In 2001, after Citizens Utilities Company announced its plan to sell its Kaua‘i Electric division, a hastily assembled and inexperienced group formed the KIUC cooperative and offered to buy KE for $300-plus million, far in excess of its real value.
In 2001, after Citizens Utilities Company announced its plan to sell its Kaua‘i Electric division, a hastily assembled and inexperienced group formed the KIUC cooperative and offered to buy KE for $300-plus million, far in excess of its real value.
The offer was greedily accepted by CUC, but after opposition from the county, the Navy, the Consumer Advocate and numerous Kaua‘i citizens, even the stolid PUC rejected the transaction. The then-Mayor Maryanne Kusaka formed a citizen task force to consider the optimum course for Kaua‘i and its people.
The task force concluded that ownership of the utility by either a cooperative or a municipal form was preferable to investor ownership because it would eliminate income taxes and profit allowances, but that electric power users would suffer if the acquisition price were excessive. Undaunted by its rash earlier disaster, KIUC came up with a new offer of $220 million, which was about $45 million over the stated value of KE’s net assets.
While the county and numerous citizens did not favor the new offer, no other offer was made and ultimately the sale to KIUC at this price was approved by the PUC. However, the transaction left its continuing scars on the KIUC management and board. Although the utility’s customers would be its members and owners, the KIUC founders structured the KIUC organization to control draconically member input and the management, and the board of KIUC has even to this date never shown an inclination to be protective of the membership economic interests.
In the more than 10 years of KIUC operations, the cost of power service to KIUC customers has risen about 50 percent due primarily to the continued use foreign oil, which has been subject to escalating OPEC pricing. Consumer costs also remain high because of the excessive acquisition price paid with the resulting interest and depreciation charges.
The KIUC management absence of attention to cost control in its operations is illustrated by relatively small items, such as in the slick full-color Currents magazine, plus advertisements defending its ineffective efforts as to hydro power and questioning member investment in solar power for their homes.
The only rate change sought has been by KIUC to increase its rates.
Even in the commendable programs to obtain power from renewable sources, management has not been cost conscious. Switching may be desirable — overpaying for it is not.
KIUC has been agreeing to pay 20 cents per kilowatt hour to solar power developers. Utilities in (sunny?) New Jersey have made similar agreements for 12 cents. In California and the Southwest the price is below a dime.
On the Mainland there has been an important new development. A large number of electric utilities have converted their power generation facilities mostly from coal to natural gas. Because of modern technology, North American natural gas is abundant and inexpensive. Liquified natural gas has the potential to save KIUC residential customers hundreds of dollars per year from the present about $0.45 per kilowatt hour costs.
Government and commercial users could save much more.
The switch to LNG would substitute clean burning Mainland natural gas for dirty diesel and naptha, which is derived from expensive foreign crude oil and would insulate KIUC from the unpredictable pricing in the international oil market. It appears that KIUC is readying a variety of excuses as to why LNG can’t be used on Kaua‘i.
But it CAN be — all that it takes is initiative to achieve the elimination of the removable hurdles that now exist.
A current illustration of non-Mainland deployment of natural gas is Puerto Rico, which will be reducing its fuel costs to less than $9 per million BTUs.
While Kaua‘i may not be able to effect this cost level, savings would be huge from the estimated $30 per million BTUs that KIUC is now paying Chevron.
Hawai‘i Gas Co. has launched a program to bring volume LNG to the state. There are no technical problems why the KIUC plant at Kapaia plant and the new generators at Port Allen could not be modified to burn natural gas. Such action would, however, require a KIUC management that is prepared to act in the interests of its members to get the necessary work done
Governmental assistance and supportive action by HECO may well be necessary to achieve the full potential economies. In this regard, Gov. Abercrombie has announced his backing for Hawaiian use of natural gas and HECO customers certainly would be enthusiastic about reducing rates that are nearly as high as ours.
The KIUC membership needs to have meaningful economies in their power costs, not excuses. If KIUC had a truly membership-oriented board of directors, it could focus the management’s attention to the task that lies ahead.
The membership should have these thoughts in mind for the forthcoming March 23 election of directors.
• Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.
