CUC: Status quo on Tinian IPP contract

Commonwealth Utilities Corp. board chair David J. Sablan said the utilities agency’s ties with independent power producer Telesource CNMI remains the same in lieu of a recent determination that the company is a public utility that requires oversight of the regulatory agency.

Telesource is the independent power producer that operates the Tinian power plant. In November 2010, CUC petitioned Commonwealth Public Utilities Commission to approve change order No. 5 in its contract with Telesource CNMI Inc. The contract with this company, Saipan Tribune learned, has already undergone four change orders.

It will be recalled that in November 2011, CPUC provisionally approved change order No. 5, subject to it being funded through a base rate increase. In January 2012, CPUC rejected CUC’s request to fund this change order.

Change order No. 5 provides extensions of up to 15 years on the Telesource contract, with incremental increases each year that will be sourced from electric base charges.

Saipan Tribune learned that under the existing Telesource contract, its relationship with CUC as Tinian IPP stands for eight years or until March 2020. CUC pays the company $2 million annually to provide power services to Tinian, estimated to have 4,000 residents.

With the approved change order No. 5, the contract provided an extension up to 15 years that will yield incremental increases each year—$3.5 million each year or $32 million fee in the 15-year period.

Just recently, the CPUC determined that Telesource CNMI is a public utility that must be under the commission’s oversight.

Because of this ruling, CUC’s relationship with the IPP on Tinian will be status quo, Sablan said.

“It is up to the Telesource first to respond to the CPUC’s determination of them being a public utility and therefore are subject to direct CPUC oversight,” he said.

Sablan added that depending on the outcome of Telesource’s dialogue with CPUC on this issue, and CPUC’s decision after, CUC cannot entertain matters with regards to its relationship with Telesource that affects the rates it charges customers on Tinian.

CUC contracted Telesource in September 1997 to build and operate a 10-MW diesel power plant for $21.6 million on Tinian, which CUC would ultimately own and operate. Under the agreement, Telesource was to design and construct, procure all necessary equipment and materials; arrange all shipping to the site; and initially own and maintain and operate the plant.

Payment would be made by a series of monthly payments of $180,000 represented by 120 promissory notes. On top of this monthly payment, CUC was also obligated to pay $50,000 monthly in quality and management fee and a production fee of two cents per kWh.

In November 1998, the first change order was adopted, increasing the size of the plant to 20 MW by the installation of two 5MW units and the addition of a 30-MW substation. Change order No. 2 was executed in November 1998 and implemented a more detailed procedure for submission and review of the drawings and technical specifications used in the performance of the work undertaken by Telesource. Change order No. 3 was adopted in May 2001 and extended the terms of the contract to 2020; and change order No. 4 was executed in April 2003, which authorized Telesource to use the plant as security for a loan with the Commercial Bank of Kuwait.