Kaua'i mayor backs sale of electric utility to co-op

By Andrew Gomes
Advertiser Staff Writer

The administration of Kaua'i Mayor Maryanne Kusaka has changed its opposition to the $215 million sale of Kaua'i Electric to a nonprofit cooperative and has compromised with the County Council to support the deal with new conditions.

The combined county position was filed yesterday with state utility regulators, as were final positions of other parties supporting the sale, the state consumer advocate, the Navy and buyer Kaua'i Island Utility Co-op.

The state Public Utilities Commission has given itself till Tuesday to approve or deny the sale, though it indicated that it is looking favorably on the deal as agreed to by the member-owned co-op, the consumer advocate and the Navy, a major power consumer on the island.

Kusaka administration officials — who earlier had said the $215 million to be paid to the Connecticut-based utility owner Citizens Communications was unjustified — now have asked the PUC to approve the sale, with three major requirements for the co-op:

• Reduce rates immediately by 6 percent.

• Comply with open-meeting laws.

• Put $25 million of the $215 million into an escrow account payable to Citizens only if revenue projections developed by Citizens and used by the co-op are met over five to eight years.

County Council members voted 5-2 on Monday to support the proposal.

But the state consumer advocate argued that the county's provisions should be rejected. And while Gregg Gardiner, co-op chairman, said he is gratified that the county finally supports the purchase price, he disagrees with conditions it has asked the PUC to impose.

Under sale terms already agreed to by Citizens and supported by the consumer advocate and Navy, the co-op would provide power customers a rate relief of 3.5 percent over 10 years through a $3 million payment from Citizens a year after the sale, plus rebates of 25 percent of net income starting in 2004.

Gardiner said he opposed the 6 percent immediate rate reduction, and said it's important for the co-op to be able to build up reserves to ensure a solid financial condition for the itself while financing the entire $215 million purchase.

"Rate making is a complicated process and that is something the PUC will decide," he said.

Ron Kouchi, County Council chairman, said yesterday that he felt it was important to get more immediate 6 percent rate relief in return for lower future returns to ratepayers, who have the option of becoming member owners of the co-op.

"It's not affecting the sales price in any way," he said, noting that Kaua'i power customers pay some of the highest rates in the country because of repairs required after hurricanes 'Iwa and 'Iniki.

But Gardiner said rate payers will receive $26 million in rebates over 20 years based on projections for revenue, which from January to July have already come in $700,000 ahead of forecast. "The deal really has exceptional benefits to consumers," he said.

The consumer advocate, in its filing, also opposes immediate rate reductions and wrote that the co-op provides "considerable public interest benefits to customers," including cost savings from special financing, a nonprofit income-tax exemption, and a lack of future rate increases likely under continued Citizens ownership.

Two years ago, the PUC rejected a purchase agreement for the co-op to buy Kaua'i Electric for $285 million, in part, Gardiner said, because the panel concluded that the co-op wouldn't be able to build up enough reserves.

The county administration opposed that deal, and continued to oppose the new lower-priced purchase agreement despite a confidential report showing it would cost between $163 million and $260 million to condemn the utility.

Gardiner said the study by a Mainland consultant, released to the county in January 2001, used different methods for calculating the fair-market value of Kaua'i Electric, with a most consistent value of $214.5 million. The report was released to the public by the County Council on Monday.

Wallace Rezentes, administrative assistant to Mayor Kusaka, said the goal of the study was to determine a maximum estimate on how much it could cost to condemn the utility — not to estimate the value of a friendly purchase.

The county later commissioned a fair-market appraisal that pegged Kaua'i Electric's value at $190 million.

Kouchi said he saw both county studies — as well as the co-op's own appraisal — as having merit.