CUC: Where does it stand?

Two hundred ninety.

That’s the number of days left until Friday, Sept. 11, 2009, when the contract for the emergency Aggreko generators comes to an end. Under the $6-million contract, the engines provide 15 megawatts of power to the island of Saipan, which has virtually halted brownouts and blackouts.

But what happens after Sept. 11?

Commonwealth Utilities Corp.’s executive director Antonio Muña said CUC is preparing for the future by pursuing a dual approach—rehabilitation and privatization.

“There’s a plan A and a plan B,” he said. “If privatization of the generation fails because something goes wrong or some law is passed that eliminates the whole process, or we don’t get any responses, we’re still moving forward with rehabilitation. If we do the privatization and someone does respond, the improvements to the system will potentially be of value, because now the guy that’s coming in, if he takes over the plant, will have less to spend. So the investment is there already and for that matter, the cost he needs to recover and so forth, is much less.”

Here’s a look at the current status of the two approaches:

Rehabilitation

As of last week, two engines— 6 and 8—were working at Power Plant 1 and producing 8 megawatts together. Power Plant 2 also was producing 2 megawatts. Power Plant 4, operated by the Pacific Marine and Industrial Corp., produces approximately 14 megawatts each day. Altogether, CUC’s systems are producing approximately 24 megawatts of power. With the 15 additional megawatts from the Aggreko generators, the island has about 39 megawatts, enough to meet the island demand. For now.

“We’re kind of in a standstill,” Muña said.

CUC currently is waiting for the $3.8 million the utility company requested from the Office of Insular Affairs. That, on top of previous money received, should facilitate the rehabilitation work, he said.

“I think once we get the funding, the additional $3.8 million, and the remaining funding we have, [we’ll] have a package of $5.4 million to work with, we’ll be able to begin the process of this rehabilitation effort,” Muña said.

CUC already has put out an expenditure plan, “but there are other issues to be resolved,” he added.

Those issues include accounting for past OIA money that amounts to $9 million. CUC has reported on most of the money, Muña said, but there still are some contracts that need to be accounted for.

In December 2007, CUC signed a six-month contract with Guam-based DCM Group for $5.1 million. DCM was hired to repair seven of the eight engines at Power Plant 1. In July of this year, CUC terminated the contract after DCM failed to fix the engines. Muña has said CUC paid DCM $400,000 before the contract was terminated. CUC is still in talks with the company to come to terms with an agreement.

“We still are trying to work with the contractor to get that resolved,” he said. He earlier said CUC did not want to file a lawsuit against DCM, and that the Attorney General’s Office was handling negotiations with the company.

In 2006, CUC hired Commonwealth Industrial Supply Co. Inc. to rehabilitate its power engines at Power Plant 2. In July 2008, it was reported that CISCO’s work was suspended, as only one engine had been made operational. But last month Muña said CUC and CISCO were reviewing the contract in order to get the agreed upon eight megawatts from the engines.

The contract was signed without soliciting bids or proposals from any other company. Lt. Gov. Timothy P. Villagomez approved the contract on May 14, 2006, according to the governor’s state of emergency declaration.

Muña earlier disclosed that the Federal Bureau of Investigation and the Office of the Public Auditor have been looking into the contracting arrangement between CUC and CISCO. The FBI is reportedly involved in the probe because the $885,000 used to pay CISCO came from the federal government.

“You know, I’m sure that’s going to come up. Where are we on that?” Muña said of the contract’s status.

In March 2007, OIA reprogrammed $250,000 to help repair the power system on Rota. This is another contract that needs to be closed, Muña said.

“That’s been out there for a while,” he said. “I think it’s been out there for a couple of years, going on two years now.”

When asked if OIA is requiring CUC to close the contracts before more money is awarded, the executive director said that is not necessarily the case, “but it’s an issue that has been brought up that we need to address. But if we don’t address it satisfactorily, it creates a situation that, as far as new monies go, you have to bring resolution to those issues, which isn’t unreasonable. So that may delay the process. We need to punch through that.”

As of last week, engine 3 at Power Plant 1 was out of commission, Muña said. He said repair costs would be about $30,000. CUC still owes the manufacturer, Man Diesel, money for prior work.

“We’ve got some CIP [Capital Improvement Project] funding issues. It is the system of satisfying the procurement requirement. We have submitted our billings. I think on Man’s side, there are some requirements on their side to make sure they get paid. It’s part of the process; there are certain requirements that off-island vendors still need to comply with that delay their payment situation. There is money there. It’s just a compliance issue.”

After CUC cancelled the $5.1 million DCM contract for Power Plant 1, it put out in July an emergency invitation to bid to repair engines 5 and 7. Two companies showed interest and visited the plant, Muña said, but they were ultimately unresponsive, so CUC has decided to repair the engines, contracting sections of the work to outside companies.
CUC also reportedly owes PMIC, which runs Power Plant 4, $1.5 million.

Privatization
Repeated efforts to privatize the utility corporation have been unsuccessful in the past, but on Oct. 2, Public Law 16-17—despite Gov. Benigno Fitial’s earlier veto—was passed.

The law gives specific instructions on the bidding process. An invitation to bid must be used rather than a request for proposals. It also set the price tag of $250 million for the utility company.

But the law is expected to go through amendments before it is used as a guideline to privatize. A bill to remove the $250 million price tag is currently in the Legislature.

Muña has also been in talks with legislatures to define the term “United States certified contractor.” CUC is required to hire a U.S. certified contractor to draft the invitation to bid. Another U.S. certified contractor is tasked with evaluating the bid.

“We can’t get to first base,” Muña said. “We need to decide who is a United States certified contractor. What is the definition? Who is this person?”

He added: “It’s hard for me to say, pursuant to Public Law 16-17, I need a U.S. certified contractor. There’s no USCC behind anybody’s name. You know, right? It’s not like a CPA. If I need a CPA I can go get a CPA. If you need a JD, well OK, no problem. If you need a chief financial planner to do this, well OK.”

Fitial earlier vetoed the bill, saying the $250 million price tag would raise power rates.

Factoring in the $250-million price tag for the power system and CUC’s expected monthly sales of 20 million kWh, and assuming a 10 percent return on investment and recovery of principal over a period of 40 years, the power rate could increase by 10 cents per kWh, Fitial said.

He also attacked the requirement for any contractor operating the plant to have five years experience in compliance with emission standards set by the U.S. Environmental Protection Agency. He said this may preclude international companies who have experience with power plant operations and capable of compliance, but not having five years experience, from bidding.

The provisions for the protection of CUC employees, according to Fitial, are overly broad and may lead to the successful bidder retaining even those employees who are not performing well.

Requiring CUC to obtain legislative consent before getting any loan over $500,000 would be an administrative burden to the utility, he added.

The governor also said that CUC’s cash flow would suffer if residential customers are allowed to finance any outstanding account for up to one year. The same impact is expected if CUC is prohibited from disconnecting delinquent customers who are covered by the Low Income Home Energy Assistance Program.

But proponents of the measure maintain that the legislation is urgently needed to avert an emergency declaration by the governor that would result in another sole source privatization contract. They also tout the prohibition of “requests for proposals” in the procurement process as one of the law’s strengths. They note that a bidding process will prevent protests that hampered previous privatization efforts.