KIUC's Rate Case - Kauai Island Utility Cooperative

KIUC CEO Randy Hee answers a question during the June 3 public
meeting about KIUC’s recent application for a rate increase.
Facing monthly losses for the first time since becoming a
customer-owned cooperative, Kaua‘i Island Utility
Cooperative (KIUC) is seeking a new rate schedule that
will increase revenues by 10.5 percent—about $16 a
month for an average residential consumer.
The new rate proposal is scheduled to be presented to the
state Public Utility Commission around July 1.
KIUC Chief Financial Officer David Bissell said the
utility’s revenues are slightly below costs for the first five
months of the year.
The rate proposal calls for slightly reduced pass-through
costs when oil prices rise, but higher base rates, so bills
will be somewhat higher for the same amount of power.
The utility’s current rates were established 13 years ago.
While costs have risen, the company has been able to
delay increasing rates by balancing increased expenses
with significant increases in efficiency of its power plants
12 KIUC CURRENTS
KIUC’S RATE CASE
and an increasing customer base. This year, however, the
continued increase in costs plus a declining economy
caught up with KIUC.
The island’s last electric rate case was completed in 1996,
when crude oil prices were around $20 a barrel,
compared with nearly $70 in early June 2009.
Because most fuel costs are passed directly through to the
consumer, those don’t damage the co-op’s bottom line. But
some fuel costs based on the 1996 oil price are included
in base rates. Other costs also are hurting the co-op.
During the past 13 years, virtually all the utility’s
expenses have risen: salaries, lubricating oil, copper wire,
utility poles and the trucks repair crews drive. The
Consumer Price Index—the national standard for the
changing cost of goods and services—has gone up from an
annual average of 156.9 in 1996 to 215 for 2008. That is
a 37-percent rise during a period when base electric rates
on Kaua’i have stayed flat.
KIUC President Randy Hee said improved operating
efficiency has helped keep the company balance sheets
positive. But electricity users have trimmed their power
consumption to the lowest amount in the island’s recent
history. In May, average monthly residential use dropped
from a long-term average of 520 kilowatt-hours (kWh) to
430 kWh.
That may be a conservation response to last year’s spike
in fuel costs, or the current recession. It also might be a
new energy-efficiency effort by the public. It has been
suggested a cut in tourism means lower power use in
rental home and condominium units. While it is unclear
which factor plays the biggest role, power consumption is
way down. That means KIUC is selling less power, and
bringing in less revenue.
The company launched a cost-cutting drive, reducing its
operating costs by $1 million and its capital costs by $6
million for 2009, Bissell said, noting that has not been
enough to keep the balance sheet in the black.
KIUC’s sales in 2008 were down 3 percent from 2007. In
the first quarter of 2009, they were down 8 percent from
the same period in 2008. In May 2009, energy sales were
down 14 percent from May 2008. The decline is
unprecedented in Kaua’i electric utility history.
The utility’s margins are reduced $2.5 million with every
5 percent drop in energy sales.
“If sales stay down, our financials will continue to be
under stress,” Bissell said.
KIUC officials have recognized for some time that they
would need more revenue, and that the cooperative
should overhaul the way rates are calculated.