In 2001, the newly formed Kaua‘i Island Utility Cooperative offered to buy the Kaua‘i Electric business of Citizens Communication Company for about $300 million and Gregg Gardner, the KIUC chairman, proclaimed that it would be a great deal for Kaua‘i
In 2001, the newly formed Kaua‘i Island Utility Cooperative offered to buy the Kaua‘i Electric business of Citizens Communication Company for about $300 million and Gregg Gardner, the KIUC chairman, proclaimed that it would be a great deal for Kaua‘i and the best price at which a purchase could be made.
After the deal was vigorously rejected by the Public Utilities Commission and scathingly remarked on by other interested parties, Mr. Gardner tried again the next year, agreeing to acquire the business for about $220 million.
Although this reduced price was believed by many to be in excess of the fair value for the business, the transaction was approved by the Utilities Commission. Mr. Gardner’s original deal excess would over time have cost every man, woman and child on Kaua‘i more than $1,000, but he remained unrepentant about his claims for it.
Incident to the transaction KIUC inherited the rate structure of KE, including its Energy Rate Adjustment provision which was said to provide reimbursement to the utility if fuel costs rose.
As fuel costs are a major part of the total costs for the utility, and not having the risk of such costs adversely affecting it, Mr. Gardner asserted that KIUC would not need to raise rates in the foreseeable future.
As we know, fuel costs did rise several hundred percent after the November 2002 transaction, and the ERA not only covered KIUC’s increased fuel expenses, but under false pretenses materially enhanced its profitability.
In fact, in the seven-plus years of KIUC ownership of the business, KIUC revenues exceeded its costs by over $50 million, a large part of which was generated by the ERA.
Last year, KIUC initiated efforts to obtain a 10-plus-percent rate increase, also proposing a change from the ERA to an adjustment formula more accurately related to its costs. The requested increase has been reduced but remains pending.
All electric users necessarily became KIUC’s customers, but along with a number of concerned citizens, I was not comfortable about becoming a member of a KIUC with such duplicitous leadership.
After several years as KIUC chairman, Mr. Gardner resigned and KIUC began tentatively to probe arrangements which would reduce its dependence on fossil fuel. With the recent advent of stronger voices on the KIUC board, the prospects for its meaningful action brighten.
With the departure of my Darth Vader, the reasons I had for abstaining from KIUC membership receded and, receiving a prod from a good friend to reconsider, I inquired about membership procedures and obtained an application.
It happens that KIUC reserves the right to charge persons to become a member. However, currently the charge is only one penny. It seemed petty to me that any such formality is specified, but not an obstacle.
When a person becomes an owner of any other major enterprise with the right to participate in its profits and to vote on its important business decisions, no obligation or formality is required other than the purchase price for the interest acquired.
However, when I got the KIUC membership application form to sign I found that to become a member involves making several commitments by the applicant, although none by KIUC.
Most of the four commitments were either inconsequential or non-burdensome. For example, the first commitment is “I will receive my electric service from KIUC and pay for it according to the rates and rules approved by the Hawai‘i Public Utilities Commission.” Since that provision simply mirrors the position I had as a non-member customer, it was unnecessary, but if it made KIUC feel better it did not seem troublesome.
The third commitment, however, provided that the applicant would “abide by” rules in KIUC’s corporate documents and policies that were “put in place to protect” each member. In several respects this was of concern.
My legal training warned me that I should not agree to anything I did not understand and the rules referred to were unidentified. It also seemed to me that it should be KIUC that should commit to “abide by” such rules and not the member. In addition I could not see why the commitment was necessary or should be a condition of membership.
So I submitted my membership application with the third commitment deleted. In response, I was informed in two certified mail letters, one of which was copied to the KIUC president and its general counsel, that KIUC would not accept altered applications.
I was also told by the Member Services Operations supervisor that although the application might be defective she had no authority to change it and did not know of anyone else who did.
My continuing odyssey is a trivial one, but it illustrates the structural deficiency that encumbers organizations. They become so immersed in their practices and procedures and arrogant that they fail to examine whether they are appropriate or reasonable.
Without any external pressure to change, they lack the incentive to create the mechanisms to rectify the abuses they are causing. KIUC management badly needs to emerge from its we against them attitude towards its members.
Much of the rigidity at KIUC that is preventing or delaying its response to the need to end its virtually total reliance on fossil fuel as its generation source arises for similar reasons.
KIUC has no competition and lacks any effective external pressure to cause it to deviate from continuing down the easy path of its existing methods and policies. Self-correction is not occurring at a timely rate.
Soon KIUC will be electing new directors. Having directors who are not protocol bound and who are willing to take a fresh look at relationships and fossil fuel riddance schedules may be a vital forward step for the cooperative.
• Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.
