LIHU’E — Word spread fast throughout the cooperative community last year that a band of business leaders had joined together to try to buy a small electric company on a remote Hawaiian island. Spreading nearly as fast was skepticism about
LIHU’E — Word spread fast throughout the cooperative community last year that
a band of business leaders had joined together to try to buy a small electric
company on a remote Hawaiian island.
Spreading nearly as fast was
skepticism about the group’s ability to pull off the deal.
Even Dick
Heitman, now the transition team leader working with the Kauai Island Utility
Co-op (KIUC) toward final approval of the purchase of Kauai Electric (KE) from
Citizens Utilities, had serious doubts.
Heitman, who has managed
cooperatives on the Mainland for several years, remembers hearing while still
on the Mainland about the small group of Kauaians trying to buy KE for
somewhere in the neighborhood of $250 million (the final sale price was $270
million).
He recalls saying, maybe to himself, “yeah, that’s a good idea,
but they’ll never pull it off.”
Even Alan Oshima, an attorney with
experience handling transactions and other matters needing state Public
Utilities Commission (PUC) approval, admitted being impressed with the work of
the KIUC board.
He called the five months’ work of the board from
formulation to successful bid to last week’s formal filing with the PUC
requesting approval of the sale “nothing short of miraculous.”
Heitman, of
course, was singing a very different tune at a press conference announcing the
joint KIUC/KE filing with the PUC.
“We fully intend to satisfy all
regulatory requirements and make this a successful sale,” Heitman
said.
While KE had considered going before the PUC in 2002 to ask
permission to raise customers’ rates, Heitman said with tax-exempt status and
no shareholders to satisfy, the co-op should be able to stabilize rates and not
have to go to the PUC in 2002 to ask permission to raise rates.
The issue
of lowering rates, however, is another matter.
“It will take several years.
This is really a long-range thing that we’re doing here,” said Gregg Gardiner,
KIUC chairman of the board.
Regarding the current high rates KE customers
are paying, Oshima said some of the highest rates in the nation aren’t the
result of bad management.
A small customer base demanding reliable power,
the hardening of the system to withstand strong winds, the fact that
electricity can’t be shipped or cabled over from Oahu or elsewhere, the high
cost of fuel and shipping that fuel, and other factors have led to those high
rates, Oshima said.
Gardiner said knowing that Federal Emergency Management
Agency (FEMA) funds would be available to rebuild the KE system in the event of
a hurricane or other natural disaster was a catalyst in moving the
entrepreneurs toward a co-op model.
Oshima, with the Honolulu law firm
Oshima Chun Fong & Chung, said the PUC application basically tells a story
of why the PUC should approve the sale.
The PUC and state Consumer Advocate
will evaluate the application to determine whether or not the co-op is “fit,
willing and able” to take over KE.
The Consumer Advocate by law is involved
in these types of PUC actions, has retained a consultant, and is expected to
publish a position statement by early July regarding the application and sale,
Oshima continued.
The sale and purchase agreement, filed under a protective
order that means the contents won’t be made public, does contain terms stating
that all current KE employees will be retained under the same employment terms
they are now working under, Oshima said.
Gardiner again praised the efforts
of Hawai’i’s federal lawmakers, who have “done some heavy lifting for us” in
terms of pushing for low-interest federal loans to help finance the
sale.
The KIUC stands to gain $113.25 million in hardship loans through a
U.S. Department of Agriculture program. The assets of KE have been pledged
against certain loans, Gardiner said.
In the meantime, many of KE’s 129
employees have in addition to their regular duties been assigned to 24
transitional teams. The company, according to Denny Polosky, KE vice president
and manager, is using experience gained when Citizens purchased Gasco (the Gas
Company) to ease KE from a for-profit corporation to a nonprofit
cooperative.
The propane and natural gas utility is again for sale, as
Citizens has chosen to place its emphasis on its telecommunications
operations.
Polosky explained that, while the main focus of KE remains
providing reliable electrical service, the teams are also working to make ready
places on Kaua’i to locate services the co-op will assume when the sale is
finalized, ideally by year’s end, such as billing, accounting, information
systems, human resources, benefits, payroll, and others that had been done on
the Mainland under Citizens’ ownership.
Heitman said wherever he’s been
involved in electrical co-ops (including in the Pacific Northwest with a system
very similar to KE’s in terms of number of customers), the customers want three
things:
* The lowest rates possible;
* Reliable power;
* Excellent
customer service.
In addition to assuming most of KE’s assets, like
buildings, power plants, lines and poles, it also will assume obligation to $43
million in state-approved special purpose revenue bonds, which mature in 2015
and 2018.
Questioned about the use of alternatives to fossil fuel to
generate electricity, Polosky said KE is already ahead of the state average,
utilizing renewable energy sources (mainly bagasse and hydroelectric power) to
generate between 17 percent and 20 percent of the island’s annual power
needs.
KE remains committed to purchasing any excess power from independent
power producers, including those generating electricity using renewable
resources, Polosky said.
At one time, KE got as much as 55 percent of its
power from sources using renewable technologies, back when several island sugar
plantations burned bagasse to generate power for KE and the plantations’ usage,
he added.
Both KE and KIUC have planned a series of town meetings to
provide more details on the sale, PUC approval process and beyond.
The
meetings will be held at the following times and locations:
* Waimea
Neighborhood Center, Thursday, May 4, at 4 p.m. and 6 p.m.;
* Kilauea
Neighborhood Center, Wednesday, May 10, at 4 p.m. and 6 p.m.;
* Kalaheo
Neighborhood Center, Thursday, May 11, at 6 p.m.;
* Lihu’e Neighborhood
Center, Wednesday, May 24, at 4 p.m. and 6 p.m.;
* Koloa Neighborhood
Center, Wednesday, May 31, at 4 p.m. and 6 p.m.
A Kapa’a meeting is also
expected to be scheduled.
