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PUC Hears Debate on Proposed Rate Increases

Thursday, July 24th, 2008

Molokai Ranch appears despite objecting to being included in hearing

Agency representatives and members of the community packed the Maunaloa Elementary School cafeteria to hear about the proposed rate increases as MPL’s Aug. 31 deadline looms closer.

By Zalina Alvi

West end water users are holding their breath as the Hawaii Public Utilities Commission (PUC) decides whether or not to raise fees in an effort to keep the water running past the end of August.

While the County of Maui seeks legal action against Molokai Properties Limited (MPL) and its subsidiary utilities (collectively, Utilities), the PUC and the state Division of Consumer Advocacy (DCA) are making plans to move ahead with “unprecedented” increases to water charges.

As the PUC gives itself until mid-August to make a decision, frustration is growing on the island among those who believe MPL is taking advantage of its water users and getting away with it, while the Commission denies a request from the County to subpoena the company’s financial documents.

The PUC’s plan
On June 16, the PUC announced an order to provide temporary rate relief to Molokai Public Utilities (MPU) Inc. and Wai`Ola O Moloka`i. This was in response to MPL’s announcement in late March that the Utilities would be discontinuing service as of Aug. 31 due to suffering “substantial losses.”

The PUC’s order described a plan to apply a 121.53 percent increase across the board for all user charges and fixed charges for Wai`Ola O Moloka`i and a similar 40.96 percent increase for MPU, which are the two water utilities. An increase was not proposed for Mosco Inc., the regulated wastewater utility, because the available financial records show that it turned a profit in 2007.

PUC Chair Carlito Caliboso explained the proposed numbers as the best estimation they could provide based on the “very raw data” of the available 2007 financial records provided by the Utilities, which included information on basic yearly revenue and net losses. The Commission looked at how much each utility made in 2007 and how much they lost, and then suggested an increase that would allow each one to break even.

The PUC has provided a deadline to all the involved parties, as well as the public, to provide any additional information, formal statements and comments by Aug. 7, and plans to deliver a decision and order on the rate increases as they currently stand on Aug. 14 that would last for a period of six months, unless determined otherwise by the Commission.

Caliboso called the plan “an unprecedented step for the commission,” as an increase would usually be initiated by the Utilities and would takes months to process so the DCA could analyze the proposal. The PUC, however, said they had “taken the burden of initiating the case” to keep water running for the health and vitality of everyone living on Molokai.

Differing rate increases
MPL CEO Peter Nicholas, however, wrote in a June 23 letter to the PUC that water users would have to pay more than what the Commission is proposing. He wrote that nothing less than a 178 percent increase for Wai`ola O Moloka`i, a 90 percent increase for MPU and a 19.5 percent increase for Mosco  would be sufficient for them to break even.

The Commission stressed at the hearing that while it appears the Utilities are asking for a larger rate increase, they are actually “very similar numbers.” This is because the PUC is proposing to raise all the fees, which includes the rate per 1,000 gallons plus a fixed monthly charge that depends on the size of your meter. Meanwhile, the Utilities are only asking to increase the rate per 1,000 gallons, while the fixed meter charges would remain the same.

As for the wastewater utility, Mosco Inc., the Utilities and MPL are currently proposing an increase from $44 per month to $52.56. The PUC, however, remained firm in the belief that it did not require any increase at all because Mosco Inc. has not been losing money according to the company’s own numbers, but said they would provide the utilities a chance to justify its request.

The PUC’s understands Mosco’s rate increase as a result of lumping administrative expenses, like employee costs, that are shared with all the utilities onto Mosco. The PUC is currently waiting to be provided with revised numbers based on those expenses being shared with the other utilities.

Mixed feelings
After presenting their order to provide “temporary rate relief” for MPL’s two water utilities, the Commission heard testimonies from representatives of MPL, the Utilities, the DCA, the County, the West Molokai Association (WMA) and a few concerned residents.

Although the cafeteria of Maunaloa Elementary School was packed, the hearing turned out to be mainly a quick reading of statements that debated the Commission’s plan to raise water charges for 1,200 West Molokai residents with no clear compromise among those involved.

In opposition to the proposed rate increases, Jane E. Lovell, deputy corporation counsel on behalf of the county, stated that they have filed a formal complaint against MPL and that they do not support the proposed rate increases because the utilities have provided sparse data that has not been verified by a third party.

Lovell urged the Commission in her testimony to use its subpoena powers to get the missing information from MPL and its Utilities that would allow it to accurately evaluate what rate increases would be truly necessary, if any.

