KIUC passes on rising fuel costs to members

Though the local rate for a kilowatt hour of electricity hasn’t risen in years, the average residential customer’s bill has gone up every month this year, because of a charge tied to the price of oil.

The Kaua’i Island Utility Cooperative is enabled through state Public Utilities Commission rules to pass on to customers (members) the cost of fuel required to produce electricity.

And as the price of oil has risen this year, so has the energy rate adjustment clause (ERAC) item on members’ bills (please see the chart).

The last rate increase granted by the PUC to what is now KIUC (then it was Kaua’i Electric) was in 1996, based on the 1995 price of a barrel of crude oil ($27), said Alton Miyamoto, KIUC president and chief executive officer.

Because of volatility of the price of oil, the PUC allowed the ERAC to be used by the utility to pass onto customers the real costs of oil used to produce electricity, he said.

If the utility had to absorb those costs, it would have to petition the PUC to raise rates on a yearly basis, he noted. And rate cases cost lots of money, too, he said.

The ERAC is a calculation based of the difference between the cost of oil at the time of billing and the cost of oil when rates were last set, he explained.

In December of last year, the price for a barrel of oil was around $41.93, and shot up to $49.97 last month.

This week, though, the price was around $28 on the New York Mercantile Exchange, prompting governmental and private-sector energy analysts to predict that the cost of oil has peaked, and that pump prices for gasoline should start declining in advance of the summer’s peak driving time.

That should also be good news for KIUC members, who should begin seeing lower amounts on both the bottom line and ERAC line of electricity bills.

The arrival of the Kaua’i Power Partners’ unit in Lihu’e, which in January began burning naphtha fuel, cheaper than the diesel fuel burned at Port Allen, has lessened members’ ERAC charges, too, Miyamoto said.

The KPP unit can burn diesel or naphtha, but burned diesel for the first several months of its operation, beginning in September.

Starting in January, Chevron began delivering naphtha to the KIUC Lihu’e Energy Service Center off Ma’alo Road, where the KPP unit is located.

Naphtha is a cheaper fuel than diesel, and the savings KIUC enjoyed with the KPP unit burning the cheaper fuel to generate electricity allowed KIUC representatives to keep the ERAC lower than it would have been without the KPP unit online, he said.

“KPP helps stabilize the rates because it is a very efficient unit burning naphtha,” said Miyamoto.

Even with the former Lihu’e Plantation power plant closing, the KPP unit coming on line and now burning the cheaper fuel allowed KIUC representatives to avoid going to the PUC to request another rate increase, he said.

The former LP plant could burn diesel or bagasse, a biofuel that is a byproduct of sugarcane harvesting.

“Because KPP came on line, really, it kept the rates from going up, because it is a more efficient unit burning naphtha,” he said.

“We’ve managed to be able to keep the rates the way it is because of KPP. If it wasn’t for KPP, the rates, unfortunately, would have been higher,” Miyamoto said of base rates per each kilowatt hour of electricity.

Surcharges to allow companies to pass on the cost of fuel to customers aren’t unique to the electric-utility industry.

Matson Navigation Company, Inc., which provides transpacific freight service, has a fuel surcharge that now stands at 7.5 percent. The charge is added to each customer’s bill.

The surcharge goes up or down depending on trends in the price of oil, said a Matson spokesman.

Young Brothers, Ltd., which provides interisland barge service, is prohibited by its PUC tariff from adding any fuel surcharge to its billings, said Lisa Sakamoto, vice president of finance and governmental affairs.

That means Young Brothers has absorbed the increases in the cost of oil, and company representatives have not asked the PUC for permission to raise rates or implement a fuel surcharge, she said.

Staff Writer Paul C. Curtis can be reached at mailto:pcurtis@pulitzer.net or 245-3681 (ext. 224).