Load shedding expected as CUC enters third month of partial fuel purchases

Daily power outages may be back soon as the Commonwealth Utilities Corporation enters its third month of only partial fuel purchases.

Anthony Guerrero, the now resigned CUC executive director, in a letter to Gov. Benigno R. Fitial on Friday said the utility will begin load shedding on a daily basis if it does not get financial help soon.

“CUC has nowhere else to turn. This need is brought about by CUC’s inability to purchase enough fuel to last from one tanker delivery to the next,” said Guerrero, who has been replaced by Antonio Muna.

He reported that a fuel tanker was to arrive Friday, but CUC did not have the money to pay for the full delivery of 20,000 barrels worth $3.1 million. Without daily power outages, CUC would only have enough fuel to operate Saipan’s main power plant until Wednesday, May 7, 2008.

May 2008 would be the third month in a row that CUC has made a partial purchase of the scheduled monthly fuel delivery that arrives by tanker. Previous partial purchases were made on March 6 and April 4. CUC was only able to operate with minimal interruptions because of supplemental transfers from the fuel farm of CUC’s supplier, Mobil Oil.

To make CUC’s problems worse, Mobil now wants to charge the utility an additional $250,000 in shipping costs that the oil firm incurred because of the partial purchases. Under the fuel supply contract, the Mobil may pass these charges on to CUC.

Guerrero said the October 2007 rollback of power rates was the main reason for CUC’s financial problems. CUC is now expecting a shortfall of $11.3 million in fuel costs million by Sept. 30, 2008. He said the Legislature-approve bill reversing the rollback would reduce the shortfall, but it would not be enough to keep CUC in the black.

Another factor in CUC’s poor cash flow is the reduced electric sales. Many customers have left the island, and most of those left behind are saving energy because of the higher electric rates. The non-fuel component of power rates was based on monthly sales of 30 million kWh needed for full cost recovery. But sales are less than 24 million kWh. As a result, CUC expects to under-recover its non-fuel costs by about $8.2 million by Sept. 30.

Guerrero also reported that rate increases for water and wastewater services are imminent. This is seen to end CUC’s current practice of using electric revenues to subsidize water and wastewater operations. During fiscal year 2007, the subsidy amounted to $5.2 million. CUC expects a similar amount to be shifted to water and wastewater this year.

Further, CUC needs $4.3 million to match the federal funds being used to pay for contractors conducting repair and maintenance at the main power plant.

“Without an outside source of funding, it is inevitable that load shedding is here for the long term. For how long, no one knows. But if no action is taken, CUC will eventually exhaust all its funds and cease to be operational at any level,” Guerrero said.

Last week, the Legislature passed an omnibus bill that would provide much needed funding to CUC.

The measure, now awaiting the governor’s signature, would suspend the power rates rollback up to Dec. 31, 2008, and allow the Public Utilities Commission to issue emergency and interim power rates. It would ease quorum requirements for PUC, allowing the regulatory board to set rates even if there is only one commissioner.

The proposed law also incorporates fiscal measures such as the reduction of the government’s pension contribution rate from 18 percent to 11 percent of the total payroll. Half of the savings-about $5.63 million-from the reduction would go to CUC’s fuel expenses. Some $80,000 would go to PUC’s startup operations. The rest-approximately $5.55 million-would be used at the governor’s discretion.

Further, the bill would grant the governor unlimited reprogramming power over lapsed funding, re-appropriate some $2.15 million of suspended earmarks to CUC’s fuel expenses, and allow CUC to use half of its customers’ security deposits for fuel.