Oil pricing ‘band’ will allow for immediate LEAC adjustment

Despite the Commonwealth Public Utilities Commission’s decision not to act on the proposed monthly fuel adjustment clause, or MFAC, during its last meeting on Friday, the Commonwealth Utilities Corp. will still be able to adjust its levelized energy adjustment clause, or LEAC, if necessary.

This came about after commissioner Viola Alepuyo established a “band” of plus or minus 4.5 percent for oil pricing that allows CUC to automatically adjust the LEAC rate in the coming weeks or months that the commission is expected to be non-operational due to a lack of quorum.

CUC chief financial officer Charles Warren told Saipan Tribune yesterday that by setting the band on oil pricing, CUC can adjust its LEAC rate if fuel prices go up or down by more than 4.5 percent.

“The PUC created a ‘band’ for oil pricing, and if prices exceed the band, or become less than the band, CUC can make an adjustment. So, if prices go up over 4.5 percent, CUC can adjust the LEAC for the new fuel price,” he said.

LEAC is part of the customer’s bill that reflects the cost of fuel. The other element is the electric base rate. The LEAC rate is calculated every six months.

In its testimony filed with the commission on Dec. 8, CUC consultant economists.com recommended changing the current LEAC model as it is “too complex” and costs CUC ratepayers too much. It proposed changing this to the MFAC model, which is calculated on the first day of every month.

A bill proposing a switch from LEAC to MFAC is pending in the Legislature.

According to Robert Young of economists.com, the commission’s decision gave CUC the ability to reflect the true prices of oil when it occurs.

“With this commission order, we could adjust the LEAC because that’s part of the tariff,” Young said after Friday’s meeting. Prior to this, CUC has to file a petition with the commission if it wishes to change the LEAC rate.

During Friday’s meeting, the commission approved a new LEAC rate of $0.30550 per kWh effective Jan. 28 this year. This is a reduction from the current $0.30791 per kWh.

The commission also determined that CUC charged too high a LEAC from Aug. 1, 2010, through Sept. 30, 2011, amounting to $1.986 million, and ordered CUC to refund the amount to its customers over the next 14 months by an adjustment credit of $0.00807.