CUC buys out IPP contract for $7.25M

The Commonwealth Utilities Corp. will soon be taking over the Power Plant 4 station in Puerto Rico after the utilities firm entered into an agreement to buy out the contract of independent power producer Pacific Marine & Industrial Corp. for $7.25 million.

Acting CUC executive director Alan W. Fletcher confirmed the contract buyout yesterday, saying it will be paid in installments for 27 months.

Fletcher assured that no funds were reprogrammed for the transaction. “No funds were reprogrammed. The buyout shortens the term of the existing contract by two years for CUC. This is where the savings come in,” he explained.

Separately, Lt. Gov. Eloy S. Inos said he signed off on the buyout because it is a lot less expensive than the $16 million that the government would have spent for the monthly payment of $300,000 until the end of the contract in 2016, plus fuel and lube expenses.

According to Fletcher, the buyout payment of $7.25 million is about the same amount as the monthly payments CUC currently pays PMIC-about $331,000 per month.

Based on CUC data, the early termination of the PMIC contract will provide some $6 million to $8 million in benefit to CUC customers over the next few years.

Plant closure

Fletcher said they intend to close Power Plant 4 by the end of the year. He revealed that higher speed engines at the plant are significantly less fuel-efficient than engines at Power Plant 1.

“Power Plant 1 will have sufficient capacity by the end of 2012 to make Power Plant 4 redundant,” he said.

Fletcher said that 12 employees working at Power Plant 4 will be transitioned to CUC. However, he said, this matter is still in negotiation.

Fletcher revealed that the buyout is expected to boost CUC’s gross savings to about $19 million over the remaining life of the contract. In net savings after financing, CUC is projected to earn $5.4 million.

Because of this projection, CUC expects a reduction in its LEAC rate of about 1 cent per kilowatt-hour, based on current fuel prices.

Offline

Power Plant 4 has been offline since late May, meaning it has not been supplying any power to the Saipan grid anymore. This is because CUC’s Power Plant 1 in Lower Base is able to supply enough power without the help of Power Plant 4.

“At the moment, because of the improvements in power Plant 1, the production out of Power Plant 4 is not needed.  But we have to pay a minimum payment to PMIC for maintaining the contract. We do not see the need for that contract to continue through the life of the contract, which is through 2016,” Inos said.

He said the government tried to negotiate with PMIC for a lower buyout amount, but in the end, that figure stood at $7.25 million.

He said buying out the contract is a lot better than paying some $300,000 a month to PMIC until 2016, which is about $3.6 million a year, and estimated at $16 million to $18 million until 2016.

The government is also saving from not buying and supplying fuel and lube to run Power Plant 4.

“The [existing] contract binds us to pay $300,000 whether they produce power or not. And not just that. If they produce power, we’re going to pay fuel cost for it. So when you look at all the savings as a result of terminating the contract, it’s worth our while to just go ahead and pay an X amount, buy them out. We’ll be saving probably about $6 million,” he said, adding later on that the savings could be around $6 million to $8 million.

Rep. Frank Dela Cruz (R-Saipan), chairman of the Saipan and Northern Islands Legislative Delegation’s Committee on Public Utilities and Infrastructure, echoed Inos’ statement that the government would save $6 million to $8 million once it pays off the buyout amount.

Dela Cruz said he asked CUC earlier this year to consider shutting off Power Plant 4 to save on expenses, if the power from Power Plant 1 is already enough to supply Saipan.  Power plant 4 will be used only if there’s real emergency.

By MONETH G. DEPOSA and HAIDEE V. EUGENIO
moneth_deposa@saipantribune.com
haidee_eugenio@saipantribune.com
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