CUC sees 5 percent potential drop in power rates

Power customers of the Commonwealth Utilities Corp. may see a reduction in their electric bills if the existing calculation of the levelized energy adjustment clause, or LEAC, is changed from every six months to monthly.

During a break in yesterday’s board meeting, CUC executive director Alan W. Fletcher told Saipan Tribune that he estimates the potential reduction at about 5 percent for all CUC customers.

This, he said, is based on the 5 percent that CUC allotted for the volatility element in the current calculation of the LEAC rate. That volatility element will be removed once the regulatory commission approves changing the LEAC duration to every month.

Based on the testimony of CUC’s consultant, economists.com managing director Robert Young, the price CUC pays for fuel is based on the average Mean of Platt’s Singapore, or MOPS price for the prior month, plus transportation handling costs, taxes, and other costs invoiced by the supplier. Each month, the CUC receives notice that the price of fuel will go up or down based on the prior month’s MOPS.

Because the LEAC is fixed for six months and CUC has minimal financial reserves and cannot borrow funds or hedge the fuel price risk, the LEAC includes a volatility element of about 5 percent, or about 1.3 cents per kWh which increases the LEAC to provide extra cash to CUC to cover unexpected increases in the price of fuel.

Also part of the LEAC is a true-up or reconciliation element to reflect any over or under collection from the prior six months.

“It is possible that we will lower the LEAC rate if we do it monthly. And that’s the petition we’re going now. As the  market swings, this will allow us to remove the volatility element inserted in today’s LEAC and that’s 5 percent,” said Fletcher.

He said CUC is trying to bring down the rates in any way it can without jeopardizing service and liability at the same time—an approach he describes as a “balancing act.”

“We did that in the past [going monthly]. Since CUC doesn’t have a reserve level for large market swings, we need to have that volatility element,” he said.

CUC legal counsel Deborah Fisher and chief financial officer Charles Warren formally asked the Commonwealth Public Utility Commission to revise the current LEAC calculation at the evidentiary hearing on Wednesday.

It was in 2011 when the then-CPUC ordered that the LEAC be calculated every six months. That order, however, gave CUC interim authority to adjust the LEAC rate “if necessary” if fuel price increases exceed 4.5 percent.

CUC has asked CPUC to extend this “interim authority” until such time that the commission decides on CUC’s latest petition on the LEAC model revision. Based on the standing order on LEAC, the rate will be recalculated probably in the next 60 to 90-days.

“It’s important that we are able to modify if pricing changes substantially. We haven’t had any adjustments since Jan. 7 and we want to have that continued flexibility,” said Warren, adding that without the monthly duration for LEAC, there’s no way for CUC to file an emergency rate petition if it deems it necessary to adjust the LEAC.

Also formally endorsed for CPUC adoption is the request to rename the LEAC to “fuel charge” in response to complaints in the community that are often confused over what LEAC is all about.