CUC opposes bill to lower security deposits, refunds to customers

Customers of the Commonwealth Utilities Corp. may be required to pledge only a month’s worth of security deposit for their accounts—instead of the current two—which will also be refunded in a year’s time if a bill that proposes such an arrangement is passed and enacted into law.

Senate Bill 18-39, authored by Sen. Jovita M. Taimanao, seeks to require CUC to refund the security deposit of commercial and residential customers after a one-year period if they pay their bills in full and on time. The same bill also seeks to reduce to one month the security deposit of CUC’s commercial clients.

CUC executive director Alan Fletcher strongly opposes this bill, saying it presents a situation where the Legislature will usurp the role of the Commonwealth Public Utilities Commission—the regulating body that reviews, approves, and denies rates and policies that affect CUC.

“This is an important consideration because when the CPUC considers changes that will affect CUC’s rates, it looks at a very complicated and comprehensive picture of the utility’s financial numbers and health. When a change is made that takes money away from CUC in one area, a change must be made in another area to balance the funding requirements to continue to properly run the utility,” Fletcher said.

He pointed out that if CUC is not properly funded, the mandate of the federal stipulated orders is violated. These orders require rates that are enough to fund CUC.

Fletcher disclosed that when CPUC considers rates, charges, and fees, it is required to use a method that balances the public need for adequate, efficient and reasonable service, and the need of the utility firm to receive enough income to cover all costs for offering the service.

“Therefore, the proper vehicle for the change in policy that [S.B. 18-39] envisions is better left with the CPUC. The CPUC has the technical expertise and ability to review changes…to avoid a result [that], even if unintended, may violate federal and CNMI laws,” he said.

He encouraged the Legislature to petition instead the CPUC with this request so that the true effect of the bill can be analyzed before it is implemented.

CUC is also concerned about the bill from a financial and accounting standpoint.

Fletcher said the bill does not appear to consider one of the primary purposes of security deposits, which is to provide security on an account after a customer’s service is terminated and their last billing is generated.

“Given the normal collection cycle, it is not unusual for accounts to owe CUC for two months of service. Reducing the security deposit to only one month substantially increases the risk of collection for CUC. In addition, many commercial accounts are held by small corporations with few assets. Once those corporations cease doing business, it is nearly impossible to collect outstanding amounts owed to CUC,” said Fletcher.

Fletcher said the bill would also have a negative cash flow impact in the first few months once it is implemented. Currently, CUC’s bad debt levels are at about 6 percent for residential accounts and 3 percent for commercial accounts. The average utility bad debt levels for mainland public utilities the size of CUC average less than 0.2 percent.

If the bill becomes law, this will take away a source that CUC depends on to collect, and this will in turn increase CUC’s bad debt levels, which could potentially lead to higher base rates for all customers, according to Fletcher.