By FRANCISCO S. DELA CRUZ
Special to the Saipan Tribune
The recent discovery of the power purchase agreement between Saipan Development LLC and the Commonwealth Utilities Corp. as signed by Gov. Benigno R. Fitial and former attorney general Edward Buckingham has raised a lot of eyebrows and concerns recently in the CNMI. I for one was surprised. However, I was even more surprised after reading all the provisions in the 41-page document.
After reading this PPA, the first question I had was, “Why did the governor and former AG sign off on this agreement?” Did they feel that Saipan needed a 50-megawatt diesel power plant at a cost of over $190 million for a 25-year period? Former executive director Abe Malae and the now acting executive director Alan Fletcher have both stated that Power Plant 1 in Lower Base is capable of meeting the demand load on Saipan and it is good for the next seven to 10 years if maintained properly and consistently. Did the governor and former AG know something that Mr. Malae, Mr. Fletcher, you, and I didn't know?
The other questions that came to mind were: “Why was this an exclusive agreement?” and “Why was it sole-sourced?” The best that I can theorize is that the answer to these questions is: “He did it because he can” under his emergency declaration, or ED. The ED gives him the power and authority without conforming to any statute or law of the CNMI. The governor had found a gaping hole under this ED to circumvent approval from the Commonwealth Public Utilities Commission. CPUC decisions on CUC are rendered moot while the ED to CUC is in effect. The manner in which this agreement was consummated was done in secrecy and without regard. Given the magnitude of such a power plant project and what will this mean to you and me, the least the governor could have done was communicate this to the CNMI people who will be affected by such a transaction. I must say that I am not that surprised since this governor has never communicated anything to his people anyway.
Although the Aug. 3 power purchase agreement was signed during a period covered by an emergency declaration, an earlier March 27, 2012, Power Plant Development and Management Agreement was entered into when no emergency declaration was in effect. This agreement was entered into between the CNMI and SDLLC and signed by the governor, attorney general and SDLLC and grants SDLLC the exclusive right to develop, manage, operate, and maintain the new power plant. We are not supposed to know about this agreement because it's secret. Section 6.12 of this agreement provides for “non-disclosure.” “The parties agree not to divulge to third parties the terms of this agreement or confidential information exchanged between the parties.”
I find it interesting that Mr. David Mahmood from Allegiance Capital Corp. and one who is involved in this secretive deal has come out publicly to state that claims of corruption in the process of negotiating the agreement “are entirely inaccurate and inappropriate.” He went on to say that “We openly shared the information we developed and made a proposal which we deemed fair and equitable and in the best interest of the island of Saipan.” I just wonder who did they openly share the information with? Was it just the governor and the former AG as I, other legislators, and even the Lt. Gov. Eloy Inos has stated that the signing of such an agreement was news to him. Mr. Fletcher indicated during our meeting at the Senate chamber that he was not in the loop as of July 10 of this year. I recalled that the lieutenant governor had also ordered an “economic analysis report” that was to be done by an independent consultant. To me this so-called economic analysis is unnecessary. The question the lieutenant governor should instead ask himself is, “Is this 50-megawatt power plant needed?” The answer to that is NO. This analysis is to be done by Economist.com, who is also the consultant to CUC. I am sure that Economist.com will tailor their analysis to the liking of the governor and the lieutenant governor or else they won't be CUC consultants for very long. Again, and I know that I may be repeating myself, but Economist.com is the consulting firm who, when asked about five years ago at the governor's conference room as to what they thought about Power Plant 1 and in their professional opinion as to its value, their response was to put it on eBay and find out. This is the same consultant that continues to be retained by CUC and this administration. Unbelievable but sad!
So why then a 50-megawatt diesel power plant? We already have one of those in Power Plant 1. The Office of Insular Affairs under the U.S. Department of the Interior has granted or reprogrammed millions of dollars not just to maintain and repair Power Plant 1 but to work on the two stipulated orders that CUC has found itself entangled with. Recently the federal government gave the CNMI government around $1.2 million for the digging and exploration of geothermal here on Saipan. Geothermal, this was Gov. Fitial's alternative renewable energy baby. What happened?
KUTh, a publicly held corporation in Australia with geothermal projects around the world, was given a “Notice of Intent to Award” the geothermal contract by former CUC executive director Abe Malae on Jan. 27, 2012. Companies such as KUTh and others were very encouraged by subsequent executive orders that stated that a renewable energy crisis exists and that “CUC has gone through the RFP process for several renewable energy projects which would bring some relief to high utility rates. These contracts must be brought to completion as soon as possible or customers will continue to suffer from high oil prices.” This is on one of the “Whereas” clauses being repeated in most if not all of executive orders declared by this administration. I'm concerned that the reputation of KUTh and other companies out there may have been damaged and harmed by the failure of CUC to proceed in good faith, but I am more concerned about the reputation of the CNMI government as time and time again it has acted recklessly and with disregard. Nowhere, in any ED for CUC, have I seen a crisis for Saipan Power Plant 1 or any mention of a need for a diesel power plant for Saipan. In fact the contract for PP4 or the PMIC contract was recently bought out because PP1 was more efficient and that it could carry the load demand for Saipan.
