An editorial by the publishers of the Kaua’i Business Report recently made the suggestion that the County should acquire Kaua’i Electric (KE) and then turn it over to the Kaua’i Island Utility Cooperative (KIUC). This was such a bad idea
An editorial by the publishers of the Kaua’i Business Report recently made the
suggestion that the County should acquire Kaua’i Electric (KE) and then turn it
over to the Kaua’i Island Utility Cooperative (KIUC). This was such a bad idea
that it should not be left unchallenged.
The editorial suggested that KIUC
merited favorable treatment because it pioneered in bringing the vision of
public ownership of the utility to Kaua’i. With the concept of cooperative
ownership of electric utilities already existing in 46 states, applying it to
Hawai’i was closer to plagiarism than pioneering. The organizers of KIUC
incurred no personal risks as the nearly $2 million in costs incurred to
organize, to make the agreement with Citizens Utilities, to apply for Public
Utilities Commission approval and to promote the program were all advanced by a
financial institution which will suffer the loss if KIUC disappears. However,
if KIUC is resuscitated as the editorial proposes, these and perhaps other
potentially significant costs of KIUC’s misadventures will ultimately be borne
by Kaua’i rate payers.
The publishers were vague whether they wanted the
County to buy KE and retain its ownership but let KIUC operate it or whether
they were asking for the County to resell KE to the cooperative. Their
justification for their proposal, not entirely without merit, was that the
County would mismanage the KE business.
As to managing the KE business, we
should remember that the business acumen of the KIUC organizers was tried and
found wanting when in their inexperience they failed to investigate the real
value of KE and ended up making an agreement with Citizens Utilities providing
for a purchase price which all three intervenors and the Public Utilities
Commission declared greatly “excessive.” The agreement also contained other
terms prejudicial to KIUC and unwisely agreed to by the KIUC principals. The
integrity of the organizers was then tested when they sought to defend the
effect of the huge purchase price and the agreed terms on future rates and they
misled (some would use a stronger word) the Kaua’i citizens and businesses with
financial projections and representations concerning the governance of the
cooperative. It does not make sense to entrust the future of Kaua’i’s energy
requirements to people with this ignoble track record.
As to KIUC buying KE
from the County, the proposal is unrealistic and has absolutely no financial
merit. Let us use the 1999 KE actual results and assume a purchase price of KE
at its net tangible assets (the rate base). The result would be that the costs
of the KE business would be over $11 million less per year if owned by the
County compared with KIUC ownership on the same terms. This amount is readily
computable as the County would not incur the 7 percent utility excise tax and
its costs for borrowed moneys would be less than that of KIUC. In fact, it is
only under County ownership that there is any prospect of significant short
term reduction in rates for customers of electric power.
It is clear that
the best opportunities for our people who are paying the highest electric rates
in the nation lie in the County acquiring KE at a reasonable price, retaining
ownership, but placing the business under professional
management.
Walter Lewis
Princeville
