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Kauai County,
state agency oppose
plan to buy
Kauai Electric

Even critics want a co-op to
own the utility but they say
this co-op plan is risky

By Anthony Sommer
Star-Bulletin

LIHUE -- Position statements blasting a plan by a group of Kauai businessmen to form a cooperative and buy Kauai Electric were filed yesterday with the Public Utilities Commission by Kauai County and the state Consumer Advocate Division .

Both vehemently recommended against PUC approval of the proposed $270 million sale of Kauai Electric by Citizens Utilities, its current owner, to the Kauai Island Utility Co-op. When the interest on loans is added, the cost to Kauai electricity customers would be about $300 million.

"In its unqualified rejection of the proposed transaction, the (Consumer Advocate) Division noted that the current terms of the acquisition promise little in the way of tangible benefits," the consumer agency said in a press release, adding: "The modest benefits claimed by Citizens and the Kauai Island Utility Co-op are more than offset by new costs and risks to customers."

The county's statement said its review found no long-run benefits to Kauai customers and predicted the sale under the current terms "would increase the risk of higher rates in the future."

"We respectfully disagree with their positions," responded Gregg Gardiner, chairman of the co-op's board of directors. The group has not promised rate reductions but has been selling the co-op as the island's "best hope" of avoiding major increases in the future because it would be a nonprofit venture owned by its customers.

Highest electric rates in U.S.

Kauai Electric has by far the highest electricity rates of any major utility in the United States, currently 24 cents per kilowatt hour.

There is no dispute that part of the high price tag is due to the island's small, isolated population and part is due to a PUC decision that put all of the costs of replacing utility equipment destroyed in 1992 by Hurricane Iniki on Kauai ratepayers rather than on Citizens' stockholders.

The co-op's only response to the two filings was to put out a news release pointing out a survey they conducted showed the majority of Kauai residents want lower rates and a co-op to own the utility.

Even the co-op's harshest critics want a co-op, but they believe the current proposal puts ratepayers too much at risk and they believe the co-op's current board of directors, all businessmen, should be broadened to include pro-environment and anti-development voices.

"The nit-pickers are vindicated," said Ray Chuan of Hanalei, one of the opposition leaders, after the filings yesterday. (The local newspaper had branded critics of the co-op "nitpickers.")

"We will be meeting next week to develop some alternate steps that could benefit everybody."

Defenders of the co-op warn that if the opposition becomes too strong and delays the sale for too long, Citizens has the authority to walk away from the deal and find another buyer. And they predict interest rates will rise while the debate continues, making the sale less attractive.

While praising the "good faith" of the group that formed the co-op and endorsing the "concept" of a co-op, the county strongly criticized the proposed sale conditions saying they would lead to higher, rather than lower, electric rates because some large customers would turn to their own resources.

Several major electric customers including the Navy's Pacific Missile Range Facility and large resorts have been investigating whether it would be cheaper to generate their own electricity than to pay Kauai Electric's high rates. The county's two remaining sugar mills produce all their own power at far less than 24 cents per kilowatt hour and sell the surplus to Kauai Electric.

The case now shifts to the Public Utility Commission's staff, which will do its own investigation of the application.

Following that, the commission may conduct a hearing if there is a factual dispute, ask the attorneys for oral argument if there is a legal dispute or rule directly on the filings in the case without a hearing.