Villagomez: Where’s CUC reserve funds?

Vice Speaker Timothy Villagomez expressed dismay over the Commonwealth Utilities Corp. current pitiful situation, noting that when he left the agency over five years ago, it had $18 million to $20 million in reserve funds.

“Why is it only now that CUC can’t self-sustain? Where has the money gone? When I left, there [was] $18 million to $20 million in the reserve account. If CUC has the reserve now and the government, as claimed by the administration, continues to pay its fair share, it would have been enough to continue to replenish its fuel,” said Villagomez in an interview shortly after attending a youth forum Friday at Hyatt Regency Hotel Saipan.

The lawmaker raised the same point during the forum, which was also attended by Gov. Juan N. Babauta and CUC comptroller Sohale Somare.

Press secretary Peter A. Callaghan said that CUC keeps a $10 million reserve fund at the Bank of Guam. “This money is in the bank. They’re not authorized to spend that money. I don’t know if there was any $20 million in reserve funds,” he said.

Sources alleged that CUC may have spent some of its reserve funds to pay its personnel. CUC recently implemented a new salary schedule and reclassification of personnel, resulting in increased compensation for some employees.

Callaghan denied this. “They didn’t use it for personnel. The money is in the bank. If it wasn’t there, BoG would have not guaranteed us a loan,” he said.

The bank had agreed to guarantee the government in the latter’s contract negotiation with Mobil Marianas last May. The CUC eventually entered into a $120-million fuel supply contract agreement with Mobil, which is good for two years.

Babauta had earlier said that the fuel surcharge cannot be eliminated amid the rising costs of fuel. He cited that that CUC was paying $30 million a year to buy fuel but due to increases in prices, CUC now spends $60 million a year.

This was the reason cited by Babauta when he vetoed Villagomez’s bill on Friday, saying that the agency desperately needs the money to supplement its funds for fuel purchase. Villagomez’s bill aimed to repeal the law that authorizes the CUC to impose a fuel surcharge fee

CUC said Saturday that it spends some $6 million a month for fuel. It buys 3 million gallons of fuel every month, which is reportedly priced at $1.78 to $2 a gallon. The CUC’s 3.5 cent per kilowatt-hour fuel surcharge reportedly provides the agency “partial cost recovery.”

Villagomez said that CUC lacks a study that would justify the 3.5 cent fuel surcharge. Further, he said that CUC has not presented any study to show its true cost of power production and service.

“Initially, they raised it to 1.5 cents then to 3.5 cents after 30 days, without a comprehensive rate adjustment plan to bring the rates in line with the true cost of service. Without that study, how can you accurately say this is what we need in order to break even?” asked Villagomez.

He said that in the past, he had suggested to CUC to raise the regular rates then impose a 1.5-cent fuel surcharge. He said CUC has the authority to adjust its rates through Public Law 4-47 without legislative approval.

“All I’ve been saying is that, ‘Okay, why don’t you raise the rates by 2 cents across-the-board, then maintain the 1.5 cents.’ I think that would get them out of the rainy days,” he said.

Villagomez said he is amenable to a 1.5 cent per kilowatt-hour fuel surcharge, “if the number is correct.”

“Let’s go with that then. We can’t just pick a number just because the policy says you can charge up to 3.5 cents,” he said.

In terms of revenues, he said that CUC should be getting $60 million a year from electricity, given its production of 420 million kilowatt hour.

“If you multiply that by the rates that we have in place, it gives you an average of $60 million. Now CUC says it needs $72 million because of the increase in fuel cost. Fine, but the 3.5 cents across the board, multiplied by 420 million kilowatt-hour comes close to $16 million. So they’d still be ahead by a few millions. Yet, they’re saying that even with the fuel surcharge, they’re not meeting their obligations,” said Villagomez.

CUC consultant Dennis Swann of Harris Group had earlier said that CUC is posting a 25-percent power loss.

Villagomez said Friday that CUC should look at its own usage. “CUC uses power for its own facilities including the water pumps, sewer. Do they count it as a loss?” he asked.