PUC approves KE sale

The state Public Utilities Commission Tuesday afternoon approved of the sale of Kauai Electric to the Kaua’i Island Utility Co-op for $215 million from Citizens Communications Corp. of Stamford, Conn.

“Based upon our review of the record and the representations of the parties, we find that the (Kauai Island Utility Co-op) is fit, willing, and able to provide electric service to (Kauai Electric’s) rate payers on the island of Kauai,” the commission said.

“This is an historic step that will give the people of Kaua’i more control over their island’s energy future in addition to reducing the island’s high cost of electricity,” said Gregg Gardiner, KIUC board chairman. “It is a big win for the people of Kaua’i. It is a big win for every family and every business, large and small, that has to pay electric bills.”

KIUC will be the first electric co-op to run a major electric utility in the history of Hawai’i. Two years ago, the PUC rejected a co-op proposal to pay Citizens $275 million for the power company, saying the price was too high. Kauai Electric currently has among the highest electric rates in the United States.

Organizers of KIUC spent over three years to gain approval from the PUC for their plans.

Co-op officials said converting Kauai Electric to a co-op will provide benefits such as profits in the tens of millions of dollars over the next 10 years, and will be owned by the customer-members of the cooperative.

Opponents of the deal have said the group was paying too much and would be carrying so much debt that any increase in costs would lead to rate increases.

The PUC issued a 30-page document Tuesday in approving the sale. The two commissioners who voted on the sale, Chairman Wayne H. Kimura and Commissioner Janet E. Kawelo, rejected four of the five stipulations the County of Kauai said would be needed to guarantee the sale is in the best interest of the people of Kaua’i.

While rejecting as “unsupported by the record in this docket” the county’s idea that KIUC file an immediate 6-percent rate reduction if the sale is approved, the PUC agreed that details of a July-negotiated stipulation agreement be incorporated into its sale approval, and had several other “observations and recommendations” for the KIUC:

– The co-op should “review its conflicts of interest policies,” and “expressly prohibit” potential financial conflicts which may now exist between the current board and co-op;

– “Greater detail and effort (should) be put forth in the future presentation of (board-meeting) minutes to provide a fuller and more accurate record of meetings;”

– Meetings except for executive meetings should be open to the public;

– The co-op should provide members with detailed financial information that will clarify amount and timing of rebates, and detailed information about how a co-op works, including information on rights and obligations of co-op members;

– KIUC should have made better efforts to conduct public education programs, solicit members and nominate and elect permanent governance board members before asking for PUC sale approval. Further, the PUC recommended election of a permanent governance board within 120 days of the closing of the sale, and that an independent elections monitor oversee the election “to ensure that the members have a high level of confidence in the election results;”

– The $3 million promised to be paid to rate-payers by current KE owner Citizens Communications should be put into an escrow account at time of financial closing, “and distribute(d) to members as soon as possible thereafter;”

– The co-op should examine peak-load forecasts (the PUC noted that records submitted to them showed four different forecasts), and determine if there will be a need for additional electric-generation capacity in the near future.

From the mid-July stipulation agreement and incorporated into the PUC’s decision and order are various commission orders:

– That Citizens refunds $3 million to Kaua’i rate-payers no later than one year after the first anniversary of the closing of the sale;

– That KIUC will not be allowed to recover from customers amounts accrued for goodwill or acquisition premium amounts arising from utility merger and acquisition transactions, nor seek rate recovery of goodwill amortization, acquisition premium costs or goodwill impairment changes, but that it may charge customers for debt service on acquisition indebtedness;

– Finally, that KIUC will work with the state consumer advocate to develop appropriate and cost-effective ways to get its financial information out to its members.

Former Kaua’i Mayor and KIUC board member JoAnn Yukimura said that another benefit of co-op ownership of KE is that KIUC will be eligible for FEMA (Federal Emergency Management Agency) disaster assistance.

“This assures us of our ability to withstand another disaster like ‘Iniki, and with FEMA reimbursement for about 75 percent of the cost of restoration, we would not face the same likelihood of having to raise rates as was the case after ‘Iniki,” she said.

The County of Kauai, through Public Information Officer Beth Tokioka, said Special Counsel William Milks is reviewing the PUC decision and order, and likely would comment on the document today.

Gardiner thanked a host of people who helped the sale win approval, starting with PUC members and staff.

“They are to be commended for their vision and foresight. Because of their hard work and expeditious process, KIUC will have access to the most attractive financing available through RUS, and it will directly benefit Kaua’i’s rate-payers for decades in the future,” said Gardiner.

Financing for the sale is through low-interest loans from the U.S. Department of Agriculture’s Rural Utilities Service (RUS).

He also thanked the consumer advocate and U.S. Department of the Navy, for their “hard-nosed investigation and ultimate support during the commission process. Because of them, the public can be assured that every detail was carefully examined, by qualified experts whose ideas greatly improved the final package approved today.”

He also thanked the 16 other unpaid board members, as well as the Hawai’i delegation to the U.S. Congress.

“The work of Hawai’i’s Senators Inouye and Akaka and Representatives Mink and Abercrombie will directly amount to tens of millions of dollars of savings for the people of Kaua’i thanks to the low-interest, RUS financing, where their help in Washington was instrumental.”

“KIUC assembled an extraordinary team of experts to facilitate this acquisition,” said Dennis Esaki, KIUC board vice chairman.

“We have seen first-hand that as a cooperative, KIUC will be able to draw on the strength and wisdom of a national network of successful cooperatives,” said Gardiner, thanking Mainland nonprofit cooperative corporations that assisted with the transaction.

“Without their support, this never would have been possible,” he said.

Board Secretary Peggy Cha, Kauai Community College provost, said that a new nine-member board of directors will be elected by a vote of the island’s electric consumers.

“The beauty of a co-op is that it’s one person, one vote. The retired person’s vote counts just as much as the largest resort owner,” said Cha.

Information will soon be sent to all electric customers on the island, explaining the privileges of co-op membership and allowing anyone who chooses not to be a member to opt out.

“We respect each person’s right to decide for themselves if they want to be members, and we sincerely hope that everyone will (join) so that we can all share in the benefits of the co-op,” said Walt Barnes, KIUC board member and engineer with AT&T.

Members will be entitled to vote and receive money back in the form of checks for their patronage capital credits, which are in effect a rate rebate paid by a cooperative.

Board member Mary Thronas said it is important to understand that cooperative membership in no way, shape, or form obligates any business or individual to repay the co-op’s debt.

“The benefits of co-op membership do not cost you anything, but they can really add up over the years,” she said.

More than 930 customer-owned co-op utilities exist around the country, and offer local control and more personalized service, Gardiner said.

The Associated Press contributed to this report.

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

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