Monday, August 11th, 2008
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Move will challenge Ranch's utility bailout.Last week Friday, members of the Maui County Council unanimously adopted a resolution introduced by Molokai Council representative Danny Mateo to hire Margery Bronster, one of the state’s highest rated attorneys.
Bronster is to represent the county in all legal matters related to Molokai Ranch’s announced bailout of its responsibilities to deliver essential water and wastewater services to residents and business in central and west Molokai.
The Council’s Maui meeting was televised live and broadcast back Molokai by Akaku Community Television.
The Council’s proactive action was initiated in response to the unilateral decision by Molokai Properties Limited (MPL), which has been doing business as Molokai Ranch, to shutdown its utility companies on August 31. The purpose of the resolution was to also challenge the initial positions taken by Governor Linda Lingle and several state agencies that expected the county to step up and take over the utility operation if MPL followed through with its threat to walk away.
Mateo, who has been battling a severe case of the flu, was unable to attend the meeting. He is chair of the Council’s Policy Committee that approved the resolution going to the full council for consideration.
A report from Mateo’s Policy Committee noted that as the county's special counsel, Bronster and her firm would handle legal matters pertaining to Molokai Properties Limited, which is doing business as Molokai Ranch; and the Ranch’s three utility companies Molokai Public Utilities, Inc., Wai'ola O Moloka'i, Inc., and Mosco, Inc.
MPL is named along with the three utilities as parties to the PUC proceedings. MPL has objected to being named a party, but documents show that MPL and the utilities are basically the same.
The Committee report noted that Bronster would also be available to represent the county in possible legal claims against the State of Hawaii, and other parties, arising from the Ranch’s threat to terminate private water and wastewater operations in August 2008.
Former Molokai Planning Commission Chair DeGray Vanderbilt testified in support of Bronster being hired, noting that in the late 90’s, as the State’s first full-term female attorney general, she successfully uncovered deceptive and corrupt business practices by the Trustees of the powerful Bishop Estate, which led to all the trustees resigning and one going to jail.
Where the Ranch Stands Now
MPL currently owns approximately 60,000 acres of land on Molokai that was appraised a couple of years ago for $200 million dollars.
Most observers feel it will take anyone at least a 18 months to 2 years to complete the due diligence and negotiations required to understand and document what was needed to assume the complex operations of MPL’s utilities, which are currently in disrepair and administrative disarray.
For example, Molokai Public Utilities, which delivers water to the Kaluakoi resort, has no permitted water source and no agreement for transmission of water to the West End. In addition, half of its dual water delivery system is inoperable.
Nicholas also has made it clear that anyone considering taking over the utility companies would have to lease or purchase the assets needed to operate the utilities. He wrote to the PUC and reported these assets currently have a net book value of over $12 million dollars.
The PUC’s unprecedented proposed rate increase on behalf of MPL’s utilities amounts to $461,497 per year. Nicholas sent a response letter to the PUC rejecting the offer as being inadequate. He threatened to terminate operations unless the PUC provided increased rates to give MPL’s utilities $894,926 a year more in operating income.
Public Criticism
Vanderbilt expressed disappointment to the Council over the fact that the Governor and the PUC appear ready to place the financial burden of subsidizing efforts to work out a solution to MPL’s utility mess on the backs of Molokai residents, who are already strapped financially. He said it appeared that the PUC was going to approve the higher rates being demanded by Nicholas.
At the July 15 PUC public hearing, Chairman Carlito Caliboso announced that by using a simple formula it was easy to determine what the rate increase would mean. Carliboso said that if customer in Kualapuu or Maunaloa is paying $50 a month water bill, the bill would increase to $110 under the PUC proposed rate hike.
Applying the Carliboso’s formula to the higher rates being demanded by Nicholas, Kualapuu or Maunaloa families would see their bills increase from $50 to $139.
At the same July 15 public hearing, PUC Commissioner Les Kondo concluded to those attending that MPL’s significantly higher water use rates were “very similar” to the rate increases proposed by the PUC.
The PUC is scheduled to make a decision on the temporary rate increase on August 14.
Vanderbilt said Nicholas should step up to the plate and agree to sell two or three of their 20-acre Papohaku Ranchland residential lots at the Kaluakoi resort to cover the utility operating costs during the interim period when the County, State and MPL attempt to resolve the frenzy created by MPL’s unlilateral decision to walk away from its utility service responsibilities.
The PUC has issued an order advising MPL that its utilities shall continue “to provide utility services until the commission approves a transfer to a public or private third party” and that non-compliance of the order could result in civil penalties being assessed at $25,000 per day ($9 million dollars a year).
In an article published in the Dispatch, Nicholas claimed last year that since 2006 MPL had been selling off “minimal amounts” of non-strategic lands in order have their operations remain “cash flow positive”
Vanderbilt provided portions of GuocoLeisure’s 2007 annual report which reported to shareholders that “Molokai Properties continued to
remain cash positive through the sale of non-strategic subdivided land.”
The 2007 annual report also noted that GuocoLeisure’s primary goal is “active investment management aimed at extracting and maximizing shareholder value”.
Vanderbilt opened his testimony by holding up a large, poster-sized color picture (published in a past issue of the Dispatch) showing Ranch employees burning company files in 50-gallon barrels. He said the picture was taken by a Ranch employee shortly after Nicholas issued a press release on March 24 announcing that a “business decision” had been made to shutdown the Ranch’s entire operation and “mothball” its land assets until better economic times returned.
Vanderbilt claimed MPL and GucoLeisure’s decision to shutdown was in clear contradiction to the responsibility the Governor said she expected from “true business leaders” during the current trying economic times.
He provided the Council with portions of a speech the Governor gave at the Hawaii Economic Association’s (HEA) annual conference, which was held just a few weeks after MPL announced a total shut down of its operations on Molokai.
“The business community has an especially important role to play,” the Governor told those attending the HEA conference. “I am a firm believer that during an economic slowdown, businesses (like Molokai Ranch) should not hunker down, be stagnant and adopt a defensive mentality. This only exacerbates the situation”
According to Vanderbilt, MPL is clearly “hunkering down” during these slow economic times, has sacrificed its employees for the benefit of company shareholders, and is now trying to unload its utility expenses so it has minimal carrying costs (operating expenses) while it land banks its land assets until better economic time roll around,
Despite these facts, the Governor is still backing MPL’s corporate interest at the expense of Molokai’s working families, he said.
Background on the Ranch
Nicholas, in addition to heading up MPL, is also a Vice President of GuocoLeisure Limited, the billion dollar foreign investment company that owns 100 percent of Molokai Ranch. For his dual management roles, Nicholas reportedly earns in excess of $500,000.
In 2007, the three utilities combined lost approximately $350,000 from operations.
Quek Leng Chan is Executive Director of GuocoLeisure and ranked the 314th riches man in the world with a personal net worth of $2.9 billion dollars.
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