135 pct, 289 pct rate hike proposed for water, sewer

The Georgetown Consulting Group Inc. has proposed a provisional rate increase of 135 percent for water and 289 percent for wastewater services in order to meet the requirements of local law and the federal government’s stipulated order for the Commonwealth Utilities Corp.

In a 37-page document citing the results of its investigation, the consultant said Friday the proposed rates would provide CUC with the revenue necessary to implement the activities required by the stipulated order.

“Provisional rates at this level, if implemented by CUC at this time, would allow CUC to meet the specific rate setting provisions of Public Law 16-17 and the deadlines imposed by the Legislature on the establishment of CUC’s financial independence,” the consultant’s report said.

Public Law 16-17 mandates CUC to achieve financial independence by October 2009.

Georgetown acknowledged that these new rates would be a significant “rate shock” to customers.

It said that while legislation has in part required rates at these levels, there is currently no provision to provide for the increased revenues other than through increased rates.

“If revenues were available from government contributions or grants, the impact could be lessened,” it admits.

The provisional rates, if fully enforced to comply with the requirements of the stipulated order and P.L. 16-17, would mean a residential customer consuming 10,000 gallons of water per month would pay $60.63—a 135-percent increase over the current rate of $25.80. If half the proposed hike is implemented, the rate will be $43.23, and $51.92 if two-thirds of the rate hike is adopted.

For wastewater, the current rate is $5.50 per 10,000 gallons. This would go up to $13.44 under a 50 percent provisional rate increase, $17.40 under a 75 percent provisional rate hike, or $21.40 under a full provisional rate increase.

In total, the combined billing from the current rate of $31.30 (water and wastewater) would go up from $56.57 to as high as $82.03 if the proposed new rate structure for water and sewer is fully implemented.

Georgetown consultants pointed out that CUC’s rates reflect only “one-third” of the fees implemented in other areas and states like Guam, Honolulu, Hawaii, Maui County, and American Samoa.

“The potential full provisional rates for CUC would be competitive and in most cases below the rates of comparable utilities,” the report added.

CUC’s artificially low water and wastewater rates, while currently being enjoyed by consumers, have come at the expense of CUC and the environment for several years, resulting in customers suffering from poor availability, poor customer service, and in some cases a total lack of service, the consultant’s report said.

“The rates currently in effect are so low that continuation of those rates is not possible without a disastrous impact on CUC, its consumers, business interest, tourism, and the government of the CNMI,” the consultant said, adding that the current situation will only deteriorate further unless affirmative action is taken to improve the financial health of CUC and for its water and wastewater rates to be brought into compliance.

Georgetown said this will start the process of moving CUC to a full cost recovery.

The consultant proposed an across-the-board hike and such rates be implemented on a provisional basis and that CUC’s circumstances be reviewed every six months.

The consultant cited “too many uncertainties” associated with the development of the full provisional rates. Specifically, it added, it is unknown what permanent impact the recent drop in the number of CUC customers are impact of the loss of the garment industry, and extended power outages during 2008 on water and wastewater revenues for Fiscal Year 2008, and water system sales.

It has also concerns about the reasonableness of the electricity costs for water and wastewater operations, and the lack of a full financial audit.

“Taking into consideration these uncertainties, we consider at this time that appropriate rate relief would be in the range of 50 to 75 percent of the full recovery rates,” the report indicated.