Power privatization to cost $364M over 20 years

The privatization of power in the CNMI would cost some $364 million over 20 years, based on an estimate by the Commonwealth Utilities Corp. consultant, Harris Group.

In a meeting at the House of Representatives Friday, Harris Group vice president Dennis Swann said that the cost would include the repair of the existing generating units, installation of two new 15 MW diesel units, and setting up the needed facilities to meet environmental regulations, among others.

The cost of the needed upgrade of the existing power plants in Lower Base is estimated at $60 million.

“This is one-time investment. Whether it’s privatized or not, the engines require urgent repair,” said Swann.

Swann, who works as consultant for the Commonwealth Utilities Corp. on power generation privatization, said that if CUC can borrow the needed amount at 10 percent annual rate, then the loan would be “competitive.”

But if CUC pays more than 10 percent in loan rate, he said the independent power producers’ bids to generate power and sell it to CUC would be more economical.

At 20 percent, CUC would be $0.014 higher than IPPs, while at 4 percent, CUC would be $0.008 lower than IPPs.

The CUC is currently evaluating the proposals submitted by “top two” bidders.

At 360,000 mwh and at $38.83 per barrel, Swann said that power generation under bidder A’s proposal would costs $0.116 per kwh, while under bidder B, this would cost $0.1241.

Self-generation would be at $0.1244. At present, power generation, he said, is at $0.0980.

Based on his computation, when fuel costs $25 per barrel, the cost per kwh is $0.126; at $33 per barrel, the cost is $0.143; at $50 per barrel, $.180; and $63.90 per barrel, $0.222.

Meantime, if CUC loses the fuel tax exemption it currently enjoys, the rate would increase to 23.5 cents per kwh.

During the forum, Swann told legislators that, given the current situation, the ideal CNMI power rate would be 20 cents per kwh.

Right now, the CUC charges 16 cents plus 3.5 cents surcharge fee per kwh for business users. For residential users, the rate is 11 cents plus the surcharge.

Swann declined to name the top two bidders, but sources said Company “A” is Telesource. Telesource currently handles the power generation on Tinian.

Sen. Diego M. Songao, chair of the Senate Committee on Public Utilities, Transportation, and Communications, said during the Friday meeting that the privatization plan, as presented, does not seem to offer any big difference.

“There’s not much difference. We’re not getting so much in privatization. We need some in-depth research or feasibility study in terms of privatization,” Songao said.

For his part, Rep. Joseph Deleon Guerrero said he remains unconvinced with the presentation, adding that there is no question on the suggestion that something must be done to fix the existing power plants.

“We want to do something. There is no question about it. The question is how are going to do it. How it would affect other utilities? How much it would cost our consumers?” he asked.

Deleon Guerrero said that if the contract is awarded to an IPP, there is no doubt “that IPP wants to make profit.”

“So how can we actually save here?” he asked.

Deleon Guerrero advised the CUC to look for federal grants for the improvement of the power generation plants.

He said CUC could explore the possibility of tapping into the $13-million CIP funds or the Compact impact money.

Swann reminded the lawmakers that he could not provide findings on other utilities such as sewer and wastewater—the two other CUC divisions that are subsidized by the power division—because his scope of work with CUC is only limited to power generation.

Swann’s contract with CUC initially cost $103,000. But due to extended service, the amount has already reached $200,000, sources said.

Vice Speaker Timothy Villagomez and other lawmakers said that they will look at the impact on “all utilities.”

“We are looking at the whole picture here. As lawmakers, we can’t separate them,” said Villagomez.

Power plant I has four old engines that were installed in 1979 and four that were installed in 1989 and 1990.

Under the privatization plan, power plant 2, which is adjacent to the main plant, shall be decommissioned. Its site would be used for the expansion of PP1.