CUC inks six-year, $360M fuel contract with Mobil

Commonwealth Utilities Corp. executive director Alan Fletcher discusses with the board yesterday the distinct benefits to CUC of the newly executed six-year fuel contract with Mobil Oil. (Moneth G. Deposa)

The Commonwealth Utilities Corp. has entered into a new agreement with its longtime fuel supplier, a decision that CUC management and its board said would not only ensure uninterrupted fuel supply for its power plants but would also retire all outstanding obligations to the company.

CUC board chair David J. Sablan confirmed yesterday that a new contract with Mobil Oil Mariana Islands Inc. was executed on May 1. The newest agreement stipulates a continuous transaction with the company for six years with an option to terminate after four years. The contract amount is $360 million, which will be paid using revenue collections. Mobil Oil’s previous contract expired on April 30, 2014.

During yesterday’s board meeting, CUC executive director Alan Fletcher said the fuel contract’s impact on customers consuming 500 kWh/monthly is $0.53 (53 cents). The required minimum volume purchase is 108 million gallons—or 18 million gallons per year. Once the total minimum purchase is reached, the rate drops by $.0611 per gallon.

According to CUC chief financial officer Charles Warren, the utility agency owed Mobil Oil $7.6 million under the previous contract. Of this debt, $1.3 million represents penalties incurred by CUC for not consuming up to the minimum contracted amount. The remaining $6.3 million represents all the debts CUC owed the company.

Sablan, who was very involved in the contract negotiations, said that under the new six-year contract, the entire $7.3 million debt will be terminated.

This is because Mobil Oil agreed to defer and waive the $1.3 million penalty after four years.

For the remaining $6.3 million debt owed by CUC, a “Marketing Assistance Program” will be provided to CUC. Under this program, CUC will receive $6.6 million in total assistance: $5.7 million to be issued in June 2014; and $900,000 scheduled to be provided in April 2015.

CUC officials revealed that to terminate the $6.3 million debt with Mobil Oil, all $5.7 million from the “Marketing Assistance Program” will be paid to the company upon receipt while the $600,000 shortfall to retire the $6.3 million debt will be paid using revenues and collection of CUC.

Once these debts are terminated, customer security deposits will no longer collateralize the Mobil payable.

The new agreement also provides CUC a $3 million unsecured line of credit at no cost to the agency.

Best deal

Based on CUC records, Mobil Oil’s contract per year under the new agreement amounts to $61.465 million—a slight increase from the previous contract per year of $61.253 million. Both require fuel requirements of 18 million gallons a year.

Sablan described the new contract as “the best package for CUC.”

CUC informed the Commonwealth Public Utilities Commission early this year about the expiring contract of its fuel supplier and sought permission to negotiate a new contract. This request has yet to be acted upon by the CPUC.

According to Sablan, it was with the help of Gov. Eloy S. Inos that CUC progressed in negotiating the contract with Mobil through an executive order that placed the agency under state of emergency. During emergency declarations, all procurement laws and regulations are suspended until the order is lifted.

CUC operates three power plants, which are all diesel fuel engines. It spends about $60 million to $65 million each year on fuel.

Commonwealth Utilities Corp. executive director Alan Fletcher discusses with the board yesterday the distinct benefits to CUC of the newly executed six-year fuel contract with Mobil Oil.