PUC oversight is needed for KIUC

• Editor’s note: Walter Lewis’ biweekly column, “A Better Kaua‘i,” will appear every other Friday starting today. See Sunday’s edition for the debut of “Kauakükalahale,” a weekly column in the

Hawaiian language.

The state legislature is currently considering two companion bills — HB 815 and SB 1045 — which could remove the Public Utilities Commission (PUC) from much or all of its regulatory function as to cooperatives.

The indicated justification for the bills is because cooperatives are nonprofit, customer owned and governed by a board of directors presumably serving the members and have distinct differences from investor owned utilities, which are for profit and seek shareholder return. The bills would affect only one electric utility in the state — KIUC.

On their face, the bills may sound like common sense. Indeed, their concept enjoys support of the governor, the Kaua‘i County Council and the Kaua‘i legislative delegation. However, upon closer look, their broad language is clearly defective and could well abet a power abuse by KIUC.

Government oversight of utilities is justified as they are monopolies and the public should have protection against abuses of their power. A major element of the function of the PUC, the applicable governmental authority, relates to utility rates, which an investor owned utility may try to set at amounts that enrich its owners unjustly and abuse consumers.

This element does not apply to cooperatives. But governmental oversight is also needed for cooperatives in seeing that just rates are applied to each customer class, in seeing that the utility conforms to governmental policy in such matters as reduction of fossil fuel usage for power generation, control of management compensation, and the major transactions affecting its operations and finances.

Specifically the bills would “authorize the PUC to waive or exempt electric cooperatives from the provisions of Chapter 269 … and other regulatory requirements.” These would include the establishment of utility rates and tariffs and the PUC’s power to address complaints against public utilities.

In structuring KIUC its organizers chose not to give its membership meaningful controls over a number of major KIUC business decisions including rate changes. Unless and until membership authority is conferred, PUC oversight continues to be important to protect consumers against unjustifiable actions by KIUC Board or management.

A purpose of the PUC is to provide a publicly funded non-judicial and non-partisan — favoring neither the utility nor the consumer — body to determine just and reasonable utility rates and other matters. Without the PUC where does an aggrieved consumer turn?

The only other electric utility in the state is HECO, an investor owned firm, which provides power to about 95 percent of the state’s population. A further problem in providing the PUC with discretion as to oversight on KIUC is the incentive it gives the PUC to disregard oversight of the much smaller KIUC and focus its entire electric utility protection on the dominant firm.

Recent action by KIUC points to a need for continued PUC oversight. In 2011, KIUC attempted to use the Federal Energy Regulatory Commission (FERC) to supersede state practices in obtaining permits to develop hydroelectric systems on Kaua‘i. KIUC was trying to use the federal process to establish priority over a company which had been working with land owners and state and local governmental authorities on two projects. Fortunately, FERC denied the KIUC requested permits as being unjustified attempts to interfere with the state’s interest in managing its water resources.

 As noted, exempting KIUC from Chapter 269 would, in effect, allow the utility to raise rates or other charges without PUC oversight or approval. Under KIUC’s governing documents it does not need member approval to raise electric power costs to its members. Without PUC oversight, KIUC, which supplies electric power to all of the Kaua‘i island, could choose to negotiate power purchase agreements with independent power producers on terms which would not protect the interests of KIUC members. There should be a means for a third party to mediate disputes and for the entire membership to address abuses of power by the KIUC Board of Directors.

There are times when PUC oversight is useful to KIUC. Recently, KIUC entered into a biomass generated power purchase agreement with Green Energy Company, but did not want to disclose its terms to its members or otherwise and sought a protective order from the PUC. The order was granted, but the likely result would be different if the transaction had been removed from PUC regulatory jurisdiction.

The apparent willingness of the KIUC management to disregard its members rights to advance its interests is troubling. Removal of PUC oversight is of major importance. KIUC members should have an opportunity to have a voice to say what scope of oversight from the PUC they want instead of having the legislature decide and foreclose this option.

It would be better if the state legislature were to refrain from final enactment unless such bills are amended to retain PUC authority to protect Kaua‘i residents and businesses and to require that KIUC members are appropriately authorized to address potential abuses of the power that is now in the hands of the KIUC Board of Directors and management. But the bills seem irreversibly en route to enactment and will join other laws that were adopted without adequate examination.

• Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.