Tenants at Keahole Question NELHA Direction, Secrecy

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They were, they said, “extremely concerned with what is happening at NELHA relative to its business model… When most aquaculture tenants located here, the business model pursued by the state was to provide an affordable resource, seawater, to ‘develop and diversify the economy.’… The model was that the state provided [capital improvement projects] and general funds to offset development and operation of the facility and would reap the benefits provided by private investment and business development. Longer term revenue was captured through percentage rents based on gross sales.”

However, the tenants continued, “NELHA has been pushing for a fundamental change of the business model… At the August 17th meeting, NELHA confirmed that they have taken a step beyond ‘self-sufficiency.’ It is now defining a compartmentalized business model in which costs attributed to a compartment must be offset by revenues generated by this compartment. Seawater delivery costs, the largest operating costs at NELHA, are to be solely offset by seawater charges. Percentage rent and royalties do not count. Water company royalties, the largest projected revenues, are ‘earmarked for marketing and service mark defense’ only – a cost center in which there are currently no expenses.”

Prompting the letter were proposals to raise the rates for water paid by the aquaculture tenants, who had already seen their rates rise by 20 percent annually over the previous two years. (The aquaculture tenants pay $.144 cents per thousand gallons of seawater; the desalination companies, which are more distant, pay around $.60 per thousand gallons. Those rates are set to rise this month by another 20 percent)

Gerry Cysewski of Cyanotech, president of the association, told Environment Hawai`i that tenants do not mind paying their fair share of water costs: “Certainly, tenants need to bear that burden. But we also feel that NELHA needs to be charged with delivering seawater in as efficient a manner as possible.”

He outlined some of the problems. For example, tenants at NELHA are required to give NELHA projections of their water demand. If their use exceeds that demand, they are charged a higher rate for the water. This tends to depress water consumption. At the same time, Ron Baird, executive director of NELHA, complains that NELHA’s costs of pumping water are greater, per 1,000 gallons pumped, when tenants do not live up to their projections and the full capacity of the seawater distribution is not used.

But Cysewski counters: “If the full capacity of the deep seawater pumping system isn’t being used, there should be incentives to use more, not disincentives. The policy is counterproductive.”

“From time to time, members of the NELHA board or staff will say that tenants are being subsidized by the state – with low water costs, for instance. But the tenants keep pointing out that the total impact of our economic activity greatly outweighs any cost that NELHA experiences…

“The tenants realize that eventually, probably sooner than later, we’ll be asked to pay all costs at NELHA, but we don’t see any effort by NELHA to control its own costs. And we’re powerless to force them to try.”

Cysewski acknowledged that the bottlers at times may have interests that diverge from those of the aquaculture tenants. “But there’s no ill will between us. In fact, a real unification between all tenants here at NELHA is our deep concern with the way NELHA is increasing rates, expecting tenants to pay for all activities, and not looking at itself in terms of any cost-savings or efficiencies.”


Cysewski identified another concern of the tenants: the secretiveness of the NELHA board of directors. When tenants wanted to review subleases, they were informed that they could not – that the subleases contained proprietary information that could not be disclosed. Only after the state Office of Information Practices intervened did NELHA allow the review to occur.

Cysewski and other members of the Keahole Point Association also were concerned about the secret meetings of the Finance Investigative Task Force established by the NELHA directors to review the rates charged to tenants. In September 2005, they complained to the OIP that the task force’s meetings were not permitted by law. In its response of April 28, 2006, the OIP agreed. “Once the Committee gave its report to the board on the matter,” the OIP said in its opinion (No. 06-02), the Committee had no authority to consider other matters outside of a Board meeting.”

But, the opinion continued, “given the length of time that the Committee has been meeting without following the requirements of the Sunshine Law, it appears impossible for the Board to entirely ‘cure’ the past violations.”

Even the OIP had difficulty obtaining information from NELHA. OIP requested minutes of meetings where the committee received its charge and made its reports. “The Board has not provided all the requested information,” the OIP wrote.

— Patricia Tummons

Volume 17, Number 1 July 2006

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