In 2001, the newly-formed Kaua‘i Island Utility Cooperative, led by the controversial Gregg Gardner, attempted to acquire the Kaua‘i Electric division of Citizens Communication Company at a price which KIUC claimed was the best deal possible but was vastly greater
In 2001, the newly-formed Kaua‘i Island Utility Cooperative, led by the controversial Gregg Gardner, attempted to acquire the Kaua‘i Electric division of Citizens Communication Company at a price which KIUC claimed was the best deal possible but was vastly greater than KE’s fair value.
When KIUC sought approval of the Hawai‘i Public Utilities Commission for this outrageous effort it was vigorously opposed by all intervenors and the proposed transaction was soundly rejected by the PUC.
Undaunted, KIUC tried again the following year to get PUC approval for a purchase of KE at about $85 million lower than its earlier effort. Despite the continued opposition by Kaua‘i County, this deal was approved. The phoenix-like resurrection of KIUC, however, left its scars. Bred into the mentality of KIUC management and directors was an attitude of distrust and paranoia.
An initial manifestation of this attitude was in KIUC’s early by-laws, which severely restricted KIUC members — its customers — from learning about the operations of their cooperative. Although for most businesses by-laws are a neglected backwater, KIUC has in its brief seven-year history seven different iterations of its by-laws to perfect its seclusion.
While the KIUC by-laws are now modestly improved, they still fail to provide members fair treatment. The one-member-one-vote practice results in customers who provide about 65 percent of KIUC’s revenues having only 5 percent of its voting power. That’s democracy?
Although customers are invited to become “members” of KIUC, its by-laws provide for their expulsion if they don’t conform to its overreaching Members Agreement. Candidates for election as directors must conform to arbitrary rules on campaign materials and practices.
Although it is routine for business entities to allow stockholders to submit matters for approval at owner meetings, the KIUC by-laws have procedural rules that in practice would prevent this opportunity. Similarly, while the by-laws permit attendance at director meetings by members, members may not offer agenda items and their right to participate in discussions is limited.
In short, no meaningful involvement by members in the business affairs of KIUC is permitted by its by-laws or practices.
Not content with regulating the prerogatives of its members, KIUC has adopted some “policies” that operate to control the conduct of its directors and staff.
Policy No. 5 offers “guidance” for directors and officers as to conflicts of interest. While such rules are commonplace (Kaua‘i County has them), the KIUC policy is broader than most. It requires disclosure of all business interests by the director or officer and his family. In most other cases the policy’s application is limited to conduct or holdings by the director or officer that are material.
Policy No. 12 expresses the KIUC Code of Ethics for directors and staff. It is customary for organizations to issue rules that exhort their officials to follow ethical behavior and the general principles stated are rather typical, but the KIUC policy also extends to behavior by parties related to the director or staff member, limits outside activities by covered parties and prescribes conduct after severance of service with KIUC.
The policy then discusses “public communications” and requires that “all communications to the public concerning KIUC or communications that may be construed as statements made on behalf of KIUC” are subject to approval. The policy is not specific as to what constitutes a public statement or by whom a statement is construed, but the use of prior restraint for the purpose of preventing the public from being informed about differences existing on the board about policy questions is abundantly clear.
Policy No. 18 sets forth KIUC’s criteria for the qualifications of persons seeking election as a KIUC director. The policy announces that that certain qualifications are required by “basic” law (whatever that may mean) for eligibility to serve on the KIUC Board of Directors. Then the Policy empowers the KIUC Board to determine the qualifications and to unseat or block the candidacy of the persons found deficient.
The policy identifies an obligation for the person to be “obedient” to KIUC by-laws and decisions, to be “loyal” to KIUC, and to have “minimum knowledge and skills” for management of KIUC affairs. The policy also forbids the person from being or having a relative as a KIUC employee within the preceding three years or being affiliated with an organization doing business with KIUC.
For a view of all of KIUC’s policies, see www.kiuc.coop/indexbboard.htm.
The topics covered by the mentioned policies are not unusual. But the penchant for secrecy and the intention to muzzle differences in views are obvious and disturbing. KIUC is an utility serving the public and it is, in effect, owned by the customers it serves.
Most of the functions of KIUC can be performed in accordance with recognized industry standards which are largely non-confidential. And KIUC exists in an environment where it has no competitor so confidentiality issues are minimal.
There are important aspects of the operations of KIUC which are of keen interest to the people and organizations it serves. Notably there are the issues relating to the lack of progress in conversion of KIUC’s generating facilities from fossil fuels to alternative energy sources and the allocation of its charges among its customer classes.
The failure of KIUC to provide public access to the governing facts, policy considerations and the views of its individual directors on these matters is an abuse that needs to be corrected. These governance points are emphasized as KIUC is now engaged in an effort to obtain rate increases and other relief from the Public Utilities Commission.
It is to be hoped that exposure of these matters can result in improvements in the openness with which KIUC conducts its business and the quality of its performance.
•Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.
