CUC formally proposes new MFAC model

The Commonwealth Utilities Corp., through its consultant economists.com, formally filed on Dec. 8 testimony that included a recommendation to change the current levelized energy adjustment clause (LEAC) model.

CUC and economists.com described LEAC as having a high level of complexity that caused significant cost to ratepayers.

Economists.com recommended to the Commonwealth Public Utilities Commission to adapt the MFAC, or the monthly fuel adjustment clause, which would be calculated on the first of every month using a new spreadsheet model developed by CUC. Compared to MFAC, LEAC model is calculated every six months.

Because of LEAC’s complexity, CUC and CPUC engaged in numerous contentious disputes over the model’s findings. These disputes involved the ultimate LEAC rate itself and the amounts of any alleged over-recovery by CUC of revenues relative to fuel expenses. These disputes have only added to the costs CUC and its ratepayers have been compelled to incur in order to maintain the LEAC.

The MFAC, according to economists.com, is based on a new and far less complex methodology. Because it is to be calculated each month based on estimates of electric usage and fuel prices, the calculation will also include a “true-up” of actual revenue colleted through the MFAC vs. actual fuel expense incurred by CUC.

It is proposed that on a quarterly basis, CUC’s outside auditors prepare a true-up calculation based on CUC’s audited financial statements. This calculation, according to the consultant, will be binding and will be included in the subsequent month’s MFAC’s calculation.

A preliminary discussion on the possible change in LEAC model occurred during the commission’s November meeting where CPUC asked both CUC and its consultant additional information about MFAC model. CUC first made the MFAC proposal in a legislation now pending at the House.

According to the consultant, CUC experienced numerous difficulties operating and administering LEAC in the two years it has been implemented. It was disclosed that under the LEAC model, CUC estimates that to date approximately $300,000 to $400,000 in fees and expenses has been specifically devoted to LEAC development and updates. CUC considers the level of time and expense it devotes to LEAC-related issues to be excessively burdensome for its ratepayers.

“CUC believes that the implementation of the MFAC will eliminate these above issues, result in far less cost to NMI ratepayers and effort for CPUC and CUC staff, and ensure that as oil prices decrease the savings will be immediately passed through to ratepayers,” the consultant’s testimony to CPUC added. CPUC is expected to hear and decide on the matter next month.