When the lights go out

The frequent, unexpected and unannounced power outages on the islands have not only created an inconvenience for residents, it also affects businesses and their revenue. The House Committee on Public Utilities, Transportation and Communication (PUTC), in a May 18th article, stated that the island’s power generation system is in a “serious crisis” that affects Saipan’s productivity and the ability to attract foreign investors.

A business with one million dollars in sales per year, operating six days per weeks, earns an average of $3,200 per day. If a business closes for four days due to the lack of power – like many of the businesses in Garapan after typhoon Tingting – it will lose about $12,800 in sales. Now multiply that by 1,000 businesses and the total lost revenue is significant.

It makes sense that most hotels and other major tourist destination, like DFS, do not play Russian roulette with CUC. They hedge their bets by owning their own power generation system because they have so much to lose if the lights go out.

Unfortunately, a continuous source of reliable power and water is on the due diligence checklist of many investors looking to locate on Saipan. Some have even suggested that CUC’s power system is on the verge of a meltdown because of all the problems plaguing their power generation system.

The noisy and air-polluting Puerto Rico power facility has been the topic of a public hearing to relocate or shut it down. The power plant is 50 years old, has failed EPA standards, and continues to be a hazard to residents living near the area.

Four engines in power plant two were down because of a wait to get ordered parts. If there is a problem with a generator it can take up to a year before ordered parts for an engine reach Saipan. Rota’s transformers were damaged after supertyphoon Pongsona in December 2002, and it was not until May 2004 that the $95,000 transformers were delivered for installation at their substations. Rota depended on electricity from the Rota Resort & Country Club to supply some of their power needs.

To address the many power supply problems requires capital, which is badly needed by the Commonwealth Utility Corporation. With fuel prices rising, CUC projects a $5 million deficit. The government owes about $16 million and continues to be delinquent making payments of $800,000 per month. CUC even threatened to disconnect their single biggest customer; however, the Superior Court issued a restraining order to prevent CUC from disconnecting utility service to government agencies.

It is unlikely that CUC will see much of the money owed them since the Department of Finance is actively contesting all government utility billings, and Finance Secretary Fermin Atalig has even asked CUC to just “forgive” the government’s rising utility bill.

These cash shortfalls have created the serious problems CUC is now facing. CUC spokeswoman Pamela Mathis recently stated in a July 13, 2004 article of the Marianas Variety, “these are some off the toughest and genuine financial cutbacks she has seen in all the years she has been working at the agency.”

In a May 10, 2004 article by Liberty Dones in the Saipan Tribune, CUC board chairman Herman Sablan warned of a future option if they did not collect from the CNMI government. “CUC pays $2.7 million a month for fuel and if we don’t get money from [the] government, we’re in trouble. I’m afraid CUC will end up having to shut down its operations because of high costs associated with it.”

Foreign investors dropped 26 percent in 2003 compared to the 2002 long-term business certificates of 365. Unless Saipan’s power generation system improves very soon, the islands will become less attractive to foreign investors and local businesses will continue to be affected.

If you own a business, you should take careful consideration of the situation that we researched from articles in the past six months. They paint a somber picture that could eventually become very dark.

By its very definition, a “utility” is something useful. Electricity is so commonplace that we tend to ignore its usefulness until we are without it for a period of time. If the current state of affairs continues to worsen, we may all gain a greater appreciation of this simple but critical utility when the lights go out.

(Rik is a business instructor at NMC and Janel is the owner of Positively Outrageous Results. They have consulted with over 400 businesses in 40 different industries. For better business results go to BizResults.biz to read previous articles.)