A few months ago a company from Virginia, Global Energy Corp., came out to Saipan to meet with the governor and legislators with regards to a “safe nuclear energy technology” or Genie as it's called. These individuals personally met with the governor who was rather excited about the technology. I thought at the time, “Wow, we have all these companies, reputable companies, interested in assisting us in our quest for alternative renewal (base-load) energy that will also bring down the electric rates for our people.” I, for one, had hopes just as I'm sure most of you did. Finally, I thought there is light at the end of the tunnel until the bomb (PPA) came out of the closet!
A temporary restraining order was issued by Judge David Wiseman that has put a stop to any further proceeding on this PPA agreement. People will be made to answer on the matter. Among these people will be the governor himself.
THE PPA ITSELF
I have taken the liberty of pinpointing some of the provisions in this contract so that you, the readers can decipher and decide if this is good for the CNMI.
Recitals on page 1 under Background item B:., pursuant to which Saipan Development LLC (SDLLC) was granted the exclusive right to develop a diesel generated electric power plant on the island of Saipan
We will be tying ourselves for the next 25 years. Even if after two years and we decide that we have companies who can generate renewable alternative electricity at the lowest cost, the CNMI will not be able to avail of such energy because it will be added cost on top of what we would have to pay for this diesel generating plant.
Article 2.14 page 11: .,CUC shall supply and deliver all fuel required during the start up testing, commissioning of the plant and all fuel required in the operation of the plant in the operation and maintenance period.
We are trying to move away from the ever increasing fuel cost but this provision locks us all into purchasing the fuel and lubricants to run the plant for the life of this agreement.
Article 2.16 page 11 item (a): The parties intend that the plant will produce electricity with a 10 percent or greater efficiency than currently obtained by CUC. Plant equipment, including the diesel engines, will be jointly selected by the parties in an effort to achieve the desired increase in efficiency.
It appears to me that CUC and SDLLC will be promenading with each other in trying to find the right diesel generator. This is quite unusual as it appears that SDLLC does not know what it intends to sell to CUC (me and you). This also makes a detailed analysis of the proposal a little difficult since we do not know what we are buying.
Article 2.16 page 11 item (c): Anything in this article 2.16 notwithstanding, failure to achieve the intended fuel efficiencies or cost reduction shall not constitute an event of default and neither party shall have the right to terminate this agreement as a result thereof.
So if the plant begins to inefficiently operate, at what point then does CUC stop and say to SDLLC, it's wasting more fuel and we can't afford it anymore. There is no point because this means that efficient or not, SDLLC will not be in default.
Article 18.2 page 36: ASSIGNMENT BY SDLLC. SDLLC may not, without prior consent of the Governor's Office of the CNMI, not to be unreasonably withheld or delayed, transfer all or any of its obligations under this agreement except that, for the purpose of arranging or rearranging financing for the project, SDLLC may assign or transfer to any person or entity providing financing to the project.,
SDLLC plans to assign the monthly $636,091 payments to a bank or financial institution in order to obtain a loan to cover the construction of the new power plant and their profit. CUC will be obligated to make the monthly payments to the bank or financial institution.
Article 27.1 page 39 item (g): The receipt by SDLLC of an opinion confirming that the operation by SDLLC of the plant will not constitute a public utility so as to require a franchise, certificate of public convenience, or other similar license which it requires to perform its obligations under this Agreement.
My understanding of this provision is that SDLLC will be immune from being regulated by the CPUC. The governor and the former AG are saying that this is okay. SDLLC do not need to be regulated but others do.
The above are just a few of the provisions I have picked out from amongst the many that indeed catch our attention and raise questions and red flags.
What then do I plan to do after raising these issues and sharing them with you? Well, I think that now is the time for the governor, Governor Fitial, to answer the questions.
Why did you enter and sign this PPA? Do you honestly believe that this PPA will help the people of the Commonwealth? What made you decide on a diesel power plant versus the renewable alternative energy of which one, geothermal, was at one time so dear to you? Why are you subjecting the people of the Commonwealth to stay the course on fossil fuel generating plants when all indications point to the ever increasing price of such fuel? Is this your way of showing the CNMI people and the world outside that you are the rule and that you make the decisions regardless of whether its right or wrong and whether the CNMI gets a black eye or not?
Mr. Governor, there is still time to save face. You will just have to admit that you made a mistake and that you take full responsibility for your actions.
Rep. Francisco S. Dela Cruz is a member of the 17th CNMI House of Representatives. He is serving his third term in office.