County’s conditions on KE sale a no-go says KIUC, Navy and Citizens Communications

The U.S. Navy, buyer Kaua’i Island Utility Co-op and seller Citizens Communications have asked the state Public Utilities Commission to reject conditions proposed by the county regarding the sale of Kauai Electric.

Final position statements were filed Tuesday by the Navy, joint applicants KIUC and Citizens, the state consumer advocate, and county.

All urge the PUC to support the sale, but the county’s position, agreed to by Mayor Maryanne Kusaka and five of seven members of the County Council, urges the PUC to approve the sale only if five conditions are tacked onto the sale agreement.

The five conditions are that KIUC will, if the sale is approved:

– File with the PUC a 6-percent rate decrease request;

– Adhere to a myriad of governance issues regarding public ownership of KE by all rate-payers;

– Place an undisclosed portion of the $215 million sale price into an escrow account, to be paid to Citizens periodically if the co-op’s financial projections hold true for the first several years of public ownership of KE;

– Get all funds for the purchase of KE come from low-interest loans from the federal government;

– Abide by 10 conditions included in an earlier agreement that had concurrence from all the parties except the county.

The buyer, seller and U.S. Navy filed a joint final position statement with the PUC Tuesday, asking the PUC to approve the sale application, and reject the county’s proposed conditions.

The PUC issued a preliminary position in tentative support of the sale, and is expected to rule on the matter as early as Tuesday, Sept. 17. PUC approval is needed before the sale can be finalized.

Low-interest federal funds the co-op has lined up to finance the purchase lapse at the end of the federal fiscal year, which is Monday, Sept. 30.

The Navy’s Pacific Missile Range Facility at Barking Sands is one of the top-10 users of electricity on Kaua’i.

The county argued in its final position statement that without the five conditions included in any PUC approval of the sale, “the application and transaction is without sufficient public interest to merit commission approval.”

County officials also question the failure of KIUC to have all electric users vote on the purchase to ensure the support of the public, and question if the cooperative is really a cooperative, claiming the decision to purchase KE was made by a 15-member board, out of an estimated 28,200 potential co-op members on Kaua’i.

“The manner in which Kaua’i residents have been denied access to KIUC formative actions, the narrow construction and interpretation of KIUC’s by-laws and resolutions, the proposed manner in which consumers are to be enlisted as members and pay statutorily-required fees, and the manner in which KIUC proposes to conduct future business impinge upon the fitness of the applicant,” the county officials state in their final position statement.

The county was granted intervenor status as the governmental entity of Kaua’i, and because as the elected officials the administration and council represent the island’s citizens who get electricity from KE.

The state consumer advocate, actually the head of the Division of Consumer Advocacy in the state Department of Commerce and Consumer Affairs, is automatically offered intervenor status by the PUC is these types of proceedings, as an advocate for all the state’s citizens.

The consumer advocate in its final position statement concludes that KIUC is fit, willing and able to own and operate KE, and that the sale “provides considerable public interest benefits to customers.”

Further, the consumer advocate contends that the co-op will realize “immediate and continuing cost savings” from its securing of U.S. Department of Agriculture Rural Utilities Service (RUS) loan funds, and the co-op has shown “strong projected financial results under KIUC ownership without future rate increases that were likely under continued Citizens ownership.”

The county in its final position statement calls the deal “great” for the seller and “good” for the buyer, if the buyer is allowed to cover the costs of the acquisition premium with rate-payer funds, and it can retain “excessive” profits generated by continuing to use current KE rates.

The acquisition premium is price paid ($215 million) in excess of the net book value for rate-making purposes on the date of closure (around $180 million), plus buyer costs associated with the process of acquiring the utility, explained Wallace Rezentes, Sr., administrative assistant to Kusaka.

Those acquisition costs are estimated to be in the neighborhood of $2 million thus far.

Only if the county’s five conditions are implemented will the deal have “public benefits,” the county final position statement reads.

The goals of the five “provisos” are to guarantee a definite rate decrease upon change of ownership, escrow funds to “indemnify shortfalls in the first few years of KIUC’s experience,” and ensure KIUC is “transformed into a true co-op.”

The county also begged the PUC for an evidentiary hearing on the sale, something it has fought for, unsuccessfully thus far, since the beginning of the regulatory proceedings.

Staff Writer Paul C. Curtis can be reached at mailto:pcurtis@pulitzer.net or 245-3681 (ext. 224).

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