CUC as fuel supplier?

The Commonwealth Utilities Corp. may find itself in the business of selling motor fuel if a proposed legislation in the House of Representatives is adopted into law.

Rep. Ray Yumul yesterday pre-filed a House bill that would allow CUC to purchase and sell motor fuel supply to independent retail service dealers.

CUC, which has a two-year contract with Mobil Oil Marianas, is buying power generation fuel at a rate lower than pump prices.

According to Yumul, CUC is currently not purchasing the maximum volume of fuel allowed by the contract, as many power generators are not operational.

According to the CUC-Mobil contract, the utility could purchase from Mobil up to 30 million gallons of “automotive distillate oil” for Saipan on a yearly basis. The maximum volume for Tinian is 4 million gallons and for Rota 1.2 million gallons.

Yumul said that the utility could “max out” its volume threshold by buying not only diesel for the power plants, but also vehicle fuel which CUC could sell to independent service stations.

The bill would require CUC to sell the fuel at the actual cost unit price, plus the imposed excise tax of 15-cent per gallon and other taxes and charges, if any.

To ensure that the retailers do not overcharge the consumers, the bill would cap their profit at 25 percent of CUC’s price.

Yumul maintained that, even with the taxes and the 25-percent retailer’s markup, the cost of fuel at participating service stations would still be lower than Mobil’s regular pump rates.

“This will cut Mobil’s profitability, that’s for sure. But we’re not really trying to be in the business of selling fuel; we just want to pass the savings to the public,” Yumul said.

Cecile Bamba Suda, public and government affairs manager for Mobil Oil Guam/Micronesia/Mariana Islands, Inc., said that the company has received a copy of the bill, but has not had an opportunity to review the measure in its entirety. But she made partial comments.

“Petroleum business is a complex business which involves shipping, terminalling, distribution, and marketing of hazardous products. There are significant and costly safety and technical issues in the supply chain and if not dealt appropriately it can be harmful to the community and the environment. The proposed bill does not address all of the elements of the fuel distribution chain,” Suda said.

“Gasoline and diesel are globally traded commodities and Mobil has to pay market rates for these products which should not be any different for CUC or CNMI,” she added.

Suda also said that Mobil is open to dialogue with the CNMI government officials to ensure that petroleum products are marketed in a reliable and safe manner.

“[F]or too long, consumers in the Commonwealth have been conditioned to believing that the high cost of fuel is a result of the Commonwealth’s geographic location and the high cost of importing fuel to the island,” read a portion of the bill.

However, the measure listed facts that counter this notion:
* All oil companies in the Commonwealth price exactly the same, regardless of their different internal cost structures;

* The Commonwealth’s fuel comes from Singapore which has a lower price than that of refined gasoline in the United States;

* The Commonwealth has a much lower tax on fuel than the U.S. mainland; and

* Gasoline prices in the Commonwealth are historically higher than on neighboring islands.

The bill also noted that the “anti-competitive forces” in the marketing of fuel in the CNMI have caused the number of independent retail service stations to vastly diminish.

“[T]here is a need to protect independent retail service station dealers from extinction, which would require measures necessary to promote competition in the long term in order to protect the interests of consumers,” the measure added.