2005 RATE CASE
The cost of water in 2005 was around $3.73 per thousand gallons (an exact figure cannot be given, because it's continually changing in response to fluctuations in the power cost adjustment). In late 2005, the Kohala Ranch Water Company (KRWC) applied to the Hawaii Public Utilities Commission (PUC) for a rate increase with a tiered structure that went up over $15 per thousand gallons for the largest users. That got shot down, but a two-step interim rate increase led to a price of $5.635 in May, 2007.
2008 RATE CASE
In the 2008 session of the Hawaii Legislature, a bill was passed that required water companies to offer a lower rate for qualified agricultural users, and provided that the difference could be made up with a compensatory increase in the rates paid by the company's other customers. Each affected utility was to submit a filing with the Public Utilities Commission (PUC) proposing what the rates should be and how agricultural use should be defined.
In our case, the subsidy applies to only two users, and is an insignificant amount when spread over all customers in the five subdivisions served by the utility. But KRWC owner Bob Acree decided to use the opportunity to request a much larger increase, in order to give KRWC an after-tax return of 8.85%.
There are links at the end of this text to some of the testimony that was submitted in connection with this case.
Amortization of an investment never made
One of the expenses the utility has been allowed to recoup is the undepreciated costs of construction of the facilities. What's unfair about this is that if someone acquires a company by buying all its stock, he may be recouping expenses he never made. Original developer KJV put about $6,000,000 into the water company, but Bob Acree bought it for a third of that. So KJV took the loss that the customers are compensating Acree for.
Digging our own grave
The cost of these rate cases is about $200,000 each, and the money is recouped from the customers over five years. The 2005 and 2008 rate cases together will end up costing an average of about $1000 to each of KRWC's customers.
As Lyle Packard of Kohala Ranch points out, this is a company that sells only one product, has only 400 customers, and contracts out all the work. The rate applications draw upon previous submittals and boiler plate, so why should they be so expensive??
It may not be like the Wall Street CEO bonuses we've been hearing about, but some of us are questioning the fact that the pay Bill Moore will receive for half-time work is in the range of $150,000. This implies that Acree is paying him a like amount for the work he does for him in his land development activities. $300,000 a year for this kind of position on the Big Island seems out of line.
How do we know that $150,000 is only half of what Acree pays Bill Moore? We don't. In the 2005 case, we couldn't even get information on Moore's compensation, as the documents were censored with blacked-out sections, on the theory that this is confidential proprietary information.
Some of us think there should be a forensic audit. Maybe that would put to rest some of the suspicions that residents have always had about the water company.
But the PUC has always ignored calls for an audit, and is not likely to require one of any kind, let alone the thorough-going investigative one that might satisfy the customers.
The charges associated with meter installation and servicing do not seem fair. As a result of the 2005 rate case, the monthly charge for a 5/8" meter went from $4 to $16 a month, and the charge for a 1" meter jumped from $11.50 to $46 - even though the fixed costs to the company for servicing customers with the two types of meters is nearly the same.
The 2008 application proposes to further increase these charges to $24 and $69. This amounts to $288 and $828 per year, respectively.
In addition, the company charges $2000 for initial meter installation. It's not clear what this is supposed to cover. Meters cost less than a hundred dollars, the labor can't amount to more than an hour, and setting up a new account shouldn't cost more than a few dollars. We believe the homeowner should be allowed to get a competitive bid on installation costs, and KRWC should not be allowed to charge more than, say, $50 to inspect the work and verify that it's satisfactory
The professed philosophy of the 2005 case was that rate components should be tied to company expenses. The principle was badly violated in that case with respect to meter charges, and now KRWC proposes to compound the error. Another principle in the 2005 case was the need for conservation of the resource, yet the transfer of volumetric costs to fixed costs violates that criterion as well.
Doesn't Acree consider himself creditworthy?
In the 2005 rate case, Acree wanted to write off the interest - 3% over prime - that he pays himself on money he lends his water company. If the prime interest rate is what banks charge their most creditworthy customers, how uncreditworthy must he consider himself? Since KRWC is a monoply with a captive audience, and the PUC pretty much ensures it will stay afloat, is this a reasonable charge? The Consumer Advocate did disallow it, but only for a technical reason.
The consumer advocacy system is flawed. You would think that the Consumer Advocate would review all the information and make a case for the best possible deal for the consumers. The applicant would likewise made the best case it could for itself, and the PUC would mediate.
But that's not how it works. The Consumer Advocate essentially negotiates with the company, and together they work out an agreement that they take to the Commission for it's approval. You can see that this could tend to undermine the concept of the Consumer Advocate as our champion.
In 2009, the Consumer Advocate's office has only 20%-25% of the staff it's supposed to have. Even if they want to do their utmost for us, how can they do an adequate job when they're so severely understaffed?
PUC mind set
The Commission does not seem inclined to deal with any other issues than how much of a rate increase it's going to approve. As mentioned above, it's not likely to require a thorough-going audit, and it remains to be seen how many of the questions and suggestions raised by the testimony it will entertain...if any.
In the 2005 case, four customers in three subdivisions applied to become intervenors. But the PUC denied all these petitions, except to allow Kohala by the Sea Community Association to make a written submittal based on their status as a recognized Fire Wise Community.
It was claimed that the Consumer Advocate could adequately protect our interests. But even then, the Consumer Advocate indicated that she had a lot on her plate, and if she missed something, it could be fixed five years later, when the company was expected to make the next application.
In the 2008 case, only the Kohala by the Sea Community Association applied for intervenor status, and again it was denied.
The attorney for Kohala by the Sea filed a protest of the PUCs decision in the earlier case to waive an evidentiary hearing, since there is no provision in the state statutes for waiving it, but that got nowhere either.
Below are links to some of the testimony that was submitted in the 2008 rate case, which probably won't be decided till mid-2009. [When you're done, click the return arrow in the upper lefthand corner of your browser screen to return to this page.]
Packard says that when the original Kohala Ranch developer sold all it's holdings to Bob Acree, the water company was split off from its land development enterprise and had an "infinitesimal" lifetime before Bob Acree bought all its stock. The purpose of this was to allow Acree to write off, for tax purposes, almost $6 million on his $2 million investment in the company. Packard says the PUC did not intend to allow a parallel depreciation to be added to the rate base which is used in calculating water rates so that, in addition to the tax windfall, his purchase of the company was being reimbursed by water consumers three times over.