PUC: Friend or Enemy?

Posted by - francisx

When and Why PUC was Founded

The announcement by Pohnpei Utilities Corporation (PUC) of an increase in power and water rates set off the normal fireworks on the island and occasioned this discussion. No one wants to pay more for power or water…or anything. The discussion, however, did not so much center on whether PUC was justified in a rate increase as on the corporation's philosophy. Dan Perin, the assistant manager of PUC, gave the introduction.

PUC was established as a public corporation in 1991. Its mandate was to generate and distribute electrical power to the island. Two years later it was given the additional responsibility of providing water and sewage for the island. Today it is petitioning to be allowed to manage solid waste disposal as well.

Since 1991, power output has increased from 21 million kilowatt-hours to 42 million. Meanwhile, the cost of producing this power has dropped from over 22 cents per kwh to slightly more than 17 cents. Over the next few years PUC hopes to reduce the cost to about 15 cents.

The state government formed PUC to rid itself of what once had been a drain on the state treasury. When the utilities corporation was first organized, power production was a costly service for the government. In its first year, PUC collected only $500,000 in bills. Meeting the public power needs of Pohnpei required a government subsidy of about $3.5 million a year. In the four years since then, PUC has relieved the state government of a huge financial burden. Now the corporation collects about $5.5 million in bills, while the state subsidy has been eliminated entirely. The only subsidy that PUC now receives is $300,000 in US federal funds, and it is questionable whether even this will be continued at the end of the Compact period.

Who's to Blame for Higher Rates?

Power rates, of course, have risen over this period, even though the per kwh cost of power production was dropped. Why? Because the government subsidy has fallen away to nothing over this same time period. Soon after PUC came into existence, the state drastically cut its allocation for power so that it could use this money for other state expenses. For a time it turned over to PUC $1 million in Compact funds that it was receiving for energy, but a couple of years ago it stopped giving even this money. It used this $1 million to pay the government's own power bills instead. When that subsidy was dropped, PUC was forced to increase its rates, much to the dismay of the public. People threw rocks at PUC trucks and threatened employees, while politicians ranted to their constituents against the rate increases. What was generally unrecognized at that time was that the government was forcing the rate hikes on PUC by withdrawing the state subsidy.

PUC was the first of the state public utilities corporations to be organized. It was what economic planners and government advisers saw as the wave of the future. Recently Kosrae, Chuuk and Yap have organized public utilities corporations akin to PUC for the very same reason: to save scarce state funds by passing on power and water costs to the users. This is in keeping with national and state plans for cutting costs of government. It should be noted, however, that these public utility corporations differ from other private corporations in that they are not allowed to make a profit. They are expected to show a zero balance every year. Any profit they may make one year must be plowed back into the company to reduce power and utilities costs the following year.

PUC is expected to break even at the end of each year. The government expects it to operate from what it collects from its users. Yet, when PUC tries to pass the costs on to its users, as it was founded to do, government officials complain that the corporation is raising its costs too much. Nonetheless, the government itself will not subsidize power production costs. (The new governor has proposed a subsidy of $500,000 this year to forestall rate increases, but the chances of this bill passing, if it is ever introduced, would seem slim.) In PUC the government has sired a child that it does not recognize as its own. Hence, it can mistreat it with impunity.

But Can the People Pay?

PUC's philosophy, as expressed by its assistant manager, is that they are offering consumer items, like the goods in any store. The difference, though, is that they are offering these goods at cost. It is up to people to decide how much electrical power and water they can afford to buy. Some contest this philosophy, for they argue that there are essentials of life that everyone, rich or poor, deserves to have. Are power and water essentials? At least one person believed so and maintained that the government has the responsibility for providing these even to those who cannot afford them. PUC's position is that water is an essential, but electrical power is not. Accordingly, PUC has installed water taps in town from which anyone can draw safe drinking water free of charge.

Someone suggested that perhaps the cost of utilities might be reduced by adopting management policies used in other countries. The water rate in the Marshalls, for instance, is much lower than on Pohnpei, and so is the power rate. The explanation for the lower rate, of course, is that public utilities in the Marshalls are still heavily subsidized by the government. This is being done to help the little people, but it is also putting the government all the more in debt. Is government subsidization a viable solution, after all?

Someone must pay the utilities bills in the end. This "someone" can either be the consumer or the government (but it cannot be PUC, which is mandated to pay all its bills and finish the year with a zero balance). For years economic planners and others have been telling us that the Micronesian people must pay a larger share of the cost of their own government. They judged that utilities is a good place to start learning this lesson.

There seems to be considerable disposable income on Pohnpei, judging from the number of pigs killed at funerals, the throngs at sakau markets, and the goods that people buy in stores these days. Many people have learned to value a good education and are willing to reach deeper into their pocket to pay for one for their children. They are slowly learning to pay medical costs that the government once covered, especially in the case of medical referrals. Shouldn't we be moving in the same direction with utilities?

Conservation As Part of the Answer

We all can and should consume less, many seemed to believe. The graduated power rate we had in the past was helpful in motivating us to keep our usage down, some admitted. On the other hand, one look at their first bill after the new rates go into effect will shock many into taking measures to conserve, someone suggested. PUC has already mounted a campaign to help people conserve water. They have sent women into villages to explain the ways in which all can save water. At the time of the power rate increase, PUC would be well advised to run another conservation campaign. They could educate those who want to cut their power bill by showing them how much power different kinds of appliances draw.

Business or not, PUC has a role in educating the public for careful use of its resources. It has already taken the lead in helping people understand that they must pay for what they consume in the nation of tomorrow. Next, it must steer them toward conservation.

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