The lack of data provided by MPL and its Utilities has been a hot topic since the announcement to shut down water service. Many have wondered why the PUC has not already subpoenaed the information from the company, especially now that it may be ordering a raise in fees based on what they have admitted is “very raw data.”

The Commission denied a recent request from the County to subpoena the documents and the presence of MPL witnesses, which include CEO Peter Nicholas. The PUC said the public hearing was not the appropriate venue to do so and that there was not enough time to summon the requested witnesses. However, the PUC stated that they would entertain another request to subpoena from the County after the July 15 hearing.

Meanwhile, recent speculation that the company ordered employees in Maunaloa to burn company documents shortly after announcing the plans to shut down are not helping matters for MPL.

In the event that the Commission does impose these rate increases, however, Lovell said the county requests that any funds acquired by MPL and the Utilities stay on Molokai, and “do not go into some back account in Singapore.” It is also requesting that the PUC should commit to making sure the systems continue functioning, as it has not heard that yet.

Meanwhile, Catherine Awakuni, DCA executive director, said during her testimony that the office would prefer more time to consider the fairness of the PUC’s proposal, but “with grave reservations” will not oppose the rate increases due to the urgency of the situation.

That being said, Awakuni recommended that the Commission require the utilities to provide documents, including billing records, for each of the six months of the temporary increase to facilitate an independent assessment.

MPL’s position
Representing the Utilities was MPL employee Sonny Reyes who, on advising the room that Nicholas was unable to attend, went on to read from one of his letters to the Commission. The statement said the Utilities would likely suffer a $179,000 loss considering rising energy and fuel costs, and said Mosco would suffer a $37,000 loss if left to operate alone.

MPL was represented by General Manager, Land and Entitlements General Counsel Daniel Orodenker who simply said he was there as a resource, despite a formal objection to being forced to be present.

The objection is based on the position that MPL is a separate entity to its Utilities. But 30-year Molokai resident DeGray Vanderbilt said MPL and its Utilities are essentially the same company. He pointed out that Nicholas, Orodenker and other MPL officers and directors are listed on all three utility boards, according to the State Business Registration Office.

Public concern
While only a few members of the public chose to testify at the hearing, the feelings that came through loud and clear were one of disappointment from some and skepticism from others.

Some were disappointed that seemingly no agency had yet taken on the responsibility of ensuring the water and wastewater utilities continue to function.

Meanwhile, there was also a sense of skepticism regarding MPL’s actions.

Vanderbilt called the company’s actions a “utility shutdown hoax” and accused MPL of trying to get away with acquiring a rate increase without going through the proper channels, while at the same time holding on to assets that could easily finance the continued operation of its utilities.

He called on the PUC to call the company’s bluff and allow them to walk out on their obligations so that they can be fined by the Commission.

Criticism of MPL’s alleged mismanagement of the systems and its own financial affairs were also discussed, especially by resident Steve Morgan, who argued that MPL has been receiving tax breaks from the county unfairly.

By the end of the meeting, however, none of the involved parties had any response to the public comments and now it rests with the Commission to take the next step come Aug. 14.

The DCA invites comments from the public, and can be reached at consumeradvocate@dcca.hawaii.gov or by phone at 586-2780. The PUC will also be accepting public comments through email at Hawaii.puc@hawaii.gov or by phone at 586-2020.

Elections Begin for `Aha Kiole

Monday, July 21st, 2008

State advisory committee picks up momentum and some criticism..

The distinguished Vanda Hanakahi presided over last week’s `Aha Kiole meeting where she announced how Molokai residents can become council members to represent their moku.

By Zalina Alvi 

The time has come to begin electing council members to the Molokai Pae Moku of the `Aha Kiole Advisory Committee.

When the council members are chosen, the committee will be able to use their collective `ike, or knowledge, to ensure that our natural resources are taken care of for future generations. `Aha Kiole will do so by representing all the local practitioners in Hawaii in advising the Department of Land and Natural Resources (DLNR) and related agencies in managing the state’s natural resources using ancient Hawaiian practices.

Vanda Hanakahi, chair of the statewide `Aha Kiole and representative for Molokai, expressed a hope at the July 17 meeting for a united front from her island’s council, so that it may act as an example for the other islands.

For the next few weeks, Hawaiians who are practitioners of fishing, agriculture and land use methodology based on the ahupua`a system or of local cultural arts, have the opportunity to become the leader of their moku through a democratic process.

