Study says county can run Kaua'i Electric cheaper

By Jan TenBruggencate
Advertiser KauaÎi Bureau

LIHU'E, Kaua'i — A consultant's review concludes that county ownership of the electric company would provide ratepayers with the cheapest electrical power, entirely as a result of tax advantages.

The county should be able to operate the power company 4.5 percent cheaper than a cooperative and dramatically cheaper than an investor-owned firm, because the county doesn't have to pay the same taxes, said Nancy Heller Hughes, a senior director with the consulting engineering firm R.W. Beck.

But Kaua'i Island Utility Co-op attorney David Proudfoot challenged the conclusion. Although the county is arguing that it is exempt from state taxation and from regulation by the state Public Utilities Commission, Proudfoot said these exemptions might require action by the Legislature, and it is possible the co-op could get the same benefits.

Citizens Communications, the owner of Kaua'i Electric, has put the company up for sale. A deal last year to sell it to the Kaua'i Island Utility Co-op was rejected, in part because the price was so high that the PUC concluded rate increases would be inevitable.

The co-op is in discussions with Citizens to arrange a new deal, although none has been concluded. The county also is considering launching a bid for the utility and contracted with R.W. Beck for the feasibility study and for an appraisal. The appraisal is due in November.

Hughes reported to the Kaua'i County Council yesterday on the results of the feasibility study of various types of ownership. She said the book value of the utility — defined as plant investment less depreciation — is $174 million, based on the utility's report to the PUC effective Dec. 31, 2000.

Kaua'i Electric under its current ownership or under a separate investor-owned firm would be required to pay income taxes, the public-service company tax and PUC fees. With those costs, either the existing owners or a new company — assuming a buyer paid the utility's net book value — would need rate increases in the near future to make a profit for investors, Hughes said.

By contrast, either the county or a community cooperative could pay as much as $11 million more than the book value and still keep rates level, she said. She said her calculations showed that at

$185 million, a co-op could keep rates level for at least another five years. At that price, the county could actually reduce rates by 4.5 percent, Hughes said.

But she did not recommend that the county or a co-op pay more than book value, because that "effectively transfers a portion or all of the benefit of public ownership from Kaua'i customers to Citizens."

Mayor Maryanne Kusaka's administrative assistant Wallace Rezentes said Kusaka will make an announcement in the next two weeks on whether the county will launch a bid for the electric company.