CUC: Emergency rate hike in offing if standby charge is junked

The Commonwealth Utilities Corp. told the Commonwealth Public Utilities Commission that it will have no choice but to ask an immediate rate hike to cover its operational shortfall if the proposed standby charge for large customers is rejected by the regulating body.
CUC consultant economists.com, represented by managing directors Dan Jackson and Robert Young, made this known in their latest supplemental testimonies to CPUC.

The CPUC is scheduled to hear today CUC’s proposed $20 per kilowatt-hour monthly standby charge for large customers and a decision is expected soon after.

At the commission’s January hearing, the CPUC postponed its decision on the proposal due to what it described as inadequate information presented to the commission. Besides concerns over the benchmarks adopted by CUC in coming up with the proposal, the commission sought further justification for the recommendation.

In the latest supplemental filing from CUC, it said that nine large commercial customers only use CUC’s electric supply whenever these establishments’ generators are down or undergoing maintenance check. These customers accumulate a combined connected load of 8,522 kW, or about 30 percent of CUC’s annual peak demand.

If CPUC will approve the standby charge of $20 per kW monthly to each customer, this will generate $170,440 per month or $2.05 million per year in additional revenue for CUC.

CUC wants the commission to approve this charge with an effective date of March 20, 2014.

CUC disclosed that the nine large customers that would be affected are Pacific Islands Club, Coral Ocean Point, Kingfisher Golf Links, Aqua Resort Club, Laolao Bay Golf & Resort, Hyatt Regency Saipan, Fiesta Resort & Spa, Saipan World Resort, Mariana Resort and Spa, Hafadai Beach Hotel, Kanoa Resort, and the Duty Free Galleria.

“CUC’s large commercial customers who generate some or all of their electrical requirements, and use CUC when their equipment breaks down or needs maintenance, are getting a free ride from CUC’s other customers because they are not paying their fair share of CUC’s electric system,” said the two economists.com officials.

The proposed standby charge applies to large commercial customers with a load of more than 200 kW and that generate more than 10 percent of their annual electrical requirements.

Economists.com disclosed that of the nine, three are not CUC customers at all and supply 100 percent of their own electrical requirements. These customers would not pay the standby charge because they do not use CUC’s electric system.

‘Acceptable methodology’

CPUC was informed that the standby charge is based on a similar rate implemented by the Guam Power Authority, a detailed study for Kauai Electric Coop, as well as the standby charge at Hawaiian Electric Utilities. Both are about $20/kW month.

For CUC, using information from other sources to guide rate design decisions is not uncommon. It was disclosed that since 2005, CUC has been using information from GPA’s cost-of-service analysis to determine the allocation of costs between customer classes and the design of rates.

“Because the climate on Guam is similar to Saipan, we used information on kW demand by customer class (with adjustments) in the CUC COSA. This methodology has previously been found by the CPUC to be a reasonable method to aid in the establishment of rate and cost design for the CNMI,” according to the latest supplemental documents obtained by Saipan Tribune.

Two options 

If large commercial customers want to avoid paying the monthly standby charge, they can become full electric customers of CUC, in which case they will pay the standard commercial rate. Also, they can physically disconnect from the electric grid and rely on their own generation for 100 percent of their electric requirements.

In the event these customers decide to physically disconnect from the CUC grid, the agency will likely not include the electric requirements of the commercial entities that are not customers of CUC in its load forecasts.

“The most significant implication of disconnecting from the CUC grid is that their load will not be used for planning future electrical requirements of CUC. Sometimes later this year, CUC will begin an integrated resource planning process that will develop alternative resource strategies for the future electrical needs of its customers as part of an Integrated Resource Plan,” disclosed economists.com.

At present, CUC has considerable generation reserves for Saipan. CUC’s generation capacity is about 75 MW, yet the 2013 peak load on Saipan is about 35 MW, which means that CUC’s reserve margin is a “very comfortable” 110 percent.

However, CUC disclosed that because its power plants are old and expensive to maintain and operate, it is likely that the results of the IRP will recommend some combination of renewable and thermal generation resources to replace the existing generation on Saipan.

Therefore, CUC will not likely include the loads of off grid establishments because it must plan for the future loads of its customers plus an adequate reserve margin to cover maintenance and forced outages.