Ten years ago last month (March 15, 2002), KIUC agreed to acquire the Kaua‘i Electric business of Citizens Utilities Company for about $220 million, or about $45 million more than its recorded net worth, and later that year the transaction
Ten years ago last month (March 15, 2002), KIUC agreed to acquire the Kaua‘i Electric business of Citizens Utilities Company for about $220 million, or about $45 million more than its recorded net worth, and later that year the transaction was completed. Let us see what has happened over these 10 years.
The purchase was done by KIUC with 100-percent borrowed money. Although creditably the KIUC books show about $60 million of net worth has been created, the outstanding debt continues to be over $180 million, or more than the net worth of the business when it was acquired.
The purchase was approved by the Hawai‘i Public Utilities Commission largely because it was promised that KIUC would not raise the rates, which with isolated exceptions, were the highest in the nation, and that the reliance on fossil fuel as the generation source would be diversified.
While stated rates were not increased until a modest adjustment last year, the effective charge to the residential customers has increased in the ten years from around 30 cents per kwh to the present 44 plus cents. The increased charge stems essentially from the adjustment clause allowing the rate to follow fuel costs. Kaua‘i remains with the highest electric costs in our country.
In 2002, obsolete fossil fuel facilities provided about 96 percent of the generating power, with the remainder from hydro facilities. Over the past 10 years the non-fossil fuel generation has increased about 5 percent with new solar production. The KIUC Board has promised that non-fossil fuel production will be at least 50 percent in another decade (by 2023).
Given the slow pace of introducing new facilities to date is it reasonable to expect the 50 percent commitment will be met? And importantly if it is achieved or fails what will be the cost and effect for consumers?
Although its amount is not readily ascertainable it appears that the direct cost of generating electricity with the diesel or naphtha fuel being used is now from 21 to 24 cents per kilowatt-hour. The remaining costs are comprised by distribution expenses, depreciation, interest, taxes and other non-production items. These non-fuel costs alone are greater than the total power charges payable by typical resident consumers elsewhere in our country.
The options for alternative fuel sources appear to be numerous, but in fact are rather narrow. Nuclear power is precluded by state law and coal is impractical for our island. Solar and wind power are potentials, but they are intermittent and may not be used as the primary power source for that reason. KIUC has made several small deals to purchase solar at about 20 cents per kwh. These are marginal improvements on the cost of diesel and away from fossil fuel, but solar panel technology is now developing and KIUC should have waited to make a much better deal at a future date. Wind power economics are not demonstrable. Power from biomass sources should be considered, but their probable cost of 15 to 20 cents per kwh limits their saving potential and the combustion required make them targets for environmentalists.
More promising as potential fuel sources are hydro and liquid natural gas (LNG). Both could likely provide power at less than 10 cents per kwh. The main problems for hydro are the investment that will be needed, limitations on its availability and the likely opposition by environmentalists. It should be possible to overcome the latter but politically KIUC would need to align itself with its consumers, something it has not yet seemed able to do. The challenge as to clean burning LNG is that KIUC has unwisely locked itself in with a single supplier for many years and it lacks fuel storage facilities. The glut of natural gas in our country assures availability at favorable prices indefinitely but storage facilities would be needed and transportation problems would have to be resolved.
While KIUC has spent funds on hydro consultants, its progress toward any specific project is not obvious. It appears that KIUC has failed even to consider LNG. What is clearly required is that KIUC conduct a thoughtful study of the real alternatives for giving its customers some meaningful rate relief and timely diversification away from the present costly diesel power. The history of prior missteps does not provide a high level of optimism to expect KIUC’s management and directors to act in such a rational manner.
A persistent problem for KIUC throughout its existence has been a mentality of its management and board that seeks to protect its organizational structure and a revenue maximizing profit oriented business model rather than serving the interests of its members. If KIUC were cost conscious Kauaians could see significant savings. This attitude has also manifested itself in the limitations it has imposed on member democracy and more recently in its peremptory positions it has asserted on its use of FERC and its intransigence about smart meters. Although some advances have been made in recent years on openness of Board and Board committee meetings, undue limitations persist.
Last month KIUC held its annual staggered election of three of the nine directors. The election of two of the candidates nominated by petition who have campaigned for improved member rights and greater openness should enhance the possibility of reform in these regards. It remains to be seen, though, if the newly constituted board will effectively address the core problems of moving power generation away from the historic reliance on diesel fuel and toward alternatives that will provide meaningful cost reductions for KIUC consumers.
• Walter Lewis is a resident of Princeville and pens a biweekly column for The Garden Island.
