CUC holds off action on Saipan power plant • Report by independent evaluators cast doubts on CUC’s selection of Marubeni-Sithe

Independent experts yesterday unsealed the results of their months-long evaluation of various bids on the controversial Saipan power project that generally countered an earlier decision by the Commonwealth Utilities Corporation to award the $120 million contract to Marubeni-Sithe.

But the CUC Board withheld its selection of the firm to build the 80-megawatt power plant for the next three months pending further review of the report made by Burns & McDonnell as well as an assessment of the need for the project with such a magnitude on the island.

Enron, the joint venture of Saipan Power Partners and HEI Power Corporation and the consortium of Alsons, Tomen, Singapore Power and Tan Holdings Corp. edged out Japan’s Marubeni Corp. and its U.S. partner Sithe, Energies, Inc. based on the scores tallied by the Kansas City-based engineering firm.

Lawyers for the competing companies called on the government-owned utility corporation to make the decision as soon as possible and begin negotiations with the top-wrung bidders for the power purchase agreement (PPA), which will be the basis of the final contract.

But the 90-day reprieve approved during a board meeting yesterday will make the offers, including prices quoted by these companies, stay valid even beyond the Oct. 16 deadline provided in the procurement regulations.

CUC Chair Rosario M. Elameto said this would allow board directors to digest all these information until such time they are ready to choose a contractor for the new power plant.

“We cannot burden the community with unproductive assets and the resulting rate increases by failing to carefully assess what we need and what we can afford,” she said during the full-packed meeting.

Director Benjamin Sablan likewise underscored the need to determine exactly what will be the potential legal and financial risks on CUC by embarking on such a project, saying a lot of questions will have to be answered first.

“We have to ask those questions,” he said in an interview during a break from the four-hour meeting. “The decision we make today will affect us for the next 25 years.”

Delay

Designed to meet power demand on Saipan by the next millennium, the project — touted to be the largest ever on the island’s history — has stalled for more than a year in the wake of mounting opposition against the selection of Marubeni-Sithe in June 1998.

CUC agreed to hire Burns & McDonnell last January to independently re-evaluate all 13 proposals in efforts to silence the protests against its procurement regulations.

While it narrowed down the list to nine in the second phase of review two months later, it took the firm four months to complete the process and made public its findings.

Only six firms handed in their “best and final offers”: Enron Mariana Power, LLC; Marubeni-Sithe; Ogden Energy, Inc./PMIC; Saipan Power Partners and HEI Power Corporation; and the consortium.

The experts evaluated them based on experience of building similar projects as well as power transmission line, and proposed costs and licensing and permitting procedures.

Next step

Kiah Harris, principal at Burns & McDonnell which under its $100,000 contract with CUC has the option to help prepare the final agreement, urged the board to assess other issues, such as EPA standards, in the next phase of the project’s procurement.

“All of the firms that we evaluated were technically capable of doing the project and there was certainly a variance in pricing on the proposals, but it really boils down on contractual issues that the board feels comfortable with in negotiating with those with highest scores,” he told reporters.

He admitted though that it is going to be difficult in forging the PPA. “Very few (firms) will accept a power purchase agreement as drafted… because they all work in different financial and corporate environments,” said Harris.

While the report indicated Enron topping almost all the criteria and Marubeni-Sithe falling way behind, utility officials downplayed implication of the new rankings to their earlier decision.

“The scope (of Burns & McDonnell’s job) was to make the evaluation, but the board will make the selection based on all the evaluation and analysis,” Sablan said, adding the five will be under consideration.

Top bidders

But Robert O’Connor, attorney for the Tomen consortium, maintained CUC must deal only with the top two or three bidders based on the results of the report.

“What it shows is that there is virtual dead heat, a virtual tie between Enron and Tomen,” he said. “It also shows that Marubeni is out of the running.”

According to O’Connor, the protests proved to be beneficial to the people as they saved the public millions of dollars in taxpayers’ money had CUC proceeded with its agreement with Marubeni-Sithe.

The Texas-based industrial giant and the consortium had led the opposition against the initial choice, although Tomen withdrew its complaint filed with the Office of the Public Auditor last June for still unknown reason.

The independent re-evaluation was in fact prompted by another protest from PMIC-Ogden in which OPA recommended that CUC must hire outside experts to resolve questionable procurement regulations.

Bruce Mailman, legal counsel for Enron, asked the board to uphold “transparency” in the decision-making process to maintain integrity. The company also urged them to make an award based on the final rankings.

“We intend to be partners and as partners, we are not looking at confrontational approach,” a representative said as he eased fears raised by the board on its financial obligations, which would only begin after the project is completed in two to three years.

The project is to be constructed through build-operate-transfer scheme under a 25-year accord which will allow CUC to purchase power from the contractor first until it assumes ownership at the end of the deal.

Lobbying

Aside from representatives from the companies vying for the project, lawmakers and Commonwealth Development Authority officials attended yesterday’s meeting, the first in two months.

CUC officials scoffed at the attempt by some quarters to muddle the ongoing review, noting the increased lobbying and publicity surrounding the project in the last few days.

“We cannot allow this to detract us from our true mission: to provide reliable but affordable utility service,” Elameto said.

She added the board has to look at the current situation to determine the size of the project as recommendations were made a few years ago. “We must constantly balance any new development with our ever changing financial abilities and the economic condition of the Commonwealth.”

Timothy P. Villagomez, CUC executive director, pointed out the island will still need additional generation to supply electricity to residential and commercial establishments amid speculations that it plans to scale back the project to less than 80 MW.

“How much additional generation, when and at what price are things we always need to consider,” he said.