Is power privatization the answer?

By MARIA FRICA T. PANGELINAN
Special to the Saipan Tribune

Currently, it is my belief that privatization of our electrical power is not in the best long-term interest of our people. Clearly, we are faced with a severe crisis. However, every crisis is an opportunity.

This is a discussion of basic needs for living in a modern world.

– This fiscal year it is reported that approximately 75 million dollars will go to pay for fuel to power our electrical plants. Dealing with this head-on is the only viable solution. All other factors in our economic base pale in comparison to the stark reality that our ability to turn on the lights, cook, store perishable food, drive to work, use our telephones, and more, is based on our ability to pay the ever rising cost of fuel for power generation.

Factors unique to island economies

– Economic studies of electrical utility privatization usually look encouraging, citing lowering of costs, and more reliable service. However, there are two factors present in most of those studies that are not present in the Commonwealth.

– Competition. The demand and geographic size of the power grid on the islands of Saipan, Tinian and Rota does not invite multiple companies to construct power plants and compete for customers.

– There is no possibility of energy being traded