For thousands who survived months of frequent and prolonged power outages in the Commonwealth of the Northern Mariana Islands (CNMI) that stranded hundreds of passengers at the international airport for hours, delayed the start of classes, and forced many businesses to shut down and residents to migrate to the United States, the nightmare isn’t over until the government-owned Commonwealth Utilities Corp. (CUC) is properly managed to ensure stable and affordable power supply.

In this 14-island US territory, households with only US$300 or a little more in past due utility accounts get their power supply disconnected.

On the other hand, government agencies with almost US$10 million in total utility bills that are outstanding for at least 115 days get to enjoy hot and cold water in their faucets and fully air-conditioned offices.

A “high percentage” of the energy produced at CUC power plants are unaccounted for. CUC’s debt totals US$70 million. Its accounts receivables total US$31.2 million.

CUC, the provider of electricity, water and wastewater services in the CNMI, still doesn’t have a comprehensive and financially and physically doable plan to efficiently operate, rehabilitate and maintain its aging power plants, including Power Plant 1 which is the main source of electricity on the capital island of Saipan.

All eight engines at Power Plant 1 have not had maintenance repairs for years, thus, it was only producing 8 megawatts this year from its original capacity of 81 megawatts.

Georgetown Consulting Group Inc., which was hired by the Public Utilities Commission (PUC) to investigate CUC power rates and structure, has described as “horrendous” the situation at Power Plant. It recommended “installing a new culture of performance and accountability” at CUC. It says the power crisis on Saipan is due to a systemic management problem.

Because the cash-strapped CUC can’t supply enough energy to its customers, it currently rents power generators from a foreign firm to produce a large amount of emergency electricity for US$504,000 a month or US$6 million a year.

The one-year contract with Aggreko expires in September 2009. But an extension might be necessary, according to CUC executive director Antonio Muna. Many in government and the community say the money used to rent the generators could have been used to buy new power engines.

CUC also lacks strategy to address a myriad of environmental issues, making it hard to meet its objective of financial independence. For example, the generators that CUC rented from Aggreko do not comply with the requirements of the US Environmental Protection Agency. The agency also has compliance issues involving the operation of a fuel pipeline and the storage of hazardous waste products, along with a lack of a single operating permit for any of its power generating plants.

In its report to PUC, Georgetown Consulting says while the world market fuel price, a decline in tourism in the CNMI and the competitiveness of the local garment industry are beyond CUC’s control, the issues of customer receivables and the “catastrophic” failure of a number of CUC’s power generating units are within its control.

“Clearly, CUC has a significant accounts receivable problem—one that if corrected would provide most of the needed cash for rehabilitation projects,” the consulting firm says.

Due to failing power plants and engines, Saipan residents endured two to eight hours of power outages, which occurred up to three times a day.

The severe power outages—coupled with power rates that more than doubled in recent period—forced many businesses in the CNMI to shut down their operations, lay off local and foreign employees, or raise the price of their goods and services. Many found themselves jobless. Those who were still lucky to have jobs had to live with wage cuts and learned the hard way of the importance of reducing power consumption.

Residents and businesses in the CNMI are one in saying: “We need not suffer the consequences of CUC’s gross negligence and mismanagement.”

Legislation to privatise CUC is now in place, and at least two bills are pending to amend the law. But many in government and the private sector believe “receivership” is the better option.

In September, hundreds of private citizens and some government officials asked the federal government to place CUC under federal court-appointed receivership until such time that CUC’s financial condition is stabilised and completely restructured to ensure the agency is “transparent, accountable, reliable, credible, and free of destructive political interferences in the future.”

Currently, CUC does not have a credit rating from any of the major credit rating agencies and it is not in a position to seek a credit rating.

 

Time also ticks away for PUC to set power rates and structures that are commensurate to the level of service rendered by CUC to its customers.

Public Law 16-2 requires the commission to review and adopt a just and reasonable power rate structure for CUC on or before Dec. 31, 2008. If PUC fails to approve new power rates by December 31, 2008, CUC will be forced to lower residential power rates to 17-22 cents per kilowatt hour under Public Law 16-2 that suspends P.L. 15-94 which mandates such rates.

In its report, Georgetown Consulting Group recommends PUC not to change the current electric rates charged by CUC at this time because of the instability associated with CUC’s electricity sales.

However, it recommends the commission to set provisional electric rates for CUC that will be reviewed periodically and potentially changed over the course of the next 18 months.

The first review, the consulting firm says, may have to take place in June 2009, with subsequent reviews to be conducted six months and 12 months thereafter.

It recommends that the current monthly protocol used to determine electric fuel charge be replaced with a fuel related charge that would remain fixed for a six-month period, and this could be established as early as January 1, 2009.

The proposed power rate formula will allow CUC to impose oil tariff on consumers calculated every six months based on the actual price of fuel it imports, to be able to keep CUC stable.

“We would recommend a fuel recovery mechanism that would be level for a period of six months to provide for stability and predictability to ratepayers. We call this mechanism the Levelized Energy Adjustment Clause or LEAC,” the consulting firm says. Under the LEAC formula, electric bills will be calculated by multiplying the fuel recovery charge to the total kilowatt hours consumed per customer. This formula is patterned after Guam’s.

For the month of December, CUC’s fluctuating fuel rate was 20.7 cents per kilowatt-hour, down from 27 cents in November.

The all-time high was set in July and August last year when customers were paying 41.3 cents per kWh. Under the December rates, residential customers using less than 500 kWh would be charged 20.7 cents in fluctuating electric fuel and 1.6 cents for electric non-fuel, for a total of 22.3 cents per kWh.

CNMI law also mandates CUC to develop and implement a business plan by the end of 2008. There is also a requirement—through the implementation of the business plan—that CUC achieve financial independence by October 1, 2009. But as of early December, there was no evidence or statement from CUC that such plan would be implemented by December 31, 2008. CUC also could not provide a completion date for such a business plan.

“We recommend CUC be required to complete the anticipated business plan at the earliest possible date so that PUC can consider the business plan at its June 2009 regulatory meeting,” the consulting firm says.

As this edition went press, PUC was yet to decide on the recommendations of Georgetown Consulting Group.