Board members, employees and officers of Kaua‘i Island Utility Cooperative have been down this road before.
The announcement yesterday of a preliminary acquisition by KIUC of the former Kauai Power Partners’ power plant at KIUC’s Lihue Energy Service Center at Kapaia, though, was a much less laborious and time-consuming process than the $215 million purchase of Kauai Electric made 10 months ago.
KIUC is in the process of purchasing the plant from Dominion Resources, Inc. of Virginia for $40.2 million, in a deal that KIUC officials said will result in increased equity for the co-op, and greater rebates and stable electric rates for KIUC members.
The acquisition must be approved by the state Public Utilities Commission before it can be finalized.
Buying the plant will save KIUC up to $160 million in “capacity charges” contractually obligated to Dominion over the next 25 years, said KIUC president and chief executive officer Alton Miyamoto.
That equates to savings of $5 million to $6 million a year on capacity charges alone, not including the cost of purchasing power from Dominion, he said.
If low-interest loans financing the sale can be obtained from the federal government or a national electric cooperative association, as he feels can happen, the deal will be even better for member-owned KIUC, he said.
The capacity charges are essentially to pay for the cost of the plant, spread out over several years.
“We have completed our due diligence on all fronts: legal, financial, valuation, engineering and environmental,” said Miyamoto.
“We feel certain we have made the best decision for our members.”
“This purchase is an incredible achievement for our members,” said Gregg Gardiner, KIUC board chairman.
“It will save KIUC members approximately $40 million dollars over the next 25 years, after paying principal and interest on the purchase, as compared to our contract payments to KPP to purchase the power,” Gardiner said.
“With the purchase of the KPP plant, KIUC will achieve 34 percent equity in 10 years, and it increases the margins on which our patronage capital refunds to members are calculated,” said Gardiner.
Miyamoto said earlier that KIUC employees could operate the plant in a more cost-effective manner than Dominion subsidiary Pur Energy does now.
The island’s newest power plant generates nearly half of the island’s electricity, burning naphtha, a liquid fuel that burns cleaner than the diesel oil that fuels the aging KIUC power plant at Port Allen.
Before the KPP unit came online in September, KIUC’s investor-owned predecessor, Kauai Electric and parent company Citizens Communications, had an option to buy the KPP unit for $38 million. That offer expired when the plant became operational, Miyamoto said.
A lawsuit has been filed in a California state court to determine if plant developer Kauai Power Partners still owns a portion of the plant and, if so, what its share of the purchase proceeds might be (please see the related story).
During the construction phase of the power plant, Kauai Power Partners was purchased by CNG Power Company of Pittsburgh, which in turn was purchased by Dominion.
The plant cost $54.4 million to build, according to Dominion, and has a life expectancy of 35 years. An engineering contractor hired by Dominion estimated that it would cost $44 million to replace the equipment alone, and between $51 million and $52 million to totally replace the 26.4-megawatt plant (including permitting, land costs and related fees).
The KIUC board voiced unanimous approval of the deal. Next, the board will seek low-interest loans, from the National Rural Utilities Cooperative Finance Corporation, or U.S. Department of Agriculture’s Rural Utilities Service.
All current plant employees will be offered jobs with KIUC, with the exception of plant manager Randall “Randy” Hee. Hee, a former KIUC board member who recently resigned from the board, is precluded by KIUC bylaws from working at KIUC for one year.
Associate Editor Paul C. Curtis can be reached at email@example.com or 245-3681 (ext. 224).