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Should Molokai Ranch be Responsible for Its Utility Companies?

Monday, July 21st, 2008

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.

State Proposes Water Limits on Molokai

Friday, July 18th, 2008

Plan to include sustainable yields for all of the island’s water resources.

By Zalina Alvi 

By the end of August, the state may be regulating how much water can be taken out of the island of Molokai and the rest of Hawaii.

A representative of the state Commission on Water Resource Management presented a revised draft of the Water Resource Protection Plan (WRPP) at a meeting of Molokai’s Water Advisory Committee on July 10. The proposed plan analyzes data on current and future water demands in order to put caps on how much water can be taken out without jeopardizing our resources.

The WRPP is one of five parts of the larger Hawaii Water Plan. Maui County, like other counties, will have its own water use and development plans which will include information on Molokai.

The WRPP’s major role is to determine the water limits for the individual county plans when they are finalized and ready to be implemented.

Sustainable Yields
The limits are calculated as sustainable yields for the island as divided up into 16 sections of groundwater resources. Areas such as Kaluakoi and Hoolehua, have the lowest sustainable yield with two million gallons per day, while Wailau has the most with 15 million gallons per day. Seven out of the nine areas on neighboring Lanai have a sustainable yield of zero gallons per day. There is also a section on surface water resources that will be monitored and regulated.

Data Confusion
The WRPP, which has been in the works since 1990, has undergone several revisions based on public comments since it was first developed.

Even so, the general response at the committee’s meeting was one of hesitancy and distrust of data acquired by the commission. One of the major issues questioned functionality and number of gauges used for collecting data from streams on Molokai.

Roy Hardy, regulation branch chief for the commission, assured the meeting’s attendees that the data was sound, but admitted that there have been budget cuts in terms of data collection, which would account for the possible disrepair or absence of gages in local streams.

Share Your Mana’o
The WRPP will have to be approved by the commission on Oahu at the end of August, most likely on or around Aug. 20. The public can send comments in formal letters to the commission by fax at 587-0219 or email at dlnr.cwrm@hawaii.gov.

The full plan be found online at hawaii.gov/dlnr/cwrm or viewed in person at the commission office at the Kalanimoku Building, Room 227, 1151 Punchbowl Street in Honolulu.

Other Plans in the Works
The Water Advisory Council is also working with the county on putting together a section on Molokai for a Maui Water Use and Development Plan (WUDP) that will fall under the WRPP. Anyone wishing to contribute should attend a meeting. Meetings usually take place on the second Thursday of the month. Comments on the WUDP can be sent to Ellen Kraftsow with the Department of Water Supply at ellen.kraftsow@co.maui.hi.us.

Mayor Stands Firm on Water Issue

Friday, July 18th, 2008

By Jennifer Smith 

Mayor Charmaine Tavares set the record straight last Tuesday night by clarifying that it is not the county’s sole responsibility to take over Molokai Ranch’s utility services. The majority of the Molokai community stood behind the mayor, arguing that Molokai Ranch should not be let off the hook, and the governor needs to intercede in the matter.

"We are not going to abandon the Molokai residents,” said the mayor, during a community meeting held on Molokai. Mayor Tavares and Council Member Danny Mateo arranged the meeting in response to questions and concerns about Molokai Ranch’s potential abandonment of utility services in August. 

The Ranch, also known as Molokai Properties Limited (MPL), announced in April its intention to abandon its water and wastewater services on the island. The decision came days after the company closed several of its Molokai-based businesses, and laid-off 120 local workers.

Impending Emergency
“People have to trust that we are not going to let them down,” Mayor Tavares said. “We are not going to wait until the faucets are turned off.”

The Mayor’s Office sent a letter last Tuesday asking the governor to declare Molokai’s utility situation a state of emergency. According to Mayor Tavares the decision would provide the governor with the necessary legal and financial clout to hold Molokai Ranch accountable, while continuing services to residents.

The state, which does not have the physical infrastructure to take over a water system, could then put together a plan to have engineers and experts assess the situation, and then make a call for proposals to find a company to fix the system.

As of last Friday, the governor’s office had held a meeting to discuss the mayor’s request, but had not confirmed a course of action.

The mayor said the county needs to allow due process to take its course, and cannot disclose several of the proposed plans, but in the event of an emergency she said the county would respond immediately by treating the situation as a natural disaster.

The mayor can declare a state of emergency, but she said her declaration only allows access to emergency funds but will not allow her any other enhanced jurisdictional powers. Mayor Tavares and Council Member Mateo expressed their strong frustration at not being able to do more at this time.

The Mayor’s Office has also contacted the Environmental Protection Agency to make it aware of the developing utility situation on Molokai.

Ranch Closes Doors to Information
Mayor Tavares said she doesn’t yet know how much County emergency appropriations would be needed because Molokai Ranch is continuing to deny access to information, records, and facilities of its utility companies.  Public Utilities Commission (PUC) representatives have also reported non-access to the Ranch’s operational and financial information.

The frustration over the lack of information has led the county to fax a letter to MPL’s parent company, Guoco Leisure in Hong Kong. The letter informed the global company of MPL’s unwillingness to cooperate.

Several attendees speculated that the Ranch is intending to profit from a potential emergency situation. Passing on its utility responsibilities could potentially allow MPL to circumvent costly requirements to continue operating its systems.

Last August, the state attorney general ruled that MPL must complete an environmental assessment to receive a renewed permit to continue using the Molokai Irrigation System to transport its water across the island. Then in December 2007, the Hawaii Supreme Court revoked MPL’s permit to use its purchased Well 17. Between legal fees, and time expended, it would reportedly cost MPL millions of dollars to get its systems legally up to code and running.

"I am just appalled" the ranch is sitting back implementing their new business plan, said DeGray Vanderbilt, former chairperson of the Molokai Planning Commission. He said MPL remained cash positive the past three years, but found it advantageous to claim financial hardships in order to abandon its utility obligations.
 
"They want to dump their liabilities and keep their assets,” the mayor said.

Vanderbilt added that such an action would allow MPL to come back in better economic times to sell off its land holdings for a higher profit. "I think it is time to play tough with these guys," he said, suggesting the state fine MPL daily should the company forgo its responsibilities.

MPL claimed in a letter to the PUC that the county needs to take over the system because no private investors have expressed an interest in taking over. However, the mayor said there have been at least two private companies willing to run the systems.

Council Member Mateo authored a resolution in June that would have the county hire lawyers and other specialists in the event that legal action is taken against MPL. The resolution will be heard on July 22 in the policy committee.

Molokai resident Steve Morgan said several of MPL’s business transactions should receive a closer review. He referenced several improprieties regarding tax assessments of property holdings in relation to the charges incurred by private homeowners.

According to the mayor, if the governor does declare a state of emergency, it would give her the jurisdiction to seize MPL’s records, and look into the state of the utility systems.

State Jurisdiction
Because the PUC granted permits for MPL to run its utility companies, the mayor wants the state to continue its oversight of the company while it relinquishes its permit responsibilities.

“Please don’t get tricked into thinking that this is the County of Maui’s responsibility,” Mayor Tavares said. The County Board of Water Supply and the Department of Water Supply codes do not apply because the issue concerns a private water company she said.

Resident Paul Mullen has followed the developing situation closely and said, while the Ranch deserves plenty of the blame, people also need to place some of the responsibility with the PUC. After granting the Ranch the utility permits, he said the Commission allowed the company excessive amounts of deferred maintenance to its systems. In its defense, he acknowledged that it is extremely short staffed and funded.

"We are not pointing fingers," Mayor Tavares said. "We are trying to keep people accountable," she said, while acknowledging that the PUC has a huge responsibility to carry out, with very little staff.

The mayor said concerned residents can write letters to the PUC, the Department of Commerce and Consumer Affairs (DCCA), and the governor’s office.

“We need to have our governor come in here and help us,” Ruth Manu said.

The County Takes a Stand
Several residents came ready to grill the mayor, but quickly changed their tone after hearing the facts. Giving straight answers to tough community questions, the mayor asked the Molokai community in return to unite and “put the responsibility where it belongs.”

“Now that I have heard all of this I know it is the state that should be doing this,” said Richard Glenn, Molokai resident. He said the governor should declare a state of emergency and that the Department of Health (DOH) should be involved in the situation.

Molokai Community Unites
“I believe this community is truly making an effort to come together,” Council Member Mateo said. “We are one island, one people, and we all feel hurt.”

Several of the attendees also marveled at the unity felt in the room. Neighbors who had fought for years over issues such as land development, found a consensus Tuesday night, fighting for the need for affordable water rates, continued services, and accountability for utility companies.

Molokai resident Bill Vogue saw the water utility situation as an "opportunity for the island to pull together like never before."