Clarification of emergency directive

[B]By BENIGNO R. FITIAL[/B] [I]Special to the[/I] Saipan Tribune

[I]Editor’s Note: The following is the complete text of the letter Gov. Benigno R. Fitial sent to Senate President Pete P. Reyes and House Speaker Arnold I. Palacios in response to the two’s Aug. 19, 2008, letter requesting clarification on the governor’s emergency declaration for the CNMI.[/I]

I am in receipt of your letter of August 19. You recount your Chambers’ recent review of the “grave situation” at CUC and your recent enactment of PL 16-9 that allows for temporary power contracts by fixing a problem with the PUC Act on condition that I issue a disaster declaration. You note that, as provided, I did issue EO 2008-10, which included three directives to allow the temporary power Aggreko contract to move forward. You request a clarification on the terms of Directive 2, suspending PUC pre-review of such contracts and related power generation efforts.

I am happy to provide that clarification in this letter. But first I want to thank both of you for responding so quickly to a crisis which threatened our community. You did so on short notice. You spent most of your work day in a room without lights or air conditioning to solve a legal/legislative problem which had arisen just days before. Because of your efforts we will hopefully soon have round-the-clock power with no danger of harm to CUC’s power plant staff.

I would also like to ask for your help in avoiding any more crises like the one we just had. We need to fix the PUC Act to make sure that problems in the Act’s wording never endangers our workers, or harms our citizens.

Now to the clarification—I included the referenced language in my directive to protect against an unnecessary layer of PUC review worsening our power crisis.

Background on legal interpretation of the power crisis

You will recall that we were in crisis about three weeks ago. Tony Muna’s plant engineers had advised him to shut down Power Plant #1 before one of the engines blew up. Part of the plant was already down, so we were experiencing daily blackouts. He had moved quickly, to hire a world-class European company, Aggreko, to provide temporary power to us with no change in the rates.

CUC had found the company properly. They had done a public RFP solicitation as our procurement regulations require. Previous CUC leadership had, however, not acted on the open solicitation. Meanwhile our electricity generators continued to fail, piece by piece.

The Aggreko deal was the right one to get us through the massive repairs that would take Power Plant #1 off line. But a dispute over legislative interpretation was going to kill it. The Public Utility Commission (“PUC”) wrote CUC on July 29, demanding that they review the deal AND decide if an independent company like Aggreko could do business in the CNMI.

The PUC insisted that Aggreko was going to be a “public utility”, and would need to go through the lengthy process of getting a special utility certificate from them AND a pre-contract review process. But the PUC has no staff, and no experience yet in such matters. It was pretty clear that Tony Muna’s efforts were going to fail, along with Power Plant #1. Blackouts would get worse, and Tony’s staff were in danger—he used the sobering military term “in harm’s way”.

This PUC letter made little sense to me—the new commissioners were trying to regulate the wrong company at the wrong time. Of course, the PUC Act provides that monopolies for power, water and wastewater treatment are regulated. This means that their rates, charges and their treatment of their customers is to be reviewed by the PUC. This is similar to the law in 50 states.

But the PUC does not pre-approve CUC’s work. The PUC is not a board of directors. It does not hire CUC staff, revise office procedures, assess spare parts, or buy paper clips. Its reviews come almost always when the monopoly, CUC, wants to change its rates and procedures.

In this case, the PUC role should have been obvious—once CUC fixes the temporary power problem, PUC can review the contracts to see if there is any effect on rates. But if there is no effect, no PUC action will be needed. As I say, this is the way things work everywhere else in the US.

The PUC caused the crisis because it took an overly literal view of some statutory language that seems to say that anything is a “public utility” which sells. a “system” or a “facility” to the CUC. (Excerpt from statute attached) PUC also demanded that it review all contracts before they are signed, even if there is no effect on rates.

This of course makes no sense. It would convert into a “public utility” such independent suppliers as Telesource and PMIC, and the company which sells and maintains CUC’s accounting system. Arguably it would restrict future suppliers—a company setting up a parts repair facility or installing a water treatment system.

It is unfortunate that the statute is worded this way, but the problem should not have interfered with fixing our electricity system. PUC’s interpretation and demand for a halt in the temporary power deal had created a crisis.

But your quick action helped forestall the crisis. At my request you and your legislative colleagues moved quickly. You drew up a statute to exempt this temporary power deal from the PUC’s reading of the term “public utility”. It specifically required me to declare a disaster emergency before the definition would work.

