CUC consultant: Reduce fuel rate by 16 percent

Georgetown Consulting Group has recommended that the Commonwealth Utilities Corp. reduce by 16 percent the existing levelized energy cost clause, or LEAC, to reflect the fall in world oil prices.

In a seven-page report submitted by the consulting company to the Commonwealth Public Utilities Commission on Friday, the firm recommended that the current $0.22989 per kilowatt-hour rate be decreased to $0.19327 per kWh starting April 1, 2009.

Georgetown Consulting said this would result in about 12-percent overall decrease in a typical month’s overall electric bill for residential customers.

“The price of fuel oil is the primary factor contributing to this recommended decrease. We have estimated the price of fuel oil for the upcoming six months based upon the average pricing contracts for No. 2 oil,” the report said, adding that the current estimate is approximately $0.15/gallon lower than the fuel price forecast used in the development of the January 1-March 2009 LEAC rate.

Other than the price of fuel oil, LEAC also loosely considers the efficiency of the generating units and the level of losses. This, it said, will become a more important factor as CUC completes its rehabilitation project and brings back into operation more efficient generating units.

CUC earlier announced that it would no longer renew its $6-million contract with Aggreko this September because by then the island will already have enough supply of power.

Georgetown Consulting also suggested that the LEAC rate of $0.19327 per kWh, which is supposed to be implemented until September 2009, be composed of the following:

$0.14912 per kWh for CUC fuel oil costs, generation, lubricant costs, transportation and handling costs, taxes and other associated costs as billed by the fuel supplier;

$0.01574 per kWh for fund to purchase over an 18-month period of a 30-day fuel inventory as well as provide for variations from projected fuel prices that result in unrecovered cost;

$0.00285 per kWh to fund CPUC invoices for regulatory fees and expenses and for the procurement or employment of financial and technical expertise; and

$0.02556 per kWh to fund a reserve to support PUC’s approved power generation measures, which CUC can establish by petition and which would increase the availability, efficiency and reliability of its generating units, thereby reducing fuel costs.

It was agreed in the Dec. 12, 2008, LEAC stipulation that the LEAC rate and resulting tariff would be determined on the basis of a transparent regulatory process. This would allow PUC the opportunity to reduce fuel expenses and eliminate unreasonable expenses.

Georgetown Consulting said that at present, the LEAC protocol is very basic and focuses primarily on key variables such as sales, fuel, use, fuel pricing, regulatory costs, and capital for efficiency improvements.

Left out of the equation are issues such as losses, a true-up mechanism, station use, individual unit production costs, and efficiency as well as fuel use.