The Commonwealth Public Utilities Commission has noted the defects in the methodology proposed in Senate Bill 17-84 which CUC submitted to the Legislature and was introduced by Senate Floor Leader Pete P. Reyes, R-Saipan.
The bill will replace LEAC with the monthly fuel adjustment clause or MFAC which is easier to administer than LEAC, Fletcher said.
It is difficult to update the LEAC model and complete a new LEAC calculation, he added.
The model developed to calculate the LEAC is highly complex and is composed of 15 separate spreadsheets which require substantial data input, he said.
“The process for updating the model is extraordinarily time-consuming in terms of acquiring the necessary data, entering it into the correct areas of the model, and testing the model’s output for accuracy and reasonableness,” he added
Fletcher said CUC senior staff must spend days completing each update, which diverts their time and attention from other job responsibilities.
CUC has also been funding Georgetown Consulting Group’s participation in the LEAC process, he added.
Georgetown is the rate consultant of CPUC.
Georgetown has billed CUC $1,124,000 in fees and expenses since December 2008, with a significant portion devoted to LEAC development and updates, Fletcher said.
Since oil prices surged in late 2010, resulting in two emergency LEAC increases, Georgetown has billed CUC $81,000 for its assistance in these increases, he added.
“CUC considers the level of time and expense it must devote to LEAC-related issues to be far too burdensome for its ratepayers,” Fletcher said.
Because of the LEAC methodology’s high level of complexity, he said CUC, the commission’s staff and Georgetown have engaged in numerous contentious disputes over the model’s findings.
These disputes have involved the ultimate LEAC rate itself and the amounts of any alleged over-recovery by CUC of revenues relative to fuel expenses, he added.
Fletcher said such disputes have only added to the costs CUC and its ratepayers have been compelled to incur in order to maintain the LEAC.
“The world oil market on which the LEAC is based is extraordinarily volatile. The volatility of the oil market makes it very challenging for a utility to implement a fuel oil rate such as LEAC that is expected to remain fixed for six months,” he added.
Fletcher said CUC has virtually no reserves, making it exceedingly difficult for them to absorb any fuel cost increases in excess of the revenues recovered under the LEAC methodology.
He said CUC believes that the implementation of the MFAC will eliminate those problems and will result in far less cost to CNMI ratepayers and effort for CPUC and CUC staff.
It will also ensure that as oil prices decrease the savings will be immediately passed through to ratepayers, he said.
The MFAC legislation does not change the CPUC having statutory authority over rates, he added.
