Muña advises against buying new engines

Saipan’s long-term power solution may not lie in the purchase of a new power plant, according to CUC executive director Antonio S. Muña.

He said that, based on CUC’s 2006 Financial Statement Audit, CUC has already invested $123 million in electric plant assets as of Sept. 30, 2006.

“The problem has not been with the purchase of new generators,” said Muña. “The problem comes in maintaining the generators after they have been purchased.”

Currently, of the five power plants serving the CNMI, the most efficient power plants are operated by Telesource CNMI Inc (Telesource) on Tinian and Pacific Marine and Industrial Corp. at Power Plant IV on Saipan.

Of the eight engines at Power Plant 1, only four are operational and are due for overhauls. At the Rota power plant, the two largest engines were last overhauled in 2001.

Muña admits that CUC has repeatedly failed miserably in maintaining its power production assets while Telesource and PMIC have been very successful in preserving their capital assets.

Muña said there are a variety of reasons for this situation, some of which include, but are not limited to, the following factors:

1) CUC rate charges were set below cost for many years. The rates charged since CUC’s inception were not sufficient to recover for cost of operations, accumulate a maintenance fund reserve, and service debt.

2) Recommended OEM (original equipment manufacturer) maintenance plans were not rigorously followed under previous CUC managements. Obviously, lacking necessary funding precluded compliance with recommended maintenance plans.

3) Inadequate training of CUC maintenance personnel. The recruitment and retention of required maintenance personnel were not accomplished. On 9/30/07, despite needing to retain nonresident maintenance personnel workforce, CUC was forced to release its nonresident workforce due to legislation enacted prohibiting their retention. As of 9/30/07, PPI still had six operational engines. As of today, only four engines were operational.

While some recommend that CUC or the CNMI government buy, at a minimum, $45 million worth of new generators on top of the $123 million already invested in electric plant assets to solve Saipan’s power problems, Muña advises that power production can be stabilized and secured with much less upfront investment than the purchase of brand new generators.

Muña’s strategy for long-term power stability includes the following key points:

1) Lease temporary power capacity from Aggreko at a cost of $6 million (if 12 months) or $9 million for a maximum if 18 months.

2) Execute an emergency RFP to complete Engine 7 overhaul and possibly engine 5 with the remaining $1.5 million of OIA/CDA funding. CUC to provide parts. Engine 5 & Engine 7 overhauls are required as insurance (if procurement process in item 3 below is delayed) so we can terminate Aggreko contract in 12 months without having loss of power production to meet current demand. Engine 5 & 7 overhaul could produce 22MW of power to replace 15MW provided by Aggreko.

3) Issue RFP for IPP contract for CUC to purchase power. Offeror may consider taking over operation (and rehabilitation) of PPI in its proposal. All capital costs for continued rehabilitation of PPI or purchase of new generators and related infrastructure to be borne by successful offerror. If CUC is required to provide fuel and lube oil, then engine efficiency is a performance factor. Offerror proposing the lowest purchase price per KWH will be awarded the contract conditional to engine efficiency and minimum buy.

Although the minimum required generation capacity and length of contract for proposed IPP RFP is yet to be determined, Muña stated that CUC must consider PMIC contract term expiring 31 July 2016, alternative energy commercial production impact, plus net metering before specifying required generation capacity minimum.

In the final tally, Muña’s proposal to restore power production reliability has upfront costs of $7.5MM to $11.5MM with CUC or the CNMI government not having to worry about future costly power plant maintenance.

Muña said that while some are recommending that the CNMI Government or CUC borrow a minimum of $45 million and possibly more if new plant infrastructure is required, costly power plant maintenance will continue to be a concern with such proposals.[B][I] (PR)[/I][/B]