Public vs. private: What does it mean?


The merits of publicly versus privately owned power have been debated nationally since the early 20th century. A localization movement to create affordable and renewable energy, green jobs and regional green development is happening now.

Still there’s no national consensus as to which type of electric utility is better, more efficient, and ultimately, of the greatest benefit to the customers it serves, said Jeffrey Ono, state Division of Consumer Advocacy executive director.

Electricity can be provided to consumers by a municipally owned utility, an electric cooperative or an investor-owned utility. In Hawaii, investor owned utilities (IOUs) — commercial, for-profit utilities owned by private investors — dominate. The Public Utilities Commission is the state’s lone regulator of utilities, he said.

IOUs like Hawaii Electric Light Co. on Hawaii Island answer to shareholders and are capitalized by shareholder investment, retained earnings and borrowing on the open market. Profits earned by IOUs are returned to investors in proportion to the number of shares they own. IOUs want to maximize return on investments and preserve ratepayers bases, Ono said.

HELCO is a subsidiary of Hawaiian Electric Industries, with an operating income last year of more than $444 million, of which nearly $122 million paid fuel oil costs and more than $137 million went to independent power producers. The remaining funds paid for other operation expenses, maintenance, depreciation of assets and taxes, said HELCO President and CEO Jay Ignacio.

A major benefit of having an IOU is shareholders absorb much of the risk and excess costs rather than taxpayers. When things don’t go well, publicly owned power entities don’t have that cushion and often must pass all increased costs directly through to local taxpayers. Another benefit is IOUs operate as a business, meaning it can make decisions quicker and operate more efficiently than an utility owned by the government, which may be more bureaucratic, Ignacio said.

Municipally owned utilities are owned by a government unit, such as a state, county or city, that purchases electricity at wholesale and distributes it to customers. The majority of such utilities nationwide does not generate their own power, but purchase and distribute it to the customers. There are no municipally owned utilities in Hawaii, Ono said.

Electric cooperatives are nonprofits owned and democratically controlled by their consumers. Kauai Island Utility Cooperative became the state’s first not-for-profit generation, transmission and distribution cooperative owned and controlled by the members its serves in 2002, when it purchased Kauai Electric from Connecticut-based Citizens Communications Co. for more than $200 million.

Despite popular belief, the rates charged by electric co-ops are not necessarily lower than other electric companies. KIUC’s residential rates are around the Big Island’s rates, KIUC President and CEO David Bissell said.

HELCO residential customers pay 40.1 cents for the first 300 hours, 42.3 cents for the next 700 hours and 43.1 cents for more than 1,000 hours while all KIUC’s customers pay 45.8 cents per kilowatt hour, according to rate summaries submitted to the PUC, effective April 1.

“As simple as they seem, electric utilities are complex operations and the challenges don’t go away no matter who owns and manages the utility,” Ignacio said. “The present challenge is being dependent on the price of oil. Whether you’re an IOU or co-op, you’re going to have to aggressively pursue renewable energy options that will reduce that burden and support ideas that ensure reliable, safe, reasonably priced electricity.”