Managers Report - Kosrae Utilities Authority

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KUA Manager Mr. Fred Skilling Quarterly Report.

We are pleased to sustain power services to the island without major interruptions after engines problems experienced during the first week of April. The engine problems were fixed which had restored power services to the island. The Power Plant Operators have been closely monitoring and doing their regular routine schedules to check the units to make sure they are in good running condition.

The installation of public street lights and customers Yard lights have continued during the 3rd. qrt. 2018. The customers listing for yard lights were visited and assessed and installation continued for those customers that already prepared the poles and site for the lights. A total of 200 street lights were installed to the four municipalities and 31 yardlights installed already to customers.

The tree trimming and cutting activities on the primary lines were initiated and undertaken with collaboration efforts by DT&I, KUA, FSM Telecom and the Mayors from the four municipalities. These are the main stakeholders that agreed to start clearing the main road for safety and to assist with the clearing needs of the existing infrastructure. These activities had started from Tafunsak and will continue to Utwe Municipality and work schedules are Tuesday and Thursday of each week if no urgent issues that may disrupt the set schedules.

The internal preparation for the Suprima 5 billing software upgrades has continued during the period with working activities of enclosing of the air-condition space for the installed equipments and back up facility, installation of 4 phone cables and air-condition and worked with BMC, Pohnpei for the required hardware to be used. The Technicians from Arthur D. Riley are scheduled to be in Kosrae in late August, 2018 to program the upgrade system and making sure it's functioning before utilizing the system. We expect to complete all these requirements at the end of August and start using the upgraded system in September 2018.

The management and staff conducted public awareness to the four municipalities during the quarter to refresh the customers concerning KUA service policies for service orders and other common complaints that customers have regarding the operation and services rendered to customers. Common issues addressed by the attendants were Tree trimming needs, restoring lines at Farm Roads, utilizing solar power for remote residential houses, house wiring, new payment system for Cash Power, refunds for delayed work orders, Yard lights allocation to each municipality, delayed repairs of yard lights, drop-lines procedures and cost, status of new Power Plant, running conductors above houses, removing debris after tree clearing, needs for service poles, cost of poles/hardware damages during accident, power rates, policies on Cash Power payments, St./yd. lights designated location, trees clearance w/out permission, damaged appliances and equipments, safety equipments used by KUA linemen, hazardous policies and policies on work orders.

World Bank Grant

The work activities and progress on World Bank grants under IDA 16 for Kosrae are as follows:

1. The contract for the new genset 0.6 MW were signed on Nov. 30, 2017 and effective on December 31, 2017 and completion agreed upon is 378 days after effectiveness which will be around January 2019. This project is contracted to EPSA, (Energy Power System) Australia and progress and work activities are ongoing.

2. The Genset Contract Supervision were evaluated and the best proposal were Infratec Ltd., New Zealad but they declined and the second best were invited to consider performing the supervision and contract remain pending to be signed as of June 30, 2018.

3. The Letter of Award for the Kosrae Bucket Truck were under review to be issued to NBK, Japan to supply the equipment and delivery times would be May 2019.

4. The new submission for the remaining grant allocation for Kosrae are Cash Power Meters and dateline for bid submission is April 4, 2018, Overhead Transformers and submission dateline for bids is April 13, 2018 and Scada System which is pending for final feasibility study reports by PPA/Ricardo Consultancy.

For the IDA 18, World Bank Grants, the proposal for Kosrae is Energy Storage and Grid Management Component. The Supply and installation of energy storage and grid-management equipment is to increase the contribution of Renewable Energy in Kosrae Power hybrid generation system and to reduce diesel generation. The equipment will include (a) batteries, sufficient for the hybrid system's storage requirements, (b) battery inverters and an integrated power control system to provide grid stability and other ancillary services; and (c) a communications system to enable KUA to remotely monitor, control and improve the operation and maintenance of its hybrid power system and enhance customer services.

The Energy Master Plan produced by Castalia were reviewed and consulted by the FSM and State Leaders during 2nd. quarter before finalizing of the Master Plan. The Plan produce and outlines a roadmap for the development of energy plan and projects to meet the targets of achieving renewable energies and efficiency improvements within the next 20 years.

JICA Projects

The Project status and progress are as follows:

1. The amendment of the contract were signed to extend the work on the project to January 31, 2019.

2. The work activities on the new Power Plant were suspended pending further discussion between JICA and consultant on how to resolve the detected foundation problems.

3. Management were informed by contractor that the project work may resume during late August or early September. As of June 30, 2018, no information received on the progress of the discussion between JICA and consultant relating to resuming of the work activities.

4. The contractor temporarily hire Four Star Co., security to watch the new Power Plant vicinity during one month period awaiting final decision by JICA for the continuation of the Project works.

