He went on to defend CUC’s rates saying that the Supreme Court gave no opinion on the “reasonableness” of the rates and “we did not overcharge or over collect from our customers” based on the new rates.
These statements ignore the premise of the court ruling and attempt to cajole the public into thinking the current lawsuit will cost everyone more money if CUC loses. CUC, as with any other agency of the government (autonomous or not), must exercise due diligence and due process when enacting new rules, regulations or policies. And this is what the court ruled on. CUC’s “new” rate commencing in July 2006 was the result of an illegal executive order. It was not until over two months later that a duly authorized and promulgated legislative action (due process) made a new rate for CUC legal. It was totally irrelevant whether or not CUC was losing money.
But the governor’s method proved illegal — and the result was an overcharge to CUC customers until a legal rate became effective three months later. CUC continues to insist that it was “mandated” to collect sufficient funds through appropriate rates to cover its costs of operation, but ignores the fact that the mandate did not become legally enforceable until authorized by appropriate legislative action. It does not matter how Mr. Muna spins this one, customers were overcharged from July 22 to Oct. 23, 2006.
But there is a fly in the ointment: Mr. Muna is correct about CUC’s current inability to manage liability from this lawsuit. CUC derives its only funding from the rates it charges customers unless a legislative “bailout” or some other windfall creates additional funding. The worm in the ointment (in addition to the fly) is that whether the funding comes from rates charged or from the legislature, its ultimate source is us; the people; all of us.
CUC must (since Oct. 24, 2006) recover operational costs from rates and rates should not exceed costs by more than a reasonable profit margin for the producer. But in this case, the producer is the government — and, therefore, not entitled to a profit; so “rate” must approximate “cost” and the likely results of this lawsuit are being considered by CUC as an additional new “cost.” Ugh! Now that’s a problem!
A rate “offset” could cause CUC’s revenue to fall below cost; a customer “refund” will incur additional cost; a legislative bailout will simply shift the direct cost from CUC’s ratepayers to central government taxpayers (who happen to be one and the same) and probably lead to a shortfall in some other program(s) from which it would have to be taken. So what kind of “creativeness” could CUC use to get that overcharge returned to customers without raising rates? An overcharge now estimated at $8.7 million.
This scenario is happening with utility companies across the U.S. And around the world. Some of them have large reserves from which to pay court ordered refunds while others are seeking more creative methods. The current director of CUC, Mr. Muna, appears to be insisting on a narrow-sighted, one-legged, don’t-bother-me-with-work, templated, cookie-cutter policy of “raise the rates” to cover an inflated (by out-of-date methodology) cost of doing business. The term for this affliction is “ocular myopathy.” Symptomolgy includes persistent use of the word “no,” feverish denial of alternate pathways and frequent convulsive irrational statements. It is my hope that other recently acquired managers at CUC and the CPUC will have the insight to determine that there are better ways. For instance:
1) Streamline and improve administrative functions and procedures. Administration typically comprises about 2 percent of operational costs. CUC is using antiquated methods of the 1970’s. Updated computerization, paperless billing via Internet, smart meters, pre-paid power, outsourcing and other procedural improvements have been shown to cut this cost to around 1 per cent in many other jurisdictions. Such a reduction in administrative costs could save CUC over $100,000 a month in this area alone.
2) Control revenue and cost “leakage.” Inefficient operational procedures and improper inventory control cause lost time and duplication of effort. Streamline and automate these procedures. A major fault of CUC lies in its inability to go after delinquent accounts. In many cases this is due to negligent tracking of accounts. Computerize the process and go after delinquents. Minimize “power theft” through a system of mandatory inspections and monitoring line meters. Initiate rate structures based on “peak” and “off-peak” usage, both diurnal and seasonal to help even out uneven loads.
3) Increase revenue by adding customers. Now that CUC claims to have a reserve of 15 megawatts, new customers can and should be added to the grid, especially as CUC continues to increase its reserve. It is currently estimated that nearly 30 percent of Saipan operates off the CUC grid on its own power. Many of these customers do not want to operate on their own. Bring selected customers onto the grid to increase revenue and use a portion of the excess power capacity.
4) Actively promote and facilitate small private user alternative power enhancement systems. Stop dilly-dallying around with regulations that have been idled in the AG tombs for two years or more. Get workable templates from other successful utilities and immediately implement them while there are still customer incentives available to promote use of small private systems such as solar and wind. These systems will supplement CUC’s own power (net-metering), lead to a reduction in “stress” on CUC and result in even more power reserve to use for even more new customers.
5) Seek privatization of parts of the CUC system. You don’t have to privatize all at once. Go after the part that is hurting the most, first. In the case of Saipan, that could be the distribution system. A normal system has 3 to 4 percent “line loss” built in that cannot be avoided. CUC’s line loss is currently estimated at between 20 and 25 per cent. That means CUC is tasked to produce a lot more power than is actually reaching customers — and that costs more. Private operators usually cost more money than municipal operators, but in this case, reducing those exorbitant line losses to a more normal level will more than offset the cost, improve overall plant efficiency, reduce CUC’s outlay, reduce service interruptions on outdated and faulty line equipment and increase customer satisfaction and safety. Administrative functions such as meter reading and billing could also be privatized separately.
6) Prioritize more efficient fuel handling and transmission from the ship to the engines. Up to a full percent or more of fuel is currently being “lost” in antiquated and circuitous transmission and storage facilities through evaporation, failed environmental controls and “leakage.” Get ARRA money for this step.
7) Stop subsidizing water operations from power revenue. Divide the system and set up water and wastewater as separate entities. There are very few, if any, modern day utility systems so combined as this one. Each system must stand on its own merits, and in such jurisdictions, overall costs are reduced, systems are more efficient and community planning and service is enhanced. At the same time, outsource administrative functions such as billing and payroll.
8) Customers are not necessarily due a one-time refund windfall. Most utilities are finding they must spread the refunds over a period of time, many for more than five years. In CUC’s case, I believe the refund could be fully completed in two years or less.
Through implementation of the above eight measures (perhaps other readers can suggest even more or better ways), some immediately, some over time, CUC should be able to cut costs by as much as $400,000 a month or more. This amounts to only about a 2 percent cost reduction (of CUC’s $20 million monthly cost) and should be easily attainable while maintaining the current rate structure.
By maintaining the same rate structure and reducing cost by a mere 2 percent, the resultant difference could be refunded to customers via a direct monthly equivalent cash reduction on their bill while still retaining enough revenue to cover costs. After two years, and as more and more cost reductions are in place and refunds are completed, rates can be lowered to reflect an accurate recovery for CUC, thus putting more money into citizen pockets and stimulating the economy — even a little.
If oil prices change, rates would follow anyway, but the difference between revenue and cost (each reflecting the new direct oil price) would still provide for continued billing reductions and an eventual rate reduction from whatever rate was in effect at the time.
Mr. Muna, instead of only trying to scare people with threatened rate increases as the unique choice, please try telling us what you intend to do to keep rates the same (or less if possible) while finding creative ways to lower costs, improve efficiency and service, and give us back the money ill-advised officials improperly took from us for three months in 2006. By voluntarily doing this, you could even avoid the high cost of a court battle that you probably will lose anyway and that money could also go toward refunds — and customer satisfaction. Anything less would seem to me to be anti-consumerism at its worst. Please.
DR. THOMAS D. ARKLE JR.
San Jose, Tinian
Note: Encarta dictionary primary definition of “consumerism”: The protection of the rights and interests of consumers, especially with regard to price, quality and safety.
