Since December 12, 2023, Launiupoko Water Company, Inc., has been involved in a case before the state Public Utilities Commission, seeking approval for increased rates for its sale of potable water to its customers on agricultural lands in West Maui that once made up part of Pioneer Sugar’s plantation.
A year later, in December 2024, following the filing of numerous information requests from the PUC and the state Division of Consumer Advocacy and responses from LWC, the company filed an amended application, which was accepted as complete by the PUC on January 21.
The two parties involved in the case – Launiupoko Water and the state Division of Consumer Advocacy (by law a party in every PUC docket) – then submitted a stipulated agreement on a procedural schedule and a statement of issues to be considered in the rate case. In February, the PUC accepted the stipulation.
The statement of issues came down to a series of questions about the reasonableness of LWC’s projected expenses, rates of return on equity, soundness of revenue forecasts, and the like.
As to the procedural schedule, once the application was accepted as complete, the commission has six months from the date it was received – December 20, 2024 – to consider the application and come to a decision.
Nearly all the customers of Launiupoko Water are also served by Launiupoko Irrigation, which provides nonpotable water for irrigation. The former provides water from groundwater sources while the latter relies mainly on streams to provide non-potable water for irrigation. Both companies are owned and ultimately controlled by Peter Martin.
LIC does have a source of groundwater, but it has used that source sparingly, avoiding the expense of pumping. Instead, LIC has allowed its customers to use potable water whenever stream water is scarce or altogether unavailable.
Written comments from two customers brought to the commission’s attention the problems that this has caused them.
Barry and Irene McPhee have farmed 13 acres of land for 21 years, they wrote. “Today, and for the past seven years, we have seen our water rates rise dramatically while the water supply has become increasingly unreliable, to the point that we don’t see how we will be able to continue to operate our farm.
“A great deal of the time, during long periods of drought in West Maui, we receive no irrigation water at all from Launiupoko Irrigation Company and we are forced to use potable water to keep our farm alive. LIC could pump water from their auxiliary supply to the reservoirs; however, they choose not to until the rate increase before this commission is granted…” (LIC has its own rate hike request before the PUC, pending since June 2020.)
“We ask the commissioners to please give consideration to Launiupoko utility customers with legitimate agricultural activity. We face being ruined between Launiupoko Irrigation Company not providing reliable Ag water, forcing us to increase potable water usage, and Launiupoko Water Company applying to hugely increase the cost of high-volume potable water usage. Please address this situation.”
Jeff and Sue Anderson, owners of Two Dog Farm, submitted similar comment, saying they, too, had experienced cutoff of irrigation water and had to supplement it with much more expensive potable water.
“By dramatically increasing the cost for large potable water usage, you would be penalizing small farmers for the unreliable water supply from Launiupoko Irrigation. In fact, it would incentivize Launiupoko Irrigation to cut ag supply even more often to force users to use more potable water at a super high rate through their jointly owned Launiupoko Water Company.”
The PUC appears to have taken the farmers’ concerns to heart. In an order issued April 3, the commission on its own amended the statement of issues, adding the question: “Should LWC establish a preferential rate for qualified agricultural activities within the scope of this proceeding or a future proceeding?”
The order goes over the constitutional protections for agricultural activities and the legislative framework. In 2008, the order notes, the Legislature enacted a law giving the PUC authority to establish preferential rates for customers of potable water companies engaged in agricultural activities. The same law gave the PUC authority to “develop appropriate criteria for qualification” of agricultural customers.
“Upon receipt of a bona fide request for preferential rates for potable water to be used for agricultural activities, and proof that the customer engages in agricultural activities, a public utility shall provide proposed preferential rates for potable water to be used only for qualified agricultural activities to the [Commission] for approval,” according to Hawaiʻi Revised Statutes § 269-26.5, cited in the PUC order.
“All such rates … shall be subsidized by the potable water rates charged to other customers of the public utility if required as determined by the [Commission],” the statute continues.
Exactly what counts as agricultural activity is described in the law: “a commercial agricultural, silvicultural, or aquacultural facility or pursuit … including the care and production of livestock and livestock products, poultry and poultry products, apiary products, and plant and animal production for non-food uses…”
In applying for the rate hike, Glenn Tremble, representing LWC, was asked about establishing preferential rates for agricultural uses. Tremble replied that the company supports such rates, but that the company “believes that non-potable water should be the primary source of water for agricultural use.” He went on to list “a number of aspects of the statute that need to be worked through to avoid unintended consequences.” These include questions about what qualifies as agricultural activity, “how much of a subsidy can the utility impose on other customers,” “does the request comply with the Commission on Water Resource Management requirements,” the “unintended consequences” of subsidized rates, “as well as a number of other issues.” He suggested that these questions “may best be done in a rate case post bona fide request, or a separate document.”
