Lag time in power rate cut blamed on 2 factors

Although the Commonwealth Utilities Corp. agrees that it needs to reduce its power rates due to lower fuel prices in the world market, any such reduction is being delayed by two factors: disagreement over the formula on how to compute the adjustment and the lack of a functioning commission that will approve the rate cut.

“Since fuel prices have declined since the current levelized energy accrued clause [LEAC] rate was established, of course CUC is willing and agreeable to decreasing the present LEAC charge,” said deputy executive director Alan W.Fletcher yesterday.

He explained, however, that CUC cannot change rates by itself. All rates must first be approved by the Commonwealth Public Utilities Commission.

The problem, he said, is that the commission had not been functioning due to the lack of commissioners. From June 7 until Sept. 28, Viola Alepuyo was the only commissioner. The other commissioners had earlier resigned.

It was only on Sept. 28 that the commission became active once more with the appointment of Joaquin Manglona. He first reported to the board last week and had asked for time to review all documents filed with the commission. The commission’s next meeting is slated next week.

Fletcher said this is one reason why CUC submitted a proposed bill to the Legislature, Senate Bill 17-84, that would change the present levelized energy accrued clause, LEAC, into a monthly fuel adjustment clause, MFAC, which would be calculated on the first day of every month. The Senate approved the bill quickly and it is now pending at the House for approval.

Senate Bill 17-84, authored by Senate floor leader Pete Reyes, provides a method through which the electricity rate will be calculated on the first day of every month using a new spreadsheet model. CUC described this method as less time consuming and less complex as it will immediately reflect electricity rate changes on a monthly basis.

CUC earlier said that the complexities of calculating the LEAC rate delayed their reaction in response to the global fuel price rollback.

The LEAC reimburses CUC for the fuel it buys to operate its power plants. When oil prices go up, the LEAC goes up too; when oil prices go down, it is supposed to also go down. LEAC recalculations in response to an oil price change usually takes six months.

Fletcher said that CUC strongly disputes Georgetown Consulting’s claim that there has been a material “over-recovery” of the LEAC rate. The commission’s consultant recently filed a report indicating the need to change the LEAC rate due to over-recoveries by CUC—meaning that CUC has been charging more for power than it should.

CUC asserts that the Georgetown’s analysis indicating an “over-recovery” in LEAC revenue is based on incorrect and unsupported assumptions.

“CUC continues to analyze LEAC revenues and fuel charges in this highly volatile market, but to date CUC has found no evidence supporting the claim of a material over-recovery,” said Fletcher.

Fletcher said the oil prices that CUC’s costs are based on $1.8961/gallon in October 2009 and $2.9217/gallon in October 2011, which shows an increase of 54 percent.

Fletcher further pointed out that CUC’s LEAC and base rate revenues have been $3.6 million less than its power division operating expenses in fiscal year 2011. That means that, even if there were an “over-recovery” in LEAC revenues, power ratepayers have still paid $3.6 million less overall than it cost CUC to provide power.

“CUC cannot continue to operate if it cannot recover the money it has spent to provide power from ratepayers. CUC has worked very hard to obtain grants so that ratepayers could pay less,” he said, adding that CUC spent $6,189,822 million in grants as of Aug. 31, 2011.

In order for CUC to continue to provide power and meet the requirements of the U.S. Environmental Protection Agency, it must charge customers for its costs of operation, he added.

“When substantial operating losses are realized it hurts our ability to provide ongoing services. In addition, CUC is cash poor, we have no reserve funds and we routinely experience cash flow problems. This has resulted in slow payments to vendors, late paydays, and deferred maintenance to our facilities,” added Fletcher.

The bottom line, he said, is that CUC is not a for-profit company. “This means we must recover the money we have to spend for fuel from our customers, otherwise we cannot afford to buy fuel.”