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‘Crude oil prices not a good indicator of electric fuel rate’

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Posted on Oct 29 2006
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Global prices for crude oil are not a very reliable gauge of the electric fuel rate, according to the Commonwealth Utilities Corp.

Grina Mizutani, CUC deputy director for administration, said that a decline in crude oil prices may indicate that prices for petroleum products such as gasoline or diesel fuel should be lower within a month or so.

But the price that CUC pays for diesel fuel is not based on the price of crude oil as it is being traded on the New York Mercantile Exchange.

For CUC, the price of diesel fuel, or gas oil 0.5 percent, is based on the monthly arithmetic average price for product in the Singapore market in the month that the fuel supplier takes the fuel delivery.

Mizutani cited as an example the cost of diesel fuel delivered to CUC between July and September 2006. The price for Saipan was at $2.36 per gallon in July. It dipped by two cents in August before going up again by three cents in the first week of September. By the last week of the same month, the fuel price dropped to $2.12 per gallon.

During the same period, the price of crude oil has declined by 21 percent, from $77.03 per barrel on July 14, 2006 to $60.55 per barrel on Sept. 22, 2006.

“As you can see from this data, prices for diesel fuel have remained high while the price of crude oil has been declining,” Mizutani has told Rep. Stanley T. Torres, who has questioned CUC’s method for computing the fuel component of power rates.

“Prices for diesel fuel decreased slightly for deliveries during Aug. 16 through Sept. 6, then increased for deliveries during Sept. 7 through 28. Therefore, CUC was correct in increasing its electric fuel rate for September 2006. Likewise, CUC was correct in decreasing its fuel rate for October 2006,” he added.

The electric fuel rates, which were implemented as part of CUC’s new rate structure, started off at 21.5 cents per kilowatt hour in July and August 2006. It increased to 21.9 cents per kilowatt hour in September, and dropped to 19.4 cents per kilowatt hour in October.

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