KIUC likely won’t seek rate reduction

Saying member rebates and the elimination of certain charges amount to rate reductions, leaders at Kaua’i Island Utility Cooperative apparently won’t petition members of the state Public Utilities Commission to lower rates for members.

KIUC owners (members) pay some of the highest per-kilowatt-hour rates in the country, and the highest of any cooperative.

Responding to a series of questions e-mailed by staff at The Garden Island, through Anne Barnes, KIUC communications director, KIUC leaders answered a question about petitioning PUC members for a rate reduction this way:

“KIUC has effectively reduced rates by returning money to the membership and by building member equity in the system in addition to removing the lost-gross-margin charge from customer bills.

“In fact, since November 2002 KIUC has returned $8.9 million in cash to its members and customers,” according to a posting on the KIUC Web site, www.kiuc.coop, which apparently is now KIUC leaders’ preferred way of responding to inquiries from The Garden Island.

“Further, on October 14, 2005, we sent a press release to The Garden Island announcing our intent to return an additional $3.8 million in December, provided our lenders approve (one already has).

“In the March/April timeframe, KIUC also expects to return an additional $3+ million to the membership, making our first three years’ total returned to the members and customers about $16 million,” the KIUC leaders said.

“In addition, KIUC will have achieved 10 percent equity (approximately $30 million) in the system, all of which is owned by the membership,” KIUC leaders said.

“Finally, the elimination of the charge put on everyone’s bill to make up for lost gross margins because of the company’s conservation efforts will save KIUC customers about $1.4 million per year going forward.

“None of this would have happened had KIUC not bought Kauai Electric,” the KIUC leaders said.

“To the contrary, it is likely that Kauai Electric would have had a rate increase,” said the KIUC leaders.

Kaua’i Island Utility Coop (KIUC) leaders responded late Friday to a list of 12 questions e-mailed by The Garden Island to Barnes in the aftermath of Wednesday’s meeting of the KIUC board of directors.

At the meeting, coop owners (members) peppered directors with questions about alleged excessive spending habits and a lack of transparency. They received no verbal responses.

The answers to the 12 questions were put on KIUC’s Web site, but were not sent to The Garden Island directly. KIUC officials also posted answers to questions asked by members at the Wednesday meeting.

In responding to The Garden Island questions, KIUC leaders disclosed what they pay in legal fees, and how much money they have returned to their 29,000-plus members ($8.9 million since November 2002), but again declined to provide the amounts paid in executive salaries, and claimed the nine vehicles purchased for KIUC employees for more than $239,000 were not for personal use, but were trucks purchased for managers.

They disclosed membership pays for discount gasoline for KIUC employees, but did not disclose which employees received the trucks, nor did they disclose how much they paid financial consultant Bill Collet, a principal in Christenberry Collet & Company in Kansas City, Mo., an investment banking firm.

The sale of Kauai Electric to KIUC, for $215 million, was finalized Nov. 1, 2002. Collet and members of his firm were instrumental in the purchase.

When asked how much rent KIUC pays for office space, believed to be among the most expensive in Lihu’e, the response was, “when KIUC purchased Kauai Electric it inherited the long-term lease for its present headquarters.”

According to information provided by Hawaii Information Service, in October of 2002, KIUC leaders paid $1,035,774 for an assignment of the lease on the Hana Kukui building in Kukui Grove Village West.

None of these expenditures, nor the $800,000 home purchase (including furnishings) for President and Chief Executive Officer Harry A. “Dutch” Achenbach, were directly reported to members.

While not revealing what Achenbach’s compensation package includes, KIUC sources did report Achenbach pays $2,000 a month for rent on the home, plus utilities.

In April 2005, Achenbach served as a code enforcement officer for the Mills (Wyoming) public works department, according to Mills’ Public Works Director Bob McPherson, who praised Achenbach for his community service, saying he basically worked for a pittance. McPherson said Achenbach was essentially retired at that point in his career.

KIUC’s rates are the highest in the state and among the highest of any national coop, according to information provided by KIUC sources. KIUC leaders and members are almost completely dependent on oil-based products for generation of electricity.

Fuel surcharges represent about 40 percent of KIUC’s monthly electric bills.

