Five years ago the Kauai Island Utility Cooperative purchased the Kauai Electric business of Citizens Communications Company for $215 million, a sum that was about $30 million greater than the amount at which the net assets of the Kauai Electric business were shown on the CCC books.
The transaction was approved by the Hawaii State Public Utilities Commission after KIUC advised that, despite the fact that the entire purchase price was being borrowed, no better price was possible and KIUC would be able to be profitable. KE’s residential customers were then paying over 20 cents per kilowatt-hour for electricity. Now the charges are about 32 cents per kwh; a nearly 60 percent increase. At the time of the purchase the KE fossil-fuel generating facilities were old and inefficient and KE was contracting to lease new power producing facilities. Following the purchase, KIUC added to its debt burden by borrowing over $30 million more and bought the new facilities which now produce the bulk of the electricity used by KIUC’s customers.
The KE rates to which KIUC succeeded were set in a 1996 rate case based on KE’s then costs of operation. In the 2002 acquisition of KE, KIUC presented forecast data for a 10-year period based on then existing rates and argued that continuance of such rates would be necessary to obtain and pay the proposed financing of the purchase price. The Public Utilities Commission accepted these entreaties, so in 2007 those rates are still in force although KIUC has significantly different operating costs than its predecessor KE, and over 10 years has passed.
With its staggering debt load KIUC deems it essential that its revenue stream remain unimpaired. However, with alternative energy mandated, and large customers able to produce electricity for less than KIUC offers it, KIUC senses that its monopoly for electric service is menaced.
So KIUC has filed an application with the Public Utilities Commission to make huge increases in its standby charges and interconnection tariffs. A public hearing on this application will be held in Lihu‘e at the neighborhood center at 5 p.m. Tuesday. If the KIUC application is approved there would be severe inhibitions for any user leaving the grid and significant increase in the cost of alternate energy being supplied. General principles in public utilities law specify that the utility is entitled to have rates that will provide a reasonable return on its investment and that the rates charged will be based on the utility’s costs of providing service. It seems apparent that the changes in charges KIUC is seeking are not based on its costs for providing standby services but rather to protect its monopoly in supplying electricity on Kaua‘i.
There are multiple issues involved in considering the KIUC position. It needs to be recognized that a significant increase in the use of alternate fuels will reduce the utilization of its current fossil fuel plant and will change KIUC’s costs for production of electricity. The rights of users who wish to cogenerate should be a factor. The social desirability of expediting the conversion to alternate fuels needs to be taken into account. The reality that KIUC’s rates have not been tested for reasonableness since 1996, a span of more than 10 years, is a vital matter.
All of the mentioned factors should receive attention. It is submitted that they cannot be in the relatively narrow docket agenda that has been created. Having a broad look at the entity that has been granted the authority to be the exclusive provider of electricity to our island, and to whom our people and businesses are paying the highest charges in the nation, is a crucial concern. It should be mandated that the attention of the PUC be directed, on the one hand, to the need of survival by KIUC, but on the other hand to the heavy burden Kaua‘i consumers have for their electric charges and the critical urgency for facilitating the use of alternate energy. It appears that it is appropriate for the PUC to open a general rate case and make an in-depth study of KIUC’s costs for service and the various factors that will affect KIUC’s future operations.
Citizens are urged to give thought to the matters that have been discussed above and then to attend and to express their views to the Public Utilities Commission members and staff who will be attending Tuesday’s hearing.
• Walter Lewis is a resident of Princeville and writes a bi-weekly column for The Garden Island.