The disaster declaration was drafted to address precisely the need to get these temporary power units in place as quickly as possible and shut down the potentially deadly Power Plant #1 engines. So, E0 2008-10 declared the disaster. The three directives addressed the situation before us. I would like to set out the wording and explain its purpose. Please keep in mind that this language was focused on keeping the power flowing to our citizens and to essential services:

The directives to get the power flowing

My disaster declaration followed the statutory and Constitutional requirements, addressing the specifics of our power crisis and the imminent danger of an explosion at Power Plant 1. I included three directives in the declaration in order to make it immediately effective in solving the problem.

DIRECTIVE 1: CUC’s Procurement Regulations and the CNMI Procurement

Regulations applicable to CUC, if any, are hereby suspended as to CUC procurements, except that CUC must fully document all procurement activity for Executive, Public Auditor and Legislative review.”

Purpose: I suspended the procurement regulations in order to assure us that CUC could get the power flowing quickly, and avoid any explosions.

CUC had processed the Aggreko deal through its procurement process, starting more than two years before. But even though the process went forward properly, I fear that someone with a narrow financial interest will try to stop our progress with formal “protests”. I have suspended the protest provisions.

There had been some criticism appearing in the press, particularly an argument that a “better” idea would be to barge over to Saipan an old, idle generator from Tinian. The “protest” provisions of the regulations can stop our progress in installing the temporary power. The directive’s language accomplishes two purposes: (a) We can avoid self-serving protests against the main contract. (b) Just in case spare parts would be necessary to hook up Aggreko, or CUC needs to hire someone to string a power line, CUC should be able to move quickly. I have suspended the time-consuming bidding requirements.

However, I wanted to make it clear that I will not give CUC a “free pass”. I insisted that the agency tell me, you and the Public Auditor about this, and any other procurement. I have demanded that CUC “fully document” its procurement activities.

DIRECTIVE 2: “The Commonwealth Public Utility Commission (“PUC”) Act of 2006, PL 15-35, as amended, is hereby suspended insofar as it would require the presentation of CUC procurement information, including contracts and other measures relating to the supply of power or the operation and maintenance of CUC’s generation, for PUC review.”

Purpose: I intended that we have no more, potentially deadly, delay based on legalistic interpretations of the PUC Act.

The PUC Act does not require PUC pre-review of contracts. But the July 29 PUC letter had insisted that PUC essentially substitute itself for CUC management, and review all contracts in advance. That is simply unacceptable. PUC is not CUC management. It was never intended to be. And it certainly does not have the resources and expertise to manage a utility company.

If Tony Muña is to solve our power crisis we must not tie his hands with time-consuming, unnecessary bureaucratic pre-reviews. The language of my directive makes clear that PUC is to focus on its main job—rates, charges and the cost of serving our citizens—and not on trying to run a utility company. PUC can examine contracts at the proper time.

DIRECTIVE 3: CUC is specifically empowered to execute the wholesale generation power contract it has negotiated with an independent power producer for a period of two years or less.

Purpose: There must be no doubt that CUC can contract for the immediate service we need to stop the blackouts and avoid an explosion at Power Plant #1.

There were press reports that some people thought there was something improper about the Aggreko deal. They obviously do not know the facts, including that the RFP was proper, that the choice was careful and deliberate, that Aggreko is a world-class firm with a superb track record for cost and schedule. Nor do such critics know that the financial terms of this contract are excellent, avoiding substantial up-front charges.

Next steps

Gentlemen, you have responded as most of us would to a critically ill relative. CUC and our economy are like a very ill person. We have raced the patient to the hospital. An overworked team has carried the patient in for emergency heart surgery.

In a short time we hope to see our patient well. We cannot stop the surgery while an outside committee, new on the job, learns which scalpel to use. We should not.

The disaster declaration, and the directives which implement it, are focused on bringing CUC and Saipan’s community life back to health. I hope you agree with me that the measures I have taken are appropriate to the task.

In the meantime, I hope you can join with me to avoid a repeat of this crisis. The PUC Act needs repair. The Legislature’s intention was not to make the PUC a super-board-of-directors for CUC. The Act could use a quick repair to simply define a “public utility” properly:

(a) “Public utility” shall mean:

(1) a retail provider in the Commonwealth of one or more of the following services and/or products:

(i) power;

(ii) water delivered through an integrated system of wells, storage, mains and lines;

(iii) wastewater and/or sewage treatment provided through an integrated system that includes collection through lines and mains, but not a tank pumping service;

(iv) telecommunications service.

(b) Except that it shall not mean:

(1) retail propane, gasoline or diesel fuel

(2) public transportation, including tour buses, boats, air services, ships and taxi cabs.