Energy Sales

The energy (kwh) sales during 3Q2018 were slightly decreased by approximately 2.8% from the previous quarter. Total kwh sales were 1,345,808 on 3rd. qrt.2018 compared to 1,384,061 duringduring 2nd. qrt. 2018 with average monthly sales of 448,602 compared to 461,353 kwh sales from the previous quarter.

Average cash collection during 3Q2018 were decreased by approximately 1.5% compared to the previous quarter and collection represent approximately 96% of the total revenue sales during third quarter, 2018. The Financial Statements for the operation ending 3Q2018 will be provided and shared for Board’s review and comments during the regular Board meeting. Merchant Account: Increasing number of customers are using credit/debit cards to make payments for their power needs which shows below by months during 3rd. quarter.

On-Line Payment: The on-line payments have continued with the USAePay hosting website without confronting any issues for non-compliances or requirements unlike the PayPal. This also show increasing number of customers living outside to utilize for power payments. Below shows number of customers and revenues realized by months during the 3rd. quarter.

PREPAYMENT METERS PROGRAM:

Total customers served during the 3rd. Quarter, FY2018 were 1891 with approximately 83% on Cash Power meters. Customers sector with CP meters were 1262 residential, 178 commercials, 51 state gov’t and 59 non-state gov’t accounts.

The total revenues from Cash Power Meter customers represented 52% of the sales and 48% from the conventional meter customers. This program has continued to contribute needed cash flow for the operation and support energy conservation and reduce arrears. The remaining works to prepare the working space for the upgrading of the billing software has continued during the quarter and will be utilized to service the customers during late August, 2018. Additional Cash Power Meters will be acquired under the unallocated WB grant for KUA and is presently under review for bid award.

Power Outages: Power outages experienced during 3rd. quarter were caused by weather conditions, fallen trees and engine problems with burned fuses and cylinder heads. Total of 11 power outages with 10 hrs. and 51 minutes duration which is .005% of total hours served to customers. Collaboration between KUA, DT&I and Telecom was initiated during the quarter to implement major trees clearances starting from Tafunsak to Utwe. KUA also conducted its scheduled trees clearances at locations that frequently interrupt the services to customers.

Fuel: The Fuel prices received during 3rd. qrt. FY 2018 were significantly increased by 8.3% starting with $3.3986 per gallon and continued increasing to $3.4063 during 2nd. week of April and further increased to $3.5513 during 2nd. week of May and finally escalated to $3.7046 on 2nd. week of June and remain until the end of 3rd. quarter, FY2018. The average fuel price were $3.5152 gallon during the period. The FAC were adjusted based on the highest price received which were calculated and took effect on the first day of each month.

Total fuel delivered during 3rd. qrt. were 104,000 gallons with total cost of $365,900.40 and total fuel usage were 110,838 gallons with total cost of $385,675.13. The average quarterly consumption were decreased by approximately 2.4% from the previous quarter. The ending fuel inventories were 13,479 gallons with value of $49,553.94 at the end of the period which can supply approximately 10 days of required fuel to run the Power Plant Engines.

KUA INVESTMENT FUNDS: The market value of the KUA investment funds under the management of Asia Pacific Group of Raimond James and Associates Inc. as of June 30, 2018 were reported at $714,405.71 with approximately 1.6% increase compared to last quarter. $702,697.12. The KUA portfolio reports show investment in US Equities at approximately 58.78%, Non-US Equities at 2.21%, Fixed Income of 33.81% and Cash & Cash Alternatives at 5.20%. The stock market during the quarter has been fluctuating with leaning toward downturn trends due to concerns on tariff and trade wars between the big players. As quoted by Jason Miyashita, Managing Director and Senior Vice President on Investment from Raimond James Associates; "We will continue to see market volatility due to market headline risk and other factors in the global marketplace, but with your current investment portfolio, we are confident we will ride out the bumps in the volatility of the capital markets. The management will continue to monitor the performances of the stock markets to ensure that the KUA investment will not be at risk.

The value of KUA TCD/s (Certificates of Deposits) with Bank FSM remain with the principal account balance of $166,701.86 with interest earned during the period which interest earned report has not been received from the bank. The Line of Credit with amount of $200k remain without any withdrawals as of end of 3rd. qrt. The management plan to utilize this LOC for purchasing of used equipments from the JICA Projects after completion and other urgent obligations that operation will face during the current fiscal year.

This report summarizes the main activities undertaken during the 3rd. quarter of Fiscal Year 2018. If you have any questions concerning the reports and other issues not included in this report, please feel free to visit or call the KUA office for more clarification.

Thank you.

Fred N. Skilling

Kosrae Utilities Authority