The Commonwealth Utilities Corp. is under-recovering the cost of fuel used to generate electricity, a situation that could eventually lead to higher power prices if not corrected, CUC chief financial officer Betty Terlaje told the board during its meeting last March 12 in the utilities company’s Dandan office.
During the CUC board meeting, Terlaje said the fuel adjustment charge, or FAC, embedded in the current electricity rate is significantly below the level needed to cover current fuel costs.
“Based on the methodology… we should be at 22 cents for this month, a little over 22 cents,” Terlaje said, referring to the fuel cost per kilowatt hour that should be reflected in the rate.
The current Fuel Adjustment Charge is about 19 cents per kilowatt hour, meaning the utility has been under-billing customers for fuel costs for several months.
“That has been accumulating,” she said, noting that the shortfall is being absorbed by CUC’s operations.
“If we continue like this, it will continue to pull from operations to be able to keep up with our fuel payments,” Terlaje said.
The issue surfaced after CUC chair Allen M. Perez asked how rising global fuel prices could affect the utility while the FAC remains fixed pending action by the Commonwealth Public Utilities Commission.
Terlaje said CUC has already filed a petition with the commission seeking approval to adjust the FAC and eventually move to a periodic adjustment system.
Economic.com consultant Robert Young said current market conditions could push the fuel cost component even higher if prices remain elevated.
“If we did it today based on current prices, it would be like 24 cents a kilowatt hour,” Young said.
Young explained that the price CUC pays for fuel is tied to the average Singapore Mean of Platts, or MOPS, benchmark from the previous month, meaning the effect of rising prices is delayed.
“Our fuel cost from Mobil is set for a month,” he said. “So right now our fuel price is based on the average daily MOPS prices from February… next month is when it starts to hurt.”
He added that volatility in global oil markets poses a particular risk for the utility given its limited reserves.
“That’s the problem with volatility,” Young said, describing CUC as a “severely financially challenged utility… not blessed with hundreds of millions of dollars in cash reserves.”
Perez said continuing to bill customers below the actual fuel cost could create a larger problem later.
“If we keep it fixed and we’re under-billing, it has two impacts,” Perez said. “One is on our cash flow, but also later when we reconcile, it’s going to be a bigger impact to the ratepayers.”
CUC management said it plans to raise the issue with the Commonwealth Public Utilities Commission to determine whether the order fixing the FAC can be lifted so the utility can again adjust the charge according to the existing formula.
During the public comment period, resident Chea’Lee Erb raised concerns about environmental contamination affecting the island’s water supply. She asked whether CUC or the CNMI government had pursued cost recovery from federal agencies or manufacturers linked to PFAS contamination believed to originate from firefighting foam used at the Saipan airport.
Erb also questioned whether comprehensive investigations have been conducted on potential contamination sources in the southern aquifer, citing elevated levels of arsenic, selenium and other heavy metals reported in past testing.
Earlier in the meeting, CUC executive director Kevin O. Watson reported that the utility continues to make progress on addressing non-revenue water losses and infrastructure issues.
Watson said staff recently identified leaks and faulty meters in several locations, including an apartment complex that had been using an inaccurate meter, allowing the utility to begin properly monitoring and billing the account.
Efforts are currently focused on the Isley tank service area, which has the highest water demand on the island. Watson said similar work in the Gualo Rai service area previously reduced non-revenue water losses from about 78% to roughly 7%.
The board also acknowledged the hiring of Thomas L. Wilkins as CUC’s deputy executive director. Wilkins briefly introduced himself during the meeting and said he looks forward to working with the utility’s leadership and staff as CUC continues addressing operational and infrastructure challenges.
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