Furthermore, LWC attorney Craig Nakanishi stated in response to information requests from the Consumer Advocate that preferential rates would require verification and allocation of how much water the ag activity should receive, then monitoring compliance. “All of which presents administrative and operational challenges to LWC,” he said.
In any event, “Launiupoko area infrastructure was built with a dual distribution water system” and LWC’s system was not designed for irrigation, he claimed.
But the arguments against preferential ag rates did not prevent the LUC from adding this to the statement of issues.
The March order notes that the area served by LWC is “zoned for agriculture and private land owners must submit farm plans as a requirement of applications for a building permit.” While testimony suggests there are legitimate farms among LWC customers, “many LWC customers likely do not engage in qualified agricultural activities on their properties, but instead enjoy large luxury residences with pools, water features, and lush landscaping, with any agricultural features being incidental.
“While LWC points to the customers’ ability to draw irrigation water from affiliated utility LIC, there is no legal support for that argument. The Legislature established authority to implement a preferential rate for potable water for agricultural activities, without any reservations or conditions about the availability of non-potable water for the same purposes,” the PUC order states.
“Further, LWC cannot rely on directing customers to instead use non-potable water from affiliated utility LIC, especially given that LIC has not provided consistent service to the dual customers of LIC and LWC, and while there is no guarantee that LIC rates will remain more affordable than LWC rates.
“Thus, it is consistent with state policy for LWC to establish a potable water rate structure that promotes the intended land use, i.e., lots that are used for the predominant purpose of commercial farms … and it is in the public interest for such owners of luxury residences to subsidize qualified agricultural activities as contemplated” by statute.
The PUC order acknowledges that at this late stage in the process, developing a preferential rate for agriculture “may be procedurally complicated … thus setting a preferential water rate … may need to be the subject of a forthcoming docket. However, in the interest of administrative efficiency, the commission amends the statement of issues governing this proceeding to expressly include consideration of establishing a preferential rate for agricultural activities and accompanying tariff rules in hopes that the parties may be able to reach an agreement within the scope of this proceeding or otherwise agree on initiating a new docket.”
On April 11, the Division of Consumer Advocacy weighed in with its recommendations on the overall rate hike request.
With respect to the development of a preferential rate for agricultural uses, the Consumer Advocate’s statement of position reads: “While LIC service remains suspended, the Consumer Advocate is open to exploring possible solutions like an LWC preferential agricultural rate. However, the threshold issue of whether to establish such a preferential agricultural rate is unfortunately hard to opine on unless and until a reasonably detailed proposal is provided by LWC.”
The statement of position included an analysis of the factors that LWC used in arriving at its proposed rate increases. It determined that the water volume rate structure did not encourage conservation, and so recommended modifications to address this. In the case of high-volume water users – above 40,000 gallons per month – LWC had proposed charging $2.42 per 1,000 gallons. The Consumer Advocate recommended increasing this to $4.63.
Included in its position statement is a table showing the consumption of the 60 largest water consumers among LWC’s 375 customers and the percentage by which the usage exceeded the Maui County average. The highest-volume customer used 1,072,170 gallons per month, averaged over three months. That was 5,564 percent above the average demand in Maui County of 18,600 gallons per month. The 60th-ranked customer of LWC consumed 98,769 gallons per month, still 331 percent above the Maui average.
The Consumer Advocate disagrees with LWC’s proposed rate of return, cost of debt, and return on equity. While LWC’s consultant used a utility proxy group of large companies to arrive at its recommended rates, the Consumer Advocate compares LWC to other small utilities in Hawaiʻi. The result is a significant lowering of all three rates. Instead of a return on equity of 14 percent that LWC has proposed, the CA recommends 9.35 percent; for debt, 5.33 percent vs. 8 percent; and overall rate of return, 7.34 percent vs. 11 percent.
LWC had proposed an increase of $429,197, or 48.4 percent, in its overall revenue. But after providing its analysis of the utility’s justification for that increase, “the Consumer Advocate hereby states that … LWC’s proposed revenue requirement is overstated.” It recommends a number of adjustments that would result in an increase of just $245,800 in total revenues over the current rates.
LWC was to submit its response by May 2. The PUC must issue its final decision by June 20.
— Patricia Tummons
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