CUC selects Enron • Losing bidders hint appeal on board decision

The controversy swirling around the procurement of a new power plant on Saipan is not likely to simmer down soon despite handing out the multi-million dollar contract to Texas-based industrial conglomerate Enron.
For the second time, the Commonwealth Utilities Corporation made an actual award to a bidder, which came nearly two years after it chose Japan’s Marubeni Corp. and its U.S. partner Sithe Energies, Inc. in June 1998 following a highly-questionable selection process.

Enron emerged runner-up to Marubeni-Sithe in that evaluation conducted by CUC’s in-house evaluators which it strongly opposed, prompting the power company to lead the protests against the government-owned utility corporation over its handling of the project.

Last Friday, the CUC board rewarded Enron through the “conditional” grant of the estimated $120 million contract by a split vote of 3-2 in an effort to meet the deadline set out by a recently enacted law and to start the negotiation process.

Board Chair Jesus T. Guerrero described the decision “difficult” for all the board members, noting that Public Law 12-1 specifically required the government corporation to make an award by the end of this month.

However, two board members — Zania M. Fleming and former chair Rosario M. Elameto — attempted to further drag the project when they voted for a motion to defer action pending its search for a private legal counsel.

Their motion was defeated, and the two later abstained from voting for Enron. Mr. Guerrero, board members Frank T. Flores and Laura I. Manglona were the three who cast their yes votes, while Edward Sablan was absent during the board meeting marked by long closed-door discussions.

“It’s difficult decision actually for some of the board members. I for one am carrying the heavy load of all this matter,” said Mr. Guerrero in an interview after the three-hour meeting. “It’s a hard decision.”

Key factors

Mr. Flores, who made the motion to award the contract to Enron, said that decision was based on two key considerations — that it ranked first in the independent re-evaluation conducted by CUC’s power consultants and that it is the only one in compliance with the specific requirements of the law.

“This award is conditioned upon negotiation of a contract to the satisfaction of the board that meets… the requirements,” he said at the board meeting.

Issues to be discussed in the negotiating table include the costs and commercial terms acceptable to CUC; transactions, structure, net output and guaranteed fixed rate; environmental permitting, transmission, dispatch and others; and compliance with provisions of PL 12-1, according to Mr. Flores.

He stressed the decision to pick Enron over competing firms like the Tomen Consortium and Saipan Power Partners/Hawaiian Electric was a result of the recommendations made by Kansas City-based consultants from Burns & McDonnell.

“The issue here is the public law. We are running out of time,” said Mr. Flores in an interview with reporters.
Touted to be the largest deal ever in CNMI’s history, the project is to be installed through the build-operate-transfer scheme under a 25-year accord.

PL 12-1, offered by Senate Floor Leader Pete P. Reyes, had forced CUC to reinstate the 80-megawatt plant it scrapped last January under Ms. Elameto’s leadership. It set the deadline of awarding the contract 60 days after becoming a law. That period expires on June 3.

It also allowed phasing in of a plant with 60-MW capacity as recommended by power consultants and accepted the original bids handed in by all 13 companies. But the law also provided specific technical requirements, such as low-speed generators.

All of its provisions were based on the recommendations of Burns & McDonnell which at the same time ranked Enron, Tomen and SPP/HEI ahead of Marubeni-Sithe.

“Enron came number one on three or four different [categories]. So we are just sticking to the evaluation by the experts,” said Mr. Flores.

Mr. Guerrero said, however, that it will still be “a long way to go” before the new power plant breaks ground as they will need to sit down with Enron officials for the negotiation.
He did not rule out the possibility of a new round of protests on the board’s latest action, saying that it is part of having a project with this magnitude.

“I feel relived because it’s an ongoing controversy and we need to settle this once and for all. I am glad that the board decided to proceed [with the project],” added the CUC chairman.

Legal action

Representatives for losing bidders, who were present during Friday’s meeting, hinted at possibility of taking legal steps to block final award of the contract to Enron.

“I’m shocked,” said lawyer Rex Kosack, counsel for SPP/HEI, commenting on the board’s decision when sought by reporters. He pointed out that his client has spent huge money over the past three years preparing bids for the CUC project.

“To have it at the last minute end up going to Enron because there’s a public law that says it should be sole-sourced after three years of competitive bidding is not fair,” added Mr. Kosack. “I’m sure that we will seriously consider legal action.”

Attorney Bob O’Connor, who represents the consortium of Tomen, Alsons, Singapore Power and Tan Holdings, said the process is not over yet.

“I expect CUC to reconsider and change their decision,” he said in an interview, noting that the Burns & McDonnell’s report considered the top three bidders had “essentially equivalent” proposals. But the consortium’s proposal, according to its counsel, was $25 million cheaper than Enron’s.

He said that the board’s action is “inviting lawsuits” since the recommendation by CUC’s consultants was to give the three finalists a chance in the negotiation process.

“If CUC board does not quickly reconsider its action, I have no choice but to protect the rights of my client and the rights of the people of the Commonwealth,” added Mr. O’Connor.

Enron was not available to provide comment on the board’s decision.