The Guam Power Authority is proposing a nearly 28% increase in the fuel surcharge on its customers' power bills.
GPA has a two-step approval process to go through, first from the Consolidated Commission on Utilities. The rate-setting Public Utilities Commission will have the final say.
GPA wants to raise the surcharge from 8.6 cents per kilowatt-hour to 11 cents.
This proposed surcharge is also meant to fund GPA's rebate program that pays customers part of the cost of replacing older appliances and air-conditioning units with ones that use less electricity.
While the rebate program encourages energy efficiency and helps to reduce GPA's use of fuel oil or diesel to run its power plants, the rebate benefits homeowners more than renters. Adding the cost of the rebate program to the fuel surcharge puts renters at a disadvantage because they don't get the full benefit of the rebate. Renters aren't usually able to change out the air-conditioning units and water heaters in apartment units or rented houses, so they will end up paying a higher power bill that's going to benefit mainly those who own their own homes or business locations.
The CCU wants to see an assessment of what expenses GPA can cut in order to avoid a rate increase before the CCU decides and before the proposal is submitted to the PUC.
If approved by the PUC, the rate change will take effect in February 2021.
The main reason for the proposed increase in the fuel surcharge is a projection that oil prices will go up.
Without increasing the fuel surcharge, GPA anticipates it will fall $14 million short of what it charges customers for the fuel surcharge and the projected cost of fuel.
The average market price of residual fuel oil and diesel used in the initial filing for the current surcharge was $39.30 per barrel. The current projection is $48.50 per barrel by the end of January, according to GPA, in documents filed with the CCU.
CCU member Simon Sanchez asked for an assessment by Tuesday on what expenses GPA may sacrifice in order not to raise the surcharge.
GPA should seriously consider whether it can cut some personnel costs. Reducing pay and or benefits is one option and is common for any business and even governments that face a financial shortfall.
GPA can no longer continue to shove all of the higher costs of operating power plants and bringing electricity to homes, businesses and government offices to customers. Customers have breaking points and, in this pandemic, it is safe to say many are close to the breaking point financially.
The power agency has to take into account that changes in fuel prices in the international market haven't been the only factor in GPA's past fuel cost increases. The consequence of the fire and explosion at the poorly run Cabras power plant has hit ratepayers' pockets, too.
Let's look back to August 2015. GPA's Cabras 3 and 4 power-generating units failed. A fire and subsequent explosion caused them to fail.
A more fuel-efficient power plant is supposed to replace the damaged units. We have not seen the new power plant come to fruition.
Since the explosion, GPA has had to use the more expensive No. 2 diesel fuel in order to run generators that help make up for the catastrophic failure of Cabras 3 and 4, according to a previous PUC document.
GPA's cost for No. 2 fuel increased from approximately $2 million per month to between $4 million and $5 million per month, according to PUC documents in 2016. Essentially that tells us that GPA's cost of fuel increased by $24 million to $36 million in a year and that's a result of the explosion at Cabras, and not really a result of fluctuating fuel prices.
The management of GPA and its board need to really look at how GPA can share the pain with the fuel surcharge cost.
Raising the cost of providing electricity to homes and businesses is ill-timed.
Tens of thousands of Guam's private sector workers, managers and business owners are reeling from the economic fallout of COVID-19.
GPA needs to reassess what it can do internally to cut expenses and let the ratepayers know line-by-line of its cost-cutting efforts.
Next to fuel, personnel is another big-ticket item on GPA's budget. Pay cuts should be considered.