WAILUKU – Two years into the county’s legal battle with Molokai Properties over who should manage utilities set up by the now-defunct Molokai Ranch, county officials estimate that the parties have spent well over $1 million in legal fees, which could go even higher if a settlement isn’t reached before a planned October trial.
At the same time, some Molokai residents are paying four times as much as they used to for water – a painful burden for a community struggling with double-digit unemployment. And just how much those residents will have to pay in water rates long term is still awaiting final approval by the state Public Utilities Commission.
“You can’t get blood from a turnip,” said Maui County Chairman Danny Mateo, who holds the council’s Molokai seat. “People will suffer.”
But Molokai Properties attorney Jim Bickerton said the company’s proposal is for a “break even” rate in the face of rising fuel and other costs.
He said the company is proposing a rate hike in the 50-percent range, which would come on top of a rate increase last year.
Meanwhile, the county’s suit against Molokai Properties is heading toward a risky – and expensive – trial now scheduled to start Oct. 25 before 2nd Circuit Judge Joel August.
The county has already paid $500,000 for former state Attorney General Margery Bronster to serve as outside counsel, in addition to the time spent by county attorneys on the case.
When asked if the county could reach a settlement with Molokai Properties before the case goes to trial, Bronster said Saturday that she “can’t say anything more, but probably something will happen before the end of the month. It’s premature to talk now.”
But Molokai Properties Executive Director Peter Nicholas said, “We’ve been trying hard to get this case settled for some time, and no one from the county will talk to us.”
Nicholas declined to discuss other questions about the litigation or potential future plans for Molokai, except to say that the company has ideas it’s working on.
County Corporation Counsel Brian Moto believes that Molokai Properties has spent even more on legal fees than the county has.
“Our guess is that they’ve spent at least $1 million to date on various attorneys,” he said Friday.
Bronster told County Council members that Molokai Properties is “fighting a war of attrition.”
“I think they decided they wanted to run the county coffers dry, so the county could not fight them anymore, but it surprised them we’ve been as successful as we’ve been,” she said.
But Bickerton strongly disputes Bronster’s claims, saying Molokai Properties had spent just over $110,000 on attorneys. He said her own fees were outrageous.
Bronster countered that Bickerton’s estimate leaves out the costs of a separate utility lawsuit, administrative hearing, proposed rate hikes discussions before the PUC, appeals – and the involvement of four other law firms.
The estimated attorney fees for both sides over the past two years amount to about $300,000 more than the company estimated it would lose on the utilities when it threatened to shut them down if the county didn’t take them over in the summer of 2008.
Mateo, who holds the Molokai residency seat, defended the county’s $500,000 attorney tab. It is not unusual for the county to hire outside attorneys to assist the Corporation Counsel Department, particularly when the staff needs a specialist, he noted.
“When you battle Goliath, you are expected to pay some money,” Mateo said. “If we had not spent that money, it would probably cost us in the millions and millions just to rehab the utility systems and get to an acceptable standard.”
The dispute originated when the Singapore-based parent company of Molokai Properties was turned down in 2007 by the state Land Use Commission on a plan to build 200 luxury homes at La’au point, as well as to renovate and reopen the long-shuttered Kaluakoi Resort. Molokai Properties had proposed a massive land swap that would have dedicated a third of the island to conservation and agriculture, in exchange for support of the development.
But when the project was rejected, and the economic downturn soon followed, the company closed the doors to the Molokai Lodge, golf course, ranch and other operations, resulting in the layoff of hundreds of residents. They subsequently said they could no longer afford to operate their money-losing water and sewer utilities, and demanded that Maui County take over the aging water-treatment systems run by Wai’ola o Molokai and Molokai Utilities.
The county estimates that more than 3,300 people use the two utilities at stake in the lawsuit.
Council Member Mike Victorino equated Molokai Properties with a child who brought all his marbles to play, lost one game and left.
“This smacks of being arrogant and downright disgusting,” he said. “Let other developers be forewarned. As long as I sit here, it won’t happen again.”
Bronster said the county’s case boils down to making sure Molokai Properties never shuts off residents’ water, and attempts to make sure the county doesn’t have to take over the utilities, a position that Gov. Linda Lingle’s administration lost in court.
As for setting the water rate hikes permanently, the Public Utilities Commission has not set a date yet for a decision, she said. But things are moving along, Bronster said.
Adding to the controversy, the state Office of the Consumer Advocate entered into a “secret settlement” with Molokai Properties for the rate, Bronster said.
But the county and consumer advocate participated in mediation in early May, Bickerton said, so they all know what happened. The mediator simply agreed with the company and advocate on what a fair rate is, he said.
“The rates have to be higher because you have miles of pipe, labor and fuel costs that keep going up,” Bickerton said. “The consumer advocate agreed to a break-even rate for the company, and the county’s position is that these utilities should be run at a loss forever.
“And we made it clear we are going to keep providing water, so I don’t know why the (County) Council wants to spend any more at this point on representation,” Bickerton said. “What are they going to get that they don’t get already?”
Attempts to reach Consumer Affairs Executive Director Catherine “Cat” Awakuni for comment were unsuccessful.
Going back to the lawsuit, the county says that the company is responsible for updating its equipment and infrastructure as well as its contracts to obtain water through a well and the state’s irrigation system on Molokai. But the private systems are in such disrepair that half the water never makes it to its final destination, Bronster said.
Bickerton said the company offered utilities to its customers at a loss for 10 years.
Bronster said they didn’t raise rates for 17 years, and it’s pretty obvious that they’re proposed rate increase coincides with the company closing down its operations on Molokai, since the company was its biggest customer.
Bronster said that the company’s sense of entitlement put it in the position it is in now. If Molokai Properties had kept up with its responsibilities, there would be no reason to hike rates so high, she said.
“They have allowed the water system to go down the drain,” Bronster said. “It has not been maintained. We do not believe that the consumers should pay for their failures.”
Mateo and a few other council members said the case suggests the county will need to establish a long-term policy for taking over private utilities.
“This whole thing just demonstrates that the county must control our public trusts, and that’s the water,” Mateo said. “This for us was a wake-up call.”