Molokai Ranch is objecting to a state Public Utilities Commission order that the company can't cease water and sewage service to west Moloka'i until it finds a public or private entity to continue services.

The company, in a June 11 letter to the PUC, said its utility operations are financially insolvent and can't be forced to continue the service that it suggests should become the responsibility of Maui County.

Molokai Ranch owns about one-third of the island and serves about 1,200 utility customers through company-owned affiliates Wai'ola O Molokai, Molokai Public Utilities and Mosco.

The company announced in March that it was shutting down ranch and resort operations and laying off more than 120 employees, a move that delivered a severe blow to the Friendly Isle economy.

In May, Molokai Ranch notified the PUC that it would cease utility services by the end of August unless another operator was found to take over.

The PUC responded in a June 5 letter, telling Molokai Ranch that it couldn't shut down the utilities without commission approval, and that the company needed to find a public or private entity to assume operations. The PUC also threatened to issue penalties for an unauthorized utility shutdown.

Molokai Ranch in its response to the PUC said the commission has no legal basis to force the company to continue utility service when it can't afford to.

"We do not agree with you that the utilities have a duty to service their customers when they are insolvent and unable to do so," the company said in its letter.

Molokai Ranch said its parent company, Molokai Properties Ltd., which is a subsidiary of Singapore-based GuocoLeisure Ltd., covered a $580,000 net loss for the utilities in the fiscal year ended June 30, 2007, and a $566,000 net loss for the first 11 months of this fiscal year.

Molokai Ranch said the financial losses of its utility subsidiaries make it unlikely that any private party will take over operations, and that Maui County has the resources to assume the service.

The company also said in its latest letter that it has given the state and Maui County "ample advance notice" of the need for the government to take over operating the water and wastewater systems.

"We look forward to working with all parties to make this as orderly a transition as possible," the company said in its letter. "There will be no interruption of services so long as government assumes its rightful role: to provide its citizens with essential services where they cannot be obtained through the private sector."

The PUC yesterday acknowledged that as a practical matter, it can't compel Molokai Ranch to operate the utilities forever, and urged Maui County officials to "do what is necessary" to acquire the water and wastewater systems.

The commission also announced yesterday that it will start a proceeding on Monday to temporarily increase water rates for Wai'ola O Molokai and Molokai Public Utilities customers that will likely result in substantial increases that some customers may not be able to afford.

The planned rate increase, the PUC said, would allow Molokai Ranch to operate its utilities without financial losses until Maui County can take over. The PUC did not indicate how much rates might rise. The PUC said the third Molokai Ranch utility, Mosco, appears to have revenues in excess of expenses and doesn't need a rate increase.

Maui County yesterday filed a formal complaint with the PUC against Wai'ola O Molokai, Molokai Public Utilities and Mosco. The complaint asks the PUC to compel the utilities to show why it should not be prohibited from shutting down, and to submit a plan for the continued operation of the utility beyond August 2008.

Mayor Charmaine Tavares in previous statements has said the county can't take over Molokai Ranch water and wastewater utilities on such short notice and that it's not fair to dump the expense of operations on taxpayers.