Jamshed Madan and Larry Gawlik of Georgetown Consulting Group Inc., which was commissioned by the Commonwealth Public Utilities Commission, or CPUC, said a fuel recovery mechanism should be imposed to keep the financially troubled CUC stable.
“We would recommend a fuel recovery mechanism that would be level for a period of six months to provide for stability and predictability to ratepayers. We call this mechanism the Levelized Energy Adjustment Clause or LEAC,” the two experts said in their written testimony submitted to the CPUC.
“Unlike other operating and maintenance costs, the variability of the price of fuel has been very dramatic at times and has certainly been so in the past year. Successful regulation balances the needs of the utility with the impact of electric rates on the community,” they added.
Under their recommended LEAC formula, electric bills will be calculated by multiplying the fuel recovery charge to the total kilowatt hours consumed per customer.
The fuel recovery charge will be recalculated every six months subject to the approval of the CPUC. This formula is patterned after Guam’s.
If CPUC fails to approve new power rates by Dec. 31, 2008, CUC will be forced to lower residential power rates to 17-22 cents per kilowatt hour under Public Law 16-2 that suspends P.L. 15-94 which mandates such rates.
CUC sells electricity to consumers based on a three-tiered formula that allows it to charge a fixed customer service charge and non-fuel rates and the so-called fluctuating electric fuel rates.
Madan, an electrical engineering graduate of the Massachusetts Institute of Technology, and Gawlik have been providing their expert advice to the Guam Public Utilities Commission and Guam Power Authority for 20 years.
The two said the power rates set forth in P.L. 15-94 are “so low” that adopting them “would have a disastrous impact on CUC and the citizens, businesses and the government of the CNMI.”
According to documents submitted to the CPUC, CUC has receivables in excess of $31 million as of fiscal year 2009.
More than $9 million of which is from government accounts, the rest from delinquent customers mostly in the business sector that were hard hit by the worsening economic crisis.
Since the prices of electricity skyrocketed in 2006, CUC noted it had sold lesser energy. In 2007 alone, its sales dropped by close to 16 percent — a significant amount that affected its liquidity.
“Currently, a number of factors have put CUC in an extraordinarily weak financial and operational position leaving it in a day-to-day crisis mode. This day-to-day crisis mode is the result of a number of circumstances — some of which are within CUC’s control and many of which not within its control,” Madan and Gawlik said.
“Principal among the factors are: the unprecedented fuel price volatility experienced in world oil markets, the tardiness of collections from the CNMI government and other CUC customers, the loss by CUC of garment industry customers as a result of changes in the competitiveness within the markets they provide products, the loss of retail customers who were once employed by the garment industry, an overall decline in tourism, and the catastrophic failure of a number of CUC generating units as a result of years of neglect, a lack of appropriate maintenance, and CUC management not having the resources, in house capabilities or the management skills required to directly address all of the issues,” they added.
CUC is also burdened with its previous loans, particularly to the Commonwealth Development Authority, which as of last year had ballooned to over $70 million.
“Without CUC solving its current liquidity crisis its condition will continue to spiral downward and it will continue to operate inefficiently requiring ratepayers to accept poor service and at the same time paying increased rates — significantly more that an appropriate amount — for poor service,” Georgetown Consulting said.