How it’s organized
Although the committee chair and leaders of each island were previously appointed by the governor, the representatives of each moku on Molokai – which are Pala`au, Kawela, Halawa, Kaluako’i, and Ko’olau – will now be chosen by popular vote during a series of meetings, starting on Aug. 14 with the Pala’au moku. Each of these leaders will then be able to act on behalf of the ahupua`a in their mokus.

In order to be eligible, Molokai residents must complete a nomination form asking for information on geneology, residency, knowledge and leadership criteria.

The right leader should have learned their expertise through their family, know about the spiritual connection between natural resources and native Hawaiian values and practices, must always serve the common good of the community, must be able to adhere to a code of conduct established by the `Aha Kiole council and based on the traditional Hawaiian value system, and must have the ability to communicate with `ike pono.

Forms are available by emailing hanakahi@sandwichisles.net and are due at the meeting on Aug. 14.

Controversy
While most of the people who attended the July 17 meeting were optimistic about the intentions and future of the `Aha Kiole council, there were some who were concerned about its top-down organization and possible hidden motives.

Caroline and Yama Kaholoa`a Sr., sixth generation Molokai residents, expressed skepticism about the intentions and role of the council in the lives of everyday Molokai homesteaders, in particular.

“This is just another organization coming in to tell us what we can and can’t do,” said Caroline.

During the meeting, Hanakahi assured the crowd that the council will work to represent the interests of all the residents on Molokai through active participation and a democratic election.

“Hawaiian or not, if you live in the community we want you to help,” she said.

Yama, however, also criticized the undemocratic nature of the committee’s formative years, citing the fact that the current island representatives, which include Hanakahi, were appointed by the governor and not by the public. He also expressed concern about the combination of a Western structure and traditional Hawaiian practices and values.

Next steps
Whether you agree with the committee or not, time is running out to put the wheels in motion. The process to form the committee began two years ago, and its sunset date is less than one year away in June 2009.

This past June, DLNR biologist Bill Puleloa was already saying the DLNR was making management decisions without their input. The current timeline requires the `Aha Kiole to submit a report for the next legislative session in early 2009.

Should Molokai Ranch be Responsible for Its Utility Companies?

Monday, July 21st, 2008

MPL and utility officers are the same making it difficult to distinguish the difference between companies.

For the past three years Molokai Ranch has reported to its shareholders profits from its Molokai operations. Yet the company is now claiming its subsidiary utility businesses (Utilities) can’t afford to continue supplying water and sewage services to roughly one quarter of Molokai’s population.

The Ranch, also known as Molokai Properties Limited (MPL) has said that if rates are not raised by as much as 178 percent for Wai`ola O Molokai and similar increases for two other utilities, they will abandon water and wastewater operations by Aug. 31.

The question is: should cash-positive Molokai Ranch be financially responsible for its money-losing subsidiary companies? The answer to this question will set a state-wide precedent for other privately owned utilities looking to unload their obligations to the public.

Separate Entity
So far Molokai Ranch has taken the position of passing the buck based on the position that the Ranch is a separate entity to its Utilities.

The Hawaii State Public Utilities Commission (PUC) recently called on Molokai Ranch to testify at last week’s hearing to help determine utility rate increases. In response, Ranch General Manager & General Counsel Daniel Orodenker chastised the PUC for requiring the Ranch to be present.

In a letter to the State he said that PUC did not have “authority to name MPL as a party in the proceeding,” nor the authority to levy any monetary penalties on MPL since it is not a utility company.

The Corporate Veil
Some are characterizing the Ranch’s actions as an attempt to hide behind a “corporate veil”, in which a corporation will shield itself from certain liabilities by placing responsibility on it various subsidiary companies. 

The corporate veil is the most litigated issue in corporate law, according to a study by Vanderbilt University’s Robert Thompson.

Same Company
MPL and each of the Utilities share all of the same directors and officers making it legally difficult to distinguish one company from another. These facts are putting the question of MPL’s responsibility under close scrutiny by the public and Maui County lawmakers.

The PUC insisted Orodencker appear at the July 15 public hearing  to represent the Utilities. This decision is  based on the fact that he is  an officer withing each of the three utility companies, an officer of Molokai Ranch, and an officer of MRL Management, which is an agent for the Utilities and for Molokai Ranch.

In the mean time, the PUC has been notified by MPL that its utility companies are planning to remove all of their respective officers and directors except for MPL CEO Peter Nicholas.