Bill seeks to offset FAC increases with revenue from Liquid Fuel Tax

Donald M. Manglona and Ralph N. Yumul

Rep. Donald M. Manglona (Ind-Rota) introduced Monday a bill that would offset the Fuel Adjustment Charge increases with revenue derived from the Liquid Fuel Tax.

Speaking at a House of Representatives session, Manglona said that he and floor leader Ralph N. Yumul (R-Saipan) pre-filed House Bill 22-105 and that several others are co-sponsors.

Speaker Edmund S. Villagomez (Ind-Saipan) referred the bill to the Ways and Means, which Manglona chairs, and to the Public Utilities, Transportation and Communications Committee chaired by Rep. Richard T. Lizama (D-Saipan).

Manglona stated in the bill that tapping this local tax revenue will ensure that there is a local funding source directly related to the FAC and the rising cost of utilities.

The bill seeks to amend Title 4, Economic Resources, Division 1, Revenue and Taxation section 1403 (Liquid Fuel Tax), by adding two new subsections. Under the proposed subjection, the Finance secretary and the Commonwealth Utilities Corp. shall establish a special account for the benefit of CUC residential and commercial ratepayers and deposit into that special account all “Liquid Fuel Tax” revenue collected from July 1, 2022, to Sept. 30, 2023.

During this period, that revenue shall be used exclusively for the benefit of CUC residential and commercial ratepayers for the purpose of off-setting any increases to the applicable FAC and/or reducing or subsidizing the applicable base rates that are incurred or charged retroactive to July 1, 2022.

Revenues collected in the special account shall be transferred to CUC each month and CUC shall use this revenue to offset FAC charges and may implement a new rate structure after the funds have been applied to address the FAC charges.

This law will have a sunset period of Oct. 1, 2023.

CUC has increased the FAC from $0.36225 per kWh to $0.43285 per kWh effective July 1, 2022. This increase to the FAC, Manglona said, will result in higher utility rates for CNMI ratepayers.

He said in order to mitigate the adverse effects that will follow this increase of nearly 20%, the Legislature mandates that the applicable fees and taxes on fuel collected by Revenue and Taxation shall be used to offset the increase in the FAC.

Manglona said the legislation will transfer tax revenues collected on liquid fuel to CUC for the benefit of its residential and commercial taxpayers.

He said the Legislature considered alternative measures such as a suspending taxes and fees or mandating a rate change. However, the lawmaker said, suspending fees and taxes on fuel collected by Revenue and Taxation does not guarantee that the fuel distributers will pass along the savings.

Moreover, he noted, a tax suspension may also cause issues with respect to how funds from the American Rescue Plan Act of 2021 may cover the shortfall that may be caused by appropriation of the liquid fuel tax.

Similarly, Manglona said, because CUC’s base rates are not the actual issue, a rate adjustment will not address changes in the FAC.

Moreover, he said, there are no guarantees that CUC will pass on any savings that it will incur by the suspension or exemption of any fuel tax.

He said Commonwealth law already exempts CUC from paying the Liquid Fuel Tax so the FAC for fuel used for power generation that CUC applies to its ratepayers already violates the intent and spirit of the exemption when CUC assesses the FAC to its customers.

Manglona said that under the bill, revenues collected from fuel taxes and fees shall be deposited into a special account that will be used to offset any future increases in FAC.

At its discretion, he said, CUC can pool or accumulate this revenue to establish a practicable balance and allow for a reasonable and meaningful decrease in the applicable monthly rate or to the FAC applicable to ratepayers.

Manglona said this legislation is temporary and will expire at the end of fiscal year 2023.