When rebates are given, they are based upon the size of the account holder. For instance, a county entity with many offices will receive a larger rebate than a homeowner based on consumption.

An elderly woman called The Garden Island Thursday and said her electricity bills had gotten so high that she and her husband were faced with the decision of either paying their electricity bill or buying certain medications because they could not do both and make ends meet.

In an earlier response when asked about approaching PUC members for rate relief, KIUC board Chairman Gregg Gardiner responded: “KIUC’s present rates were set in 1995 by the PUC.

“KIUC’s lenders, the Rural Utilities Service of the U. S. Department of Agriculture (RUS) and (National Rural Electric) 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.

KIUC leaders entered the purchase with no equity, and now have onerous loans which membership is paying off, say critics of the original purchase, who were dubbed the “nitpickers.”

KIUC leaders acknowledged the purchase of nine pickup trucks. According to their Web posting, five of these trucks replaced trucks that were in KIUC’s fleet and then retired. The four additional trucks were assigned to managers who undertook additional duties and responsibilities, and who are on call 24-hours-a-day in the performance of their duties. They are not personal vehicles, according to KIUC leaders.

KIUC pays the majority of its $445,715 in annual legal fees to attorneys of Belles Graham Proudfoot and Wilson, a Lihu’e-based law firm (attorney David Proudfoot does most of the work) and KIUC’s general and corporate counsel ($106,152.87), and regulatory attorneys from the Honolulu firm Oshima Chun Fong & Chung ($162,863.75 ).

When asked for the salaries of top executives, the KIUC response was, “KIUC respects the privacy rights of its employees, and does not release individual employee-personnel information. If a member requested the information, the request would be treated in accordance with board policy number 16.”

That policy pertains to member requests for information.

Barnes and others would neither confirm nor deny whether or not clerks in the accounts-payable department earn in excess of $28 per hour.

“KIUC respects the privacy rights of its employees, and does not release individual employee personnel information. Accounting clerks are bargaining-unit employees who are covered under KIUC’s union contract,” was the Website response.

When asked if KIUC employees receive a 30-percent discount on gasoline, KIUC sources commented, “like many Kaua’i companies, KIUC has entered into a contract with Kauai Automated Fuels Network (KAFN) to purchase fuel for its vehicles. This arrangement allows KIUC to purchase vehicle fuel at a discount.

“The discount depends on the total volume of fuel purchased under KIUC’s program and the price of fuel on the date that it is purchased. The discount generally ranges from 10-15 percent,” according to the posted response.

“All company vehicles’ fuel is paid for by the company. If there is any personal use of a company vehicle, income will be attributed to the employee in accordance with IRS regulations. In addition, KIUC, also like many other Kaua’i companies, has a policy that allows its employees to take advantage of the KAFN program if they desire,” the posted response continues.

“To do so, the employee signs up for a KAFN charge card. Any charges on such non-company cards are deducted from the employees’ paychecks.”

The response indicated board members are also eligible to participate in the KAFN program, and all of their bills must be settled on a monthly basis.

As for financial consultant Collet, a investment banker at Christenberry Collet & Company in Kansas City, KIUC officials confirmed that Collet and those with his firm were responsible for negotiating the sale of Kauai Electric to KIUC ($215 million) in November 2002, and the purchase of the Kauai Power Partners ($41.2 million) Ma’alo Road power plant in Kapaia in December 2003.

In addition to arranging the credit facilities for both acquisitions, Collet was also responsible for securing an additional $65 million disaster line-of-cred-it and a $25 million working line-of-credit, according to the KIUC Web posting.

“The firm also completed our Equity Management Plan (EMP), which will return $70 million to the membership while building member equity to $80 million in the first 10 years.” The terms of his contract are confidential, according to KIUC sources.

KIUC leaders also said nothing was omitted from the board of directors’ expense accounts for the year to date that were provided to The Garden Island, though the expenditures do not explain how directors wound up in Alaska for lunch seemingly without reporting any airfare expenses.

• Andy Gross, business editor, may be reached at 245-3681 (ext. 251) or agross@kauaipubco.com.state law that requires us to have reported the incident to any agencies or to our patients