BEFORE SIGNING 25-YEAR POWER CONTRACT Fitial and Buckingham ignored consultant advice of full economic analysis
By Haidee V. Eugenio Reporter Consultant economists.com “strongly advised” against signing a 25-year power purchase agreement with Saipan Development LLC because of a lack of full economic and financial impact analysis, but Gov. Benigno R. Fitial and former attorney general Edward Buckingham still went ahead and signed a no-bid deal with a guaranteed price of $190.8 million.
“Given the magnitude of SDLLC's proposal, and the potentially significant impact on CUC [Commonwealth Utilities Corp.] operations and its ratepayers, we strongly advise that a thorough and comprehensive evaluation of this proposal be conducted,” economists.com's Dan V. Jackson and Robert Young said in a July 27 memo to CUC acting executive director Alan Fletcher and chief financial officer Charles Warren.
Fletcher repeated the same advice in an email three days later to the Office of the Attorney General.
In that email, he attached economists.com's two-page “SDLLC initial analysis,” a copy of which was provided by Fletcher to the media yesterday.
“Please note-this is a preliminary and cursory analysis. Economists.com and CUC recommended a full economic analysis prior to formalizing a PPA. Without said analysis, there could be unintended surprises down the road,” Fletcher told assistant attorneys general Gil Birnbrich and Tiberius Mocanu.
Fletcher also said that Young remarked that planning numbers for a 50MW power plant would normally be in the $50-million to $60-million range.
Deleon Guerrero said if what economists.com said was true, then “how come Saipan Development LLC's proposed 50MW power plant is over $190 million?”
Some four days later after Fletcher sent that email to Birnbrich and Mocanu, Fitial and Buckingham signed the PPA.
The signing was made on Buckingham's last work day as CNMI attorney general and a day before his controversial departure from Saipan.
House minority leader Joe Deleon Guerrero (R-Saipan) said yesterday that the PPA raised more questions than answers because among other things, the agreement was signed despite the absence of a full economic analysis.
“Without a full economic analysis, nobody knows its impact on ratepayers, CUC and the government. That is why it is important to hold off action on this contract without getting a full economic analysis. We don't even know if there are hidden costs,” Deleon Guerrero told Saipan Tribune yesterday.
He also said that keeping the Saipan Development proposal and the actual signing of the agreement secret except for a handful of individuals including Fitial and Buckingham goes against transparency and accountability in government.
Jackson and Young said it would be inappropriate to offer even preliminary conclusions about the economic and financial impact of Saipan Development LLC's proposal to build a 50-megawatt power plant because of a lack of data to conduct a full analysis.
And in that July 27 memo, CUC consultant economists.com was already specifically referring to Saipan Development LLC's proposed 50-megawatt power plant to replace CUC's existing Power Plant 1 in Lower Base.
Economists.com listed at least 10 sets of data that are needed before they could complete a definitive analysis of the costs and benefits of the proposal, including the types of engines to be included in the facility whether high speed or medium speed, and engine configurations-whether five 10MW generators, 10 5MW generators, and so forth.
At the time, economists.com didn't have data on engine fuel efficiency, the terms and conditions of the PPA, the extent to which the agreement represents a turnkey operation or whether additional costs could be imposed on CUC under given circumstances, among other things.
Jackson and Young proposed to CUC officials that economists.com be authorized to meet and work closely with Saipan Development LLC representatives and their U.S. affiliates to be able to develop the data they require to complete the analysis.
Economists.com said there would be both additional costs and benefits to CUC of constructing such a facility.
It said CUC ratepayers would be required to fund the capital cost of the plan, the construction of lines and substations required to connect the facility to CUC's existing grid, and the annual operating costs of the facility.
“However, CUC could potentially reduce its operating costs by closing PP1 and scaling back operations at its other generation facility. Also, there may be some increased fuel efficiencies that could potentially reduce CUC's current LEAC fuel charge,” it said.
Economists.com also said “based on some very preliminary and undocumented numbers provided to us on a spreadsheet it appears that the capital and operating cost (excluding fuel) is about the same as the operating costs of PP1.”
“However, because cost of fuel can be three or four times the cost of capital and non-fuel operation and maintenance, it is critical that we have more information so that we can analyze the total cost of electricity to the CNMI from the new power plant,” it said.
A copy of the 41-page PPA that Fitial and Buckingham signed on Aug. 3 was leaked to the media some two weeks later and that was only the first time that most CNMI government officials and ordinary citizens knew of such a contract.
Acting governor Eloy S. Inos, also unaware that such a contract was signed by Fitial and Buckingham two weeks earlier, asked for a full economic analysis of the PPA.
A Superior Court judge also granted a request for temporary restraining order on the PPA.
The Senate Committee on Public Utilities, Transportation and Communications chaired by Sen. Juan Ayuyu (Ind-Rota) called Fletcher to a meeting in the Senate chamber on Aug. 16.
Fletcher reiterated to the media yesterday that he was not involved in direct negotiations with Saipan Development LLC after around July 10.
“CUC, myself included, did provide information when requested by the negotiation team, after that date. This preliminary work was part of the information provided. Also, as stated at the hearing, I had numerous concerns with the proposed agreement. We consistently recommended thorough analysis for decision making,” Fletcher said.
Fletcher added that CUC is currently putting together a full information packet as requested by the Committees on Judiciary and Governmental Operations Committee and the PUTC.
“Until that information request is finalized, I prefer to not release additional information,” he said.
Fitial, in his email to Speaker Eli Cabrera (R-Saipan), the proposed power plant would have a 10-percent or greater efficiency compared to what CUC currently obtains.
Deleon Guerrero said a 10-percent efficiency rate “is not a high threshold of sufficiency compared to an engine that's already 20 or 30 years old.”
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