County should buy KE; have professionals run it

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