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Wednesday, April 16, 2014

Fletcher justifies CUC management decisions

First of a two-part story

Commonwealth Utilities Corp. executive director Alan Fletcher spoke up Friday to justify the agency’s decisions on several matters, which he claimed were made to ultimately stabilize utilities services to customers.

Faced by a barrage of criticisms during a recent public hearing about some of CUC’s management decisions, Fletcher set the record straight on the relocation made for some employees, the alleged purchase of inefficient vehicles, the continuous hiring of workers, project management, and the early termination of the PMIC contract. The comments earlier made by some lawmakers on these issues, he said, should not overshadow the demonstrated achievements of CUC since the utility agency’s near collapse in 2008.

“CUC management is approved by U.S. Environmental Protection Agency and has the skills and expertise to implement positive changes. It is true that CUC operates and is managed differently, now that a management team approved by the EPA is in place. The stipulated orders signed in federal court require that CUC managers have professional qualifications and go through a vetting process by EPA before they can be appointed to their positions. This includes the executive director, chief financial officer, deputy executive director for water and wastewater, division manager for water and wastewater, chief engineer, associate engineer, operations supervisor for wastewater treatment, and the technical manager for oil,” explained Fletcher.

He pointed out that prior management and operating practices resulted in the financial collapse of the utility, sporadic and unreliable power supplies, sewage overflows, and acute public health violations. This, he said, is what led to the federal lawsuit that resulted in these management changes.

He said the new management not only has the technical background to implement important changes to improve service and regulatory compliance, but the expertise to implement sound business practices. This includes seeking rates that equal its operating expenses as required under CNMI law and in accordance with the federal stipulated orders.

Fletcher said that CUC hears and understands the difficulties its ratepayers face.

“Our costs have gone up mostly due to the price of oil. In the last 10 years, fuel prices have increased by 400 percent, and regrettably, this extreme price volatility is outside of local control. Today, the cost of fuel accounts for over 60 percent of customer power, water, and wastewater bills. Even with the high price of fuel, CUC’s electric rates are on par with similar utilities generating electricity with diesel fuel. In fact, we are lower than most. Despite this, everyone at CUC is working to become more efficient every day. From fuel efficiency at the power plant, to electrical usage at the wastewater treatment plants, there is a sincere effort to balance operating expense with our high cost-of-service,” he said.

CUC also experienced increases, he said, due to inflation, wages, and the hiring of experienced technical and professional staff that have the expertise required by EPA to improve CUC’s services to its customers.

“Many of today’s operating approaches are required under the stipulated orders in order to manage the utility in compliance with federal regulations. Also, CUC has been slowly cleaning up its financial troubles by renegotiating old contracts that were unfavorable to CUC, paying old bills, staying current on today’s bills, and settling old disputes and collection activities. These efforts have resulted in obtaining unqualified opinions on the audits for 2010, 2011 and 2012,” according to Fletcher.

He pointed out that these are the first audit opinions CUC has ever had where the auditor has not taken exception to CUC’s financial reporting.

PMIC buy-out

Fletcher said the early termination buy-out agreement with Pacific Marine Industrial Corp. allows CUC to end a contract early for Power Plant 4, which used to be managed by a private company. He said the buy-out agreement was examined by the Commonwealth Public Utilities Commission and their expert staff agreed that the early termination was a benefit to CUC customers.

“The early termination of this contract means customers will avoid between $5 million to $8 million in future costs through rates. Some people have said that the PMIC buy-out is an added expense that will increase rates. In fact, payments to PMIC for this contract have always been in our base rates. The PMIC contract was a “take or pay” contract that guaranteed a $340,000 minimum payment each month to PMIC whether the power plant operated or not. That same rate money of $340,000 per month is what is being used to pay the buy-out obligation. The payment was reclassified as a separate surcharge so that we can track it separately. The surcharge is the same amount as what we were paying before out of rates for the guaranteed monthly payment,” he said.

He said the reason CUC asked the CPUC to call this amount a surcharge is that after the contract is paid off, the commission can then decide whether or not to continue keeping the surcharge in rates. Because CUC would have had to pay this amount anyway, there is no increase to rates.

Office space relocation

It is true that CUC relocated the Water & Wastewater Division to Sadog Tasi, Fletcher said, doing that in part with grant funding and in part with the Sadog Tasi Wastewater Treatment Plant upgrade. That did not cost ratepayers money.

“CUC was also able to get a new agreement with our landlord after going through a proper procurement in 2011 for office space. The deal included a substantially reduced price for the Dandan space, which included renovation. The reduced price for the Dandan space allowed for both the remodeling of space at Dandan and the lease of space in Oleai by the same landlord. The reason we transferred the Power Transmission & Distribution section to Oleai was because the power personnel and associated equipment were overcrowded at Dandan, and the Power Division’s rolling stock and heavy equipment were parked at the Dandan commercial office building, which was not designed for that,” he said.

Also, Fletcher said, there was no space for various hand tools and emergency response supplies, thus requiring expensive and time consuming trips to the CUC warehouse in Lower Base. In addition, there was no space for training its linemen, resulting in time consuming trips to Lower Base for training. All together, he said, this led to gross inefficiencies in CUC operations.

“Now, however, we have two office locations as well as more square footage for operations and customer service, all at a lower lease amount than what we were paying for the Dandan space alone. Our Power Division now has its large equipment and training facilities in one place, so we can better respond to our customers. Our offices and customer services areas at Dandan have been reconfigured to improve workflow and expand customer services. All of this was done for less money than CUC was paying to rent the old, rundown office space. We consider that an achievement which is beneficial to our ratepayers,” he said.

Acquisition of vehicles

Fletcher disclosed that CUC has been able to upgrade much of its fleet for the Water & Wastewater Division. This was done mostly through grants. This is because a few years ago, he said, CUC was trying to operate with a deteriorated, part time fleet.

“CUC had to rent vehicles just to do its work. This was not cost-effective. Also, its old cars were in the shop so often that it was expensive to maintain them. Looking back at some old news reports, there were times when CUC was unable to respond to emergencies due to inoperable equipment, in some cases sewer overflows, causing public health concerns, or power outages where heavy equipment was not readily available. CUC’s efforts to get new vehicles is for the purpose of meeting CUC’s business needs, improving emergency response, and providing an enhanced level of service to customers,” he said.

As for the Power Division, he said trucks and vehicles were bought with a combination of grants and rate money. Vehicles are left at CUC during non-working hours, with the exception of on-call emergency responders.

“CUC has considered efficiency in these vehicle purchases. Where CUC can use an economy car, we do. Where we need a heavy-duty truck, we try to accommodate that need. For example, it is inefficient to purchase a light-duty 4-cyinder mini pickup truck, then load it with a truck crane, hundreds of pounds of tools, and the added weight of equipment and materials, and then expect the vehicle to last. You need a heavy-duty truck for that work, and this is part of how we make decisions about which vehicles to buy. Having the right equipment for a job is critical in operations, in providing service, and in responding to emergencies. That being said, nearly 80 percent of CUC’s fleet (excluding heavy duty trucks such as bucket trucks and augers) are compacts or sub-compacts,” he said.

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