Governor rejects fuel surcharge fee

Gov. Juan N. Babauta disapproved yesterday the proposed emergency regulation authorizing a 1.5-cent fuel surcharge fee that would be imposed on all electric consumers in the CNMI.

He cited two main reasons for his rejection of the measure: lack of accurate analysis by the Commonwealth Utilities Corp. of the actual cost it incurs in producing electricity; and failure of the utility firm to implement effective cost-savings measures.

The governor said, though, that the regulation would still become effective without his signature.

“I acknowledge, however, that although I have decided not to sign the proposed emergency regulation at this time due to the fact that CUC has failed to provide me with sufficient information regarding the aforementioned concerns, the proposed regulation…will become final without my concurrence effective 10 days after publication in the Commonwealth Register,” said Babauta in a Feb. 7 letter to CUC board chair Frank Q. Guerrero.

He said the regulation takes effect on or about Feb. 25—a month after the CUC board’s majority voted to adopt the emergency regulations.

Despite this, the governor said he would still wait for CUC to provide his office with a final financial audit statement and rate study “that provides adequate legal and financial justification” for the amount of the fuel surcharge fee.

In his letter, Babauta said that, although Part 24.5.8.1 of the proposed regulation identifies the formula used to arrive at the 1.5-cent figure, there is no accurate analysis of the actual costs incurred by the CUC to produce 1 kilowatt hour (kKh) of electricity. He said this must be ascertained and used as the basis for an accurate calculation of the total cost of power production.

He cited that Section 7 of the provision states that “the rate per kKh for electrical service…include a base rate allocation for fuel cost of $0.05493.”

Although this presumably accounts for the actual costs of fuel, he said this “improperly assumes that the remaining rates charged per kKh, either for residential or commercial users, is based upon the actual costs incurred by CUC to produce 1 kKh electricity.”

Babauta that CUC must conduct a complete financial audit of its costs, including debt service and other liabilities, to ensure that it can specifically identify the precise actual costs of producing 1 kKh of electricity.

He said such audit should be done by an independent certified public accountant with knowledge of utilities rate structures and the proper methods for determining the actual costs of providing utility services.

Babauta also warned that CUC’s failure to submit a final financial audit statement and rate study to justify the surcharge fee rate may also violate the terms and conditions set forth in the partnership agreement that CUC has with the federal government.

On the cost-saving issue, the governor said the production of electricity could be reduced if CUC accepted his proposal to move CUC’s main office to the La Fiesta complex in San Roque. He said this would have saved the utility firm $500,000 a year.

In addition, he said, CUC could reduce the costs associated with power production by streamlining its management structure and re-evaluating the manner in which the front-line employees of CUC are used.

Rather than providing a vehicle for every employee working on a shift, he said the shifts could be staggered to allow CUC to operate with a reduced number of vehicles while still retaining the same number of its front-line employees.

“This would allow CUC to attain cost-savings without losing the flexibility it requires to ensure the effective provision of utility services to the people,” he said.

The CUC had earlier justified the adoption of the emergency regulation, saying its fuel expense increased by over 100 percent in the past five years. CUC officials said the utility firm has exhausted all its cash reserves to meet its fuel need. Right now, it said the cost of production of electricity exceeds revenue generated from the sale of electricity to customers.

The CUC initially proposed a 3.5-cent fuel surcharge but due to widespread objection, it amended its rates, charging government users 3.5 cents, and business and residential users, 1.5 cent.

The Attorney General’s Office opposed this, saying it was unlawful and discriminatory.

The CUC then withdrew the policy and stayed silent on the issue until January when it decided to issue a resolution calling for an across-the-board imposition of 1.5 cent fuel surcharge fee.