating a locally-run co-op to run the island’s electric utility came about three years ago when the electric company came up for sale.

The positions now being taken by the consumer advocate and the Navy could lead to a closing of the sale of Kauai Electric to KIUC by late October.

The coop group is hoping for preliminary approval of the sale by the PUC by July 30, and final approval by September 17, and is saying it needs to lock in funding for the sale before October 30 if it is to receive an optimum financing rate from the federal agency that has committed to help finance the sale.

In the document the consumer advocate advised the PUC to approve the sale in time for KIUC to qualify for special low-interest government funding.

A statement in the document by the consumer advocate calls the sale price and proposal to keep Kauai Electric’s current rates in place ” fair and reasonable.”

“We are thrilled to have such a strong vote of confidence from the state’s Division of Consumer Advocacy,” said Gregg Gardiner, chairman of the KIUC.

Strong opposition to the sale by a grass roots coalition helped lead to the rejection of the sale two years ago. The Navy and the County of Kaua’i, along with the consumer advocate were intervenors in the sale and all rejected the proposal.

Walter Lewis of Princeville, an opponent of the sale, commented Thursday on the document sent to the PUC this week.

“The county submitted more than 75% of the information requests in the PUC docket,” he said. “I believe it is unfortunate that the Consumer Advocate and the Navy failed to be more thorough. The county has identified a number of matters of concern about the transaction. A principal one is that there is a potential class action suit arising out of the last Kauai Electric rate case. If the transaction is approved our ratepayers will likely never enjoy its benefits.”

At a public meeting held on May 22 in Lihu’e, a wide range of business people and individuals from across the island, including environmentalists, made a show of support of the proposed sale, with a majority of those speaking coming out in favor of the sale.

The PUC is also taking into account the opinion of the County of Kaua’i, the third of three PUC-appointed intervenors in the sale. The county administration is still considering an alternative to the KIUC sale – creation of a county power authority that would run Kauai Electric.

“The county is reviewing the information at this time and we don’t have a comment on it one way or another,” said Wally Rezentes, Sr. administrative assistant to Mayor Maryanne Kusaka.

Last week the Kaua’i County Council approved the use of $40,000 to pay for an attorney and consultant to continue to work on a feasibility study of the administration’s proposal.

The new terms of the proposed sale to KIUC include promised cash paybacks to electric customers. All hinge on the completion of the sale to KIUC later this year.

One would be a cash rebate of $3 million from Citizens that would be prorated among Kauai Electric’s 30,000 current customers. The pay out would come within one year of the closing of the sale to KIUC. The payment would equal about a 3.5% reduction of electric bills in 2003.

Another would be the refund of 25% of KIUC’s net income to coop members each year beginning in 2004. The approval of the Rural Utilities Service, the agency that would underwrite the proposed sale to KIUC, would be needed.

Gardiner said the goal is to cut energy bills back by up to over $20 million over 10 years, while building up about a 24% equity ownership in the electric utility within the same time span.

He said an investment in capital improvements of $115 million in the Kauai Electric system would be made over time without taking out loans. The funds would come from electric user payments.

Another detail of the proposed sale appearing in the document showed that in the event of another devastating hurricane hitting Kaua’i, KIUC would qualify as “a non-profit consumer-owned cooperative” for up to 75% of the cost of bringing the island’s electric grid back to service. The funds would come from the Federal Emergency Management Agency.

Alton Miyamoto of Kauai Electric, who would head up the operations side of KIUC if the sale goes through, said the existing Kauai Electric staff would become KIUC employees. A memorandum of agreement with the IBEW union is in place, he said, that would guarantee employees retain the same salaries and benefits that now exist.

He said in-depth planning is already underway within the company for a switchover to new ownership.

Miyamoto said the transfer of ownership to local control would bring more flexibility in fulfilling requests from the community for various programs and enhancements to electric service. This could include a move towards using renewable energy sources as a larger part of power generation on Kaua’i.

“This is a great opportunity, in becoming a local electric company we could work in much more harmony with the community,” he said.

Gardiner said about four months after a closing of the sale to KIUC a new governing board of directors made up of seven to nine members would be elected. Currently the KIUC board has 17 members.

Kauai Electric is owned by Citizens Communications Corp. of Stamford, Conn. At 23 cents per kilowatt hour, the company has the highest electric rates in the United States of any regulated electric utility.

Kauai Electric was put up for sale about three years ago as part of Citizens move away from being a power utilities owner to focusing on owning and operating telecommunications services. The company bought the power company in the late 1960s. Kauai Electric was originally formed by combining the grids of individual electric companies operating as independent companies in various towns on Kaua’i.

If the KIUC becomes the owner of Kauai Electric it would become the first community-owned electric coop in Hawai’i.

On the Web: KIUC.com

Editor Chris Cook can be reached at mailto:ccook@pulitzer.net or 245-3681 (ext. 227).


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