Should Molokai Ranch be Responsible for Its Utility Companies?

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.