It is probable that the impetus for the Kaua‘i Island Utility Cooperative petition to the Public Utilities Commission for the 10.5 percent across-the-board rate increase now pending arose when its management saw the results for its operations in December 2008.
It is probable that the impetus for the Kaua‘i Island Utility Cooperative petition to the Public Utilities Commission for the 10.5 percent across-the-board rate increase now pending arose when its management saw the results for its operations in December 2008. For many months KIUC had been urging its customers to conserve electric use to keep their billings down.
When in late 2008 the recession impacted Kaua‘i as it had the rest of the nation, electric use dropped sharply by virtue of consumer conservation together with a plunge in Kaua‘i’s tourist activity and KIUC recorded a scary $3.3 million December monthly loss according to its PUC filings.
It is ironic that KIUC was encouraging customer conservation of use and then when they got it, KIUC management discovered that they wanted an rate increase to compensate for the revenue loss caused by the conservation practices.
By the time, however, that KIUC filed its application for increase in rates at the end of June 2009, its position had improved and it was again showing profitability.
The justification that KIUC urged for its proposed rate increases was not, though, based on its operating losses but rather that it wanted to avoid a risk of violating the covenant in the loan agreement it has with the Rural Utilities Service of the U. S. Department of Agriculture which required it to maintain a favorable ratio of its earnings to its debt. This TIE (times interest earned) ratio had fallen briefly below the required 1.25 level, but in June 2009, the filing month, compliance had been restored.
Disturbingly, the concern of KIUC about its loan covenant existed largely because it did not want any impediment to impact its intended plans to make further borrowings from RUS related to its contemplated new generation facilities. Such facilities are not within the scope of the docket for its requested rate increase, but based on indications at KIUC community meetings seem to be in furtherance of maintaining fossil fuel generation rather than moving KIUC toward alternative energy.
The PUC held a well-attended Kaua‘i public hearing on the rate increase proposal on Aug. 25. Nearly 100 comments were received at or in the allowed period following the hearing. Except for the testimony by KIUC management and one other person — the spouse of KIUC’s public relations director — the views expressed were all negative to the proposed increase.
Although the PUC has generally discounted such testimony as consumers are almost always against a rate increase, the KIUC supporting testimony and their application data are thin, and approval for the increase being sought may well be limited or disapproved.
A troublesome further issue has arisen. KIUC recently obtained as one of its ancillary studies to the application a cost of service survey made by R. W. Beck, a well-regarded engineering firm. This survey showed that KIUC’s residential class of customers (which comprise about 80 percent of the total number of customers and use about 35 percent of the electricity supplied) only contribute in their rate payments about 76 percent of the cost incurred to supply them.
Kaua‘i Marriott Resort and Beach Club, a large power class customer, has applied to be an intervenor in the rate increase docket. The hearing on the application was held on Sept. 29. At the date of this writing it is not known whether the intervention will be allowed. However, if it is, Marriott and the Department of Navy, another intervenor thanks to its management of the Pacific Missile Range Facility, can be expected to urge that rates for large users should be protected or reduced and the subsidization of the residential class customers be ended or moderated.
It is theoretically alarming to note that if the KIUC increase is granted and the existing subsidization of the residential class is ended, residential rates could rise over 30 percent. It may be comforting that a discussion with the Consumer Advocate’s office indicates that any elimination of the residential class subsidization would likely be gradual. Still the potential remains though that residential rates could be increased by more than the 10.5 percent being sought by KIUC. It is unfortunate that KIUC’s residential customers are being blindsided to this risk.
Another item of current interest is that Western Renewable Energy principals met with KIUC management in late July about a WRE program that would include an up to 22.5 megawatt generating facility using pelletized wood chips as the energy source. It was proposed that this alternative energy would be supplied to KIUC on an essentially fixed price basis over a 20-year initial period without any investment by KIUC being required.
I am informed that KIUC has failed to date to respond to the WRE request for a nondisclosure agreement relating to its confidential data. Regrettably it may well be that this potentially attractive program will be an opportunity lost as WRE has entered into a letter of intent with San Jose and Palo Alto California for a 20 megawatt facility using its technology there. KIUC talks the alternative energy game but its track record to date is modest.
It will likely be several months before the PUC acts on the KIUC rate increase application. It would be beneficial but unlikely if the PUC gave attention to the KIUC ambition to use the requested rate increase revenue and new borrowings from RUS to acquire replacement generation facilities.
For homeowners beset with the current economic problems it is probable that the best result would occur if KIUC simply withdrew its application and spared 80 percent of its membership from an unexpected increase in their rates.
• Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.
