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Does the KE deal serve the Island?
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June 19, 2002 |
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by: Walter Lewis
 The question before us is whether the KIUC proposal to buy Kauai Electric for $215 million should be approved. It is important to note that the concept of a consumer cooperative is a good one and its use to own our electric utility would be entirely fitting. Our concern is based on the abuse of the concept that has occurred, the losing sight of the objective to serve the public interests and then the propagandizing us to attempt to coerce acceptance of an unwarranted transaction.
The sins of the Gregg Gardiner group began at the outset. Instead of reaching out to the community to enlist support for and participation in the efforts to attain ownership of our island electric utility the self appointed directors of KIUC directed their attention away from the issue of determining what course would best serve our interests and to the endeavor to assure a purchase of Kauai Electric at whatever cost. The result, predictably, was the disastrous $270 + million price deal two years ago which made no economic sense, was universally condemned by all objective observers, and was rejected by the Hawaii PUC.
The errors made in the initial attempt to buy KE should have been apparent. However, the KIUC directors smugly set out again without trying to enlist the consent of the ratepayers who would become the KIUC members and reopened negotiations with Citizens, KE’s owner, before analyzing the terms the purchase would need to have to be of benefit to our community.
Electric rates on Kauai are the highest in the nation. For the interests of our island’s businesses and residents to be enhanced it is critical that rates, both immediately and in the years ahead, be lowered. To achieve this objective requires (1) an acquisition price for KE that is realistic and (2) a plan to implement the technologies that will be shaping the electric utility businesses everywhere. The $215 million price that KIUC has recently accepted fails the first test as under the KIUC projections there will be no rate reductions for ten years. The financial problems that KIUC will likely have arising from its borrowing over 100% of the inflated price will also impair its ability to embrace in a timely manner the cost saving technologies that will bring our power costs to reasonable levels.
KIUC cavils that it needed to pay $215 million to meet the price requirements of the seller and that if it didn’t buy KE rates would rise. It is wrong on both counts. There is no one standing in line to buy KE that KIUC must outbid. It is unreasonable to expect any other buyer would be willing to pay more than the KE rate base or about $175 million. If KIUC did not come to terms with Citizens, KE would not be able to raise rates for several years because of the deal it made with the PUC for the KPP pass through. It is quite clear that Citizens does not wish to continue to operate KE and it is highly likely that more favorable buying opportunities would arise.
The arrogance of the KIUC directors is flagrantly displayed in its proposal to spend $2.5 million to make and propagandize its bad deals and to have this amount as part of the cost with which it will burden the ratepayers of our island. The crowning insult is that these expenses include a $300 thousand bonus to the investment banker it retained to support its excessive price.
It is to be hoped that once again the Hawaii PUC will realize that what KIUC is proposing is not in the public interest and deny its approval. Then perhaps a saner solution to Kauai’s energy requirements can be found. The fundamental point to recognize is that the risks of ownership of KE in an environment of emerging technologies must be fully explored and evaluated and any transaction that is then negotiated must adequately protect against these uncertainties.
To read what KIUC has to say, please see their fact
sheet.
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