CPUC: New LEAC rate is reasonable, necessary

Customers of the Commonwealth Utilities Corp. will see a slight drop in their power bill following the formal approval yesterday of a new LEAC rate that is projected to save residential customers some $6.46 a month.

The Commonwealth Public Utilities Commission ordered the enforcement of a new LEAC rate effective Jan. 1, 2014.

LEAC stands for levelized energy adjustment clause and is one of the two components of a power bill. It is basically used for fuel purchases. The other is the electric base rate, which is used to fund operations, projects, and debt servicing.

A separate proposal to increase CUC’s electric base rate and other non-rate fees, however, remain on the commission’s table for action.

In its order yesterday, the commission reduced CUC’s fuel charge by 1.45 cents to 30.43 cents per kilowatt-hour. The new LEAC rate is now $0.30426 per kilowatt-hour.

For a residential customer who uses 455 kilowatt-hours of power a month, this will represent $6.46 in monthly savings.

CPUC described the new LEAC charge as reasonable and necessary for the non-profit utilities corporation.

“The record contains preponderant evidence that this LEAC charge is just, reasonable and necessary,” stated the commission order, which also temporarily allowed CUC to adjust the LEAC charge in case world fuel prices fluctuate to a certain degree.

The commission also directed CUC and the commission’s regulatory consultant, Georgetown Consulting, to review all CUC fuel charges from Oct. 1, 2011, through Dec. 31, 2013, to see whether CUC customers were overcharged for the cost of fuel during this period. The commission will review this report at a public hearing during its April 2014 regulatory session and will order a customer refund, if appropriate.

CPUC conducts periodic reviews of CUC’s fuel charges to ensure that customers pay no more or less than the actual cost of fuel.

It has also directed CUC to report at the April 2014 regulatory session on its efforts to reduce unaccounted-for energy losses in its system.

Ratepayers pay for but receive no benefit for energy that is lost due to theft, system inefficiencies, defective meters, and metering and billing errors. Given the high cost of fuel, the reduction of energy losses provides an important way to reduce customer bills, the commission said.

Prior to approving the new LEAC rate yesterday, commissioners took turns questioning CUC officials why they opted to recommend an effectivity date of Jan. 1, 2014, for the new rate when it could have taken effect “immediately,” similar to previous orders and recommendations.

CUC chief financial officer Charles Warren pointed out that because of the time needed to complete reconciliation and adjustments, those customers who have already been billed may not benefit from the new LEAC rate reduction if it becomes effective today, Dec. 11.

Warren said yesterday that the corporation has $18.5 million in receivables from the government and its agencies and this continues to burden customers and CUC.

“The current effect of the government receivables is in the ‘bad debt’ [element of the LEAC charge]. As you can see, that is about a penny of the charge,” explained Warren.

The components of the new LEAC rate include the following: LEAC fuel and lube oil ($0.28078); volatility element ($0.01263); regulatory and technical support ($0.00115); and bad debt ($0.00970).

Warren disclosed that of the $18.5 million receivables, the bulk of the amount is owed by the Commonwealth Healthcare Corp., totaling $10.2 million. The rest is shared by the Public School System ($6.3 million) and central government ($2 million).

CUC executive director Alan Fletcher, during yesterday’s deliberation, disclosed that government receivables pose a burden for residential customers and CUC itself as money for its operation is being used to pay for fuel. “This is affecting us because we’re left with less money for operation.”

Fletcher said that despite efforts to resolve these issues in the past, such as a memorandum of understanding and other resolutions, CUC remains unsuccessful in collecting arrears from its debtors.

Fletcher bared CUC’s plan to initiate a “formal collection” measure but he didn’t elaborate. But in a short remark during yesterday’s meeting, CUC legal counsel James Sirok informed the CPUC that suits have been filed against these debtors.