CUC eyes 4-year fuel supply contract for $300M

To ensure a continuous supply of fuel for its power engines, the Commonwealth Utilities Corp. is eyeing a four-year contract with its supplier—a plan that the utilities regulatory commission wants scrutinized.

The Commonwealth Public Utilities Commission disclosed this during its regulatory session yesterday after it issued its final decision on the utilities agency’s base rate petition and other proposals.

“CUC has notified the commission of its intent to contract for a four-year supply of fuel oil at a projected ratepayer expense of $300 million. As part of the proposed contract, the supplier will be expected to loan CUC $7.5 million to retire obligations to the current fuel supplier,” according to a CPUC statement.

CUC operates three power plants that are all oil-fueled diesel engines.

In an interview yesterday, CUC chief financial officer Charles Warren disclosed to Saipan Tribune that the corporation’s current contract with its fuel supplier expires on April 30, 2014. He said this is why CUC is soliciting a new contract for fuel service.

“We spend about $60 million to $65 million each year on fuel. The cost to the customer is represented in the LEAC charge,” according to Warren.

LEAC stands for levelized energy adjustment clause which is a component of the customer’s bill that represents the agency’s expenses on fuel. The other component is the base rate, which represents CUC’s non-fuel cost.

CPUC yesterday indicated that it wants to review the proposed contract before a final decision is made by CUC.

“The commission has instructed CUC that this proposed procurement requires regulatory review and approval,” commission statement said.

CUC earlier disclosed that it projects to incur this fiscal year a slightly higher fuel cost to supply the power generation needs of all its customers.

Just in the first quarter of fiscal year 2014—from Oct. 1 to Dec. 31—the agency has already spent $16.9 million for fuel. It was disclosed that the average weekly expense for fuel is $1.25 million.

It will be recalled that CPUC allowed CUC in December last year to reduce its LEAC charge. That resulted in an average of $6.50 savings per month for residential customers. It also directed its consultant, Georgetown Consulting Services, to carefully review all CUC fuel charges since October 2011 to determine whether customers have been overcharged by CUC. If this happened, CUC will be ordered to credit customers for any overcharges.

According to the commission, Georgetown will also review the status of CUC’s efforts to reduce energy losses for which customers pay but receive no benefit.

It was disclosed that CUC’s energy losses were in the range of 11 percent; the national standard is less than 8 percent. CUC’s energy losses represent almost $2 million of unnecessary annual fuel expenses, the commission said.