CUC hopes for favorable action on Telesource contract change

The Commonwealth Utilities Corp. is counting on the favorable decision of the Commonwealth Public Utilities Commission on the proposed change in the existing contract of Telesource CNMI Inc., the operator of the CUC Tinian power plant.

CUC deputy executive director Alan Fletcher told Saipan Tribune that the recommended change order, will bring impact to the existing rates estimated at $5.74 per month for 1,000 kWh customer and will hamper CUC’s efforts in pursuing renewable energy projects on Tinian.

“CUC’s initial analysis showed an impact of $5.74 per month for a 1,000 kWh customer, increasing to $9.93 in the 15th year. This analysis is understated, as since this analysis was prepared, Tinian kWh volume has dropped and we have not had a chance to rework the analysis,” he told Saipan Tribune.

He said the change order No. 5 changes how CUC pays Telesource for power on Tinian. Fletcher said currently payments are made primarily on production volume, with a recognition of a fixed capacity fee. The change order No. 5 reverses that equation where the capacity fee raises significantly therefore CUC will pay more of a “fixed-fee” for service.

“On the plus side, this change order allows CUC to pursue renewable energy projects on Tinian, where today we cannot,” he said.

In 2010, CUC executed a change order with independent power producer Telesource and that change order was before CPUC for review and possible approval, but the commission was not satisfied with the inquiry. It requested CUC to further supplement the information it provided previously.

Saipan Tribune learned that CPUC’s consultant, Georgetown Consulting, strongly opposes this proposed change order and earlier cited that if this is approved, it will cost CUC customers some $33 million, based on its testimony last year.

It said the change order No. 5 will cost CUC customers approximately $33 million over the 15-year term of the change order if approved by the CPUC and customers would see their monthly bills rise—for each 1,000 kWh per month of consumption, customers would immediately see a $6.92 increase. It said that if approved, the Tinian plant will be the least loaded power plant but will be the most expensive to operate on a day-to-day basis. The cost in the first year will result in customers being required to pay $1.5 million.

It urged the commission to reject the request, based on last year’s testimony of Georgetown.

Saipan Tribune learned that the proposed change order would modify the monthly payment structure by increasing the quality management fee from $50,000 to $198,000 and reducing the production fee from 3.0 cents to 2.39 cents per kWh. It also proposes to extend the term of the agreement to 15 years, with a provision that CUC could reduce it to five years if CUC determines that fossil fuel generation is no longer needed, which is a highly unrealistic situation, according to Georgetown.

Also included in the change order request is the elimination of the existing $6 million buyout provision of the contract and passing on to CUC the cost of lube oil, estimated at about $300,000 per year.

Georgetown earlier said that the buyout option, currently at $6 million, is also more economical than change order No. 5, although there is a question as to where CUC would obtain the $6 million to fund the buyout provision.

Additionally, the proposed change order reimburses Telesource at cost plus 15 percent when it performs some delivery system construction requested by CUC, but not otherwise required to be provided by Telesource under the agreement. It also grants Telesource an exclusive power production arrangement for all future petroleum-based power production.