Lender approval needed for KIUC rate decrease

Editor’s note: This is the second of two stories about Kaua’i Island Utility Cooperative spending patterns.

Kaua’i Island Utility Cooperative (KIUC) members pay among the highest electric rates in the nation, among coops or investor-owned utilities, according to KIUC officials.

And, despite the fact that cooperative officials acknowledge that the high rates are burdensome to some members and that pledges were made when they were negotiating to purchase Kauai Electric from a Mainland-based, for-profit entity, that rates would either be stabilized or actually lowered, there has been no apparent movement to lower rates.

Cooperative leaders, who charge the highest rates in the state, have has not applied to members of the state Public Utilities Commission (PUC) for rate relief, said Gregg Gardiner, chairman of KIUC’s board of directors.

The sale of Kauai Electric to KIUC, for $215 million, was finalized Nov. 1, 2002.

Kevin Katsura, a lawyer with the PUC, said as part of their purchase agreement, KIUC leaders cannot raise rates. He said there is nothing in the agreement to prevent KIUC leaders from seeking a rate decrease.

They need lender approval to do that.

“KIUC’s present rates were set in 1995 by the PUC,” Gardiner said via an e-mail response to questions posed by The Garden Island.

“KIUC’s lenders, the Rural Utilities Service of the U. S. Department of Agriculture (RUS) and Cooperative Finance Corporation (CFC), used those rates as the basis of the income stream necessary for KIUC to meet its obligations under the loans to purchase the company from Citizens Communications Company,” Gardiner said.

“Any reduction of those rates is covered in the covenants of the loans. As a result, if our rates produce more revenue than is reasonably necessary under the circumstances, the board must seek lender approval to return some of this revenue to the members,” Gardiner explained.

“It has, of course, done this each of the past two fiscal years,” he said, referring to the patronage-capital rebates.

KIUC consumers have seen their energy-adjustment surcharges increase from $37.02 to $58.38 over the past year, KIUC Communications Director Anne Barnes said last month.

In a recent e-mail request for information, Barnes said, “there are a very few co-ops with higher rates. They are also ‘islanded’ communities.”

Barnes, in an e-mail communication, said “charging our members some of the highest rates in the nation is a very real problem that creates very real hardship for our members. Relying on generation infra-structure that has resulted in our constantly-rising prices is a significant hardship for our members,” Barnes said.

“Finally, operating in an environment (islanded grid without spinning reserve to cover generation-unit failures) exposes our members to even more hardship,” she said.

KIUC officials will be the “home team” for a national cooperative conference next month.

Barnes said the event was technically being hosted by the National Rural Electric Cooperative Association (NRECA), but KIUC will be laying out $42,000.

“We are looking at about 400 attendees, plus families. Our budget for the event is about $42,000,” Barnes said. “This is balanced against 600-plus people who will be eating in restaurants and shopping in local stores,” she said.

Barnes said KIUC Currents, a member newsletter, costs little less than 13 cents per issue per member. KIUC has 29,713 members.

Barnes said it is published through another co-op, so any margins are returned to KIUC.

The Garden Island was unable to obtain the percentage of KIUC’s operating budget that goes to paying executive salaries. Barnes said executive salaries are not public.

The Garden Island readers have wondered why nearly 40 percent of their total bills are the surcharge.

Gardiner said the matter of rates has become more urgent recently, of course, as a result of rapidly-increasing fuel costs.

He said that has been compounded because, in 1995, as part of their last rate case, state PUC members granted officials at KIUC’s predecessor, the investor-owned utility Kauai Electric, an Energy Rate Adjustment Clause (ERAC) as part of its rates.

Barnes said KIUC leaders are allowed a certain energy-rate adjuster that, when driven by an increased cost of fuel and coupled with higher efficiency, no longer remains simply a pass-through.

KIUC is more than 90-percent dependent on oil-based products for generation of electricity.

KIUC President and Chief Executive Officer H.A. “Dutch” Achenbach (also via e-mail) said that, in regard to the surcharge issue, the KIUC board members met Oct. 11, and “passed a resolution asking our lenders (RUS and CFC) to allow KIUC to return approximately $3.8 million to the community in December as a bill credit.”

Barnes said KIUC officials had not purchased a home for new Chief Operating Officer Randy Hee, but did do so for Achenbach.

When asked if KIUC members were aware of the purchase, Barnes said only that it was reported in the Kaua’i Business Report. The Kaua’i Business Report lists the sale of a home to KIUC for $775,000.

“KIUC owns only one home, to be used as a residence for the current CEO and future CEOs to live in during the tenure of their contracts,” Barnes said.

Barnes said co-op leaders have not gotten soft, in a corporate manner of speaking.

“We have cooperative ideals, not corporate ideals. And no, we have not gotten away from those,” she said. “Our capable, committed and hard-working board members, management and employees are dedicated to maintaining sound business practices and the seven cooperative principles,” she said.

Achenbach said no major personnel changes are planned based upon PUC officials’ recommendations.

“There is no such action based upon PUC recommendations. Although KIUC is fully regulated by the Hawai’i PUC, the PUC generally does not get involved in organizational issues,” he said.

“I can confirm that KIUC is currently undergoing some organizational changes to make it more efficient, and to continue to save our members’ money wherever it can. However, these changes are unrelated to PUC regulation,” said Achenbach.

KIUC leaders have more than met a state mandate requiring utilities in Hawai’i to create more electricity from renewable-energy sources, according to information supplied by co-op officials.

KIUC officials have reached a 13.2-percent “renewable-portfolio standard” as of 2004, Achenbach said. Under the state law to encourage leaders of utilities to become less dependent on oil for electrical generation, utilities are to reach a 15-percent mark by 2015, and a 20-percent mark by 2020.

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