A report paid for with county funds and issued in January of last year shows the County of Kaua’i would likely have to pay between $163 million and $259 million to purchase Kauai Electric.
The study concluded that an estimated fair-market value of $214.5 million was likely.
The study, commissioned to discover acquisition cost if the county were to buy KE through condemnation proceedings, didn’t come to light until County Councilmember Bill “Kaipo” Asing found out about it and discussed it at a special council meeting Monday.
There are those including Asing and Gregg Gardiner, Kaua’i Island Utility Co-op board chairman, who feel the report was intentionally buried by the county administration because of its conclusion that a $214.5 million price may have to be paid for KE.
After the co-op’s first attempt to purchase KE two years ago failed for among other things its $270-million price tag, the county felt it needed to get a KE price should the county attempt to purchase the electric utility, said Wallace Rezentes, Sr., administrative assistant to Mayor Maryanne Kusaka.
The administration needed a quick answer to the question, “What is the highest amount the county might have to pay to acquire KE through condemnation?” Rezentes said.
He said any accusation that the administration intentionally sat on the report because the price was near the KIUC’s re-negotiated price now “is absolutely false.”
Rezentes said that by the time the county commissioned a later R.W. Beck valuation study, which put a possible price tag of $190 million on KE, he had forgotten about the earlier, Snavely King Majoros O’Connor & Lee, Inc. report.
“If it was relevant, we would have stuck with that report,” Rezentes said of the Snavely report, which he says has no bearing on the sale application which is before the state Public Utilities Commission for decision-making.
“If Beck’s report came out at $215 million, we wouldn’t be talking today,” said Rezentes, indicating that there would be no administration opposition to a $215 million sale price if that’s what the Beck report suggested.
The story that should be told is that six of eight elected officials on Kaua’i support the co-op’s acquisition of KE, with restrictions, and the county motive is to get a fair deal for Kaua’i rate-payers, Rezentes stressed.
And the fact that Asing discussed the report in open council session Monday had no bearing on Kusaka’s compromise position favoring the sale with conditions after opposing it until earlier this week.
The idea is to “unify the county position as much as we could in the interest of everyone to the commission.” The PUC would not have wanted so see “fragmented” positions on the part of county government regarding the sale, Rezentes concluded.
The Snavely study went unreleased by the county for 20 months, until it was uncovered among cartons of papers in the Honolulu office of William Milks, special counsel to the County of Kauai. Milks requested the study, and an O’ahu engineer retained by the buyer and seller discovered it, Gardiner said.
Co-op requests of Milks to allow the study to be released to the public were not honored until this week.
The appraisal used six approaches, including comparable sales, capital stock value of other utilities, and discounted future earnings.
In a separate section of the appraisal, Snavely King calculates the total costs that the county would have to pay if it pursued condemnation to gain ownership of KE.
In addition to paying the fair market value of $214.5 million, the county is estimated to incur an additional $38.3 million for post-acquisition improvements and start-up costs, bringing the total cost of condemnation to $252.8 million.
These additional costs had also been withheld from the public, Gardiner said. This is the first time that these additional costs of condemnation have been made public.
The Snavely King appraisal also used discounted future earnings and comparable sale approaches, in contrast to the R.W. Beck appraisal that did not use these methods.
The county has used the R.W. Beck appraisal for a number of months to support its contention that KIUC was paying too much for KE.
Representatives of KIUC have been critical of the R.W. Beck appraisal for failing to use the discounted future earnings and market comparables approach, as KIUC believes that, had these approaches been included, the R.W. Beck appraisal would have arrived at a higher valuation for KE.
“This appraisal confirms what we have been saying all along, (that) we are paying fair market value for KE, and the R.W. Beck appraisal is deficient in not using the other approaches that Snavely King believed were important to their appraisal process,” said Gardiner.
“No wonder Mr. Milks has been trying to keep this appraisal under wraps.”
Snavely King, based in Washington, DC, specializes in regulation and litigation support, with a special emphasis on regulated utilities.
Over the course of its 30-year history, it has participated in over 500 proceedings before almost all of the state commissions and all federal commissions that regulate utilities and transportation industries.
Representative clients include the Federal Bureau of Investigation, The World Bank, Canadian Ministry of Transport, and public utility commissions and consumer advocates in Connecticut, Delaware, Florida, Georgia, Indiana, Iowa, Kansas, Maryland, Michigan, Nevada, New Jersey, Pennsylvania, South Carolina, and Washington.
Staff Writer Paul C. Curtis can be reached at mailto:firstname.lastname@example.org or 245-3681 (ext. 224).