THE Commonwealth Utilities Corp. board on Friday approved the four rate-proposal recommendations from CUCâs rate regulatory consultant, economist.com.
Dan V. Jackson and Robert E. Young of economist.com proposed the following: prepare levelized energy adjustment clause or LEAC rate reconciliation; extend the infrastructure surcharge for 12 months and rename it to ease confusion; replace residential inverted block rate with uniform rate; and eliminate water electric charge and increase electric rates to recover lost revenue.
economist.com also asked the board to allow CUC to implement a surcharge to subsidize the Commonwealth Healthcare Corp. and recover revenue lost because of the enactment of Public Law 18-71, which barred CUC from collecting its receivables from CHCC, resulting in $5 million loss in revenue on CUCâs part.
Appropriate
Jackson, who attended the meeting via teleconference, told the board that it was âvery appropriateâ to authorize CUC to get approval from the Commonwealth Public Utilities Commission regarding economist.comâs four recommendation because the LEAC has reduced dramatically over a 12-month period.
âWe can impose these additional charges, system repair surcharge and increased electric rate to cover the electric water charge and ratepayersâ bills will still be less than what they were a year ago,â he said.
If the recommendations are filed with the commission and approved, CUC is expected to get $5,822.065 in additional revenue or more than the $5 million taken from it by the implementation of P.L. 18-71.
According to economist.com, $5.8 million will be realized from the $4,735.656 system-repairs surcharge, and $1,086,409 from the uniform residential rate.
Thereâs no additional revenue from the elimination of the water electric charge and LEAC reconciliation.
Balance
Young said CUC had not done formal LEAC reconciliation for two year now because the commission had not been reestablished, and recently CUC lost it chief financial officer.
The reconciliation, he said, will determine the balance owed either to CUC or its customers from the LEAC, adding that such action is required periodically to adjust for any over-collection or under-collection of fuel costs from prior periods.
He said they will also request a change in LEAC rate calculation from every six months to a monthly basis, and rename LEAC charge âfuel adjustment cost.â
The permanent monthly LEAC calculation will eliminate volatility and reduce LEACH by approximately $0.01, he added.
âThere is a lot of confusion in the water electric charge about the name LEAC [on ratepayerâs bills] and customers donât understand what it is,â he said.
The current LEAC has a volatility factor that will be added to the rate because CUC has no cash in the bank and no financial reserves.
When oil prices go up between the approval of one LEAC and the next, Young said CUC needs a volatility factor to provide a cash cushion.
With monthly calculations on LEAC there will be no need for the volatility factor, he added.
Infrastructure surcharge
Jackson said CUC must ask the commission to continue the $0.021 per kWh infrastructure surcharge for another 12 months to recover needed revenue.
The surcharge, which will end by May this year, should also be renamed âsystem repairs surcharge,â he said.
âRight now the electric utility is operating in the red, significantly in the red, and allowing the utility to continue this will enable the electric utility to break even,â he added.
The funds that will be recovered from the $0.021 surcharge will primarily be used to fund capital outlay and debt service, he said. âHence we call it âsystem repairs surcharge.â â
Jackson said the funds will be used to maintain, repair and improve the quality of service.
The 12-month period is only an extension not permanent, and CUC will reevaluate in 2016 the infrastructure surcharge.
Uniform rate
In its recommendation to replace the residential inverted block rate with the uniform rate, Jackson said its purpose is to encourage consumption without unduly penalizing high volume users.
At present, residential customers who are high volume users pay $15.8 cent per kWh if they use more than 1,200 kWh.
âThe current plan is that the more you use the more you pay,â Jackson said.
With the uniform rate, residential ratepayers will be charged approximately $0.0690 per kWh regardless of their usage, he said.
This will allow CUC to realize $1,086,409 from the uniform residential rate, he added.
âItâs a combination of infrastructure surcharge and slight adjustments in the base rate to enable CUCâs electric utility to recover its costs next year.â
Eliminate it
Jackson said CUC did not originally ask for a water electric charge.
âThe charge was imposed in order to meet CPUC staffâs demand that water and wastewater rates recover their âcost of service,â â he said.
If CUC requests the replacement of the water electric charge with an additional electric rate, then âin our professional opinion CUC will not have a water rate filing this year because the water cost service will come down by so much that the water current rate will basically cover its cost.â
However, Jackson said if the water electric charge continues, economist.com recommends filing a water rate petition sometime later in 2015.
He said thereâs a risk that the CPUC staff and hearing examiner will oppose the replacement of the water electric charge by arguing that it does not follow âcost-of-serviceâ principles and will require the electric utility to âsubsidizeâ water.
However, Jackson said the CPUC has been inconsistent in implementing cost-of-service principles because it did not allow for the establishment of wastewater electric charges as it would excessively burden wastewater ratepayers.
In addition to the consultantâs four recommendations, Sablan said the board will also discuss further the proposal to implement a surcharge to subsidize CHCC and recover revenue lost from the implementation of P.L. 18-71.
âI need to discuss this in detail with [CUC] management and the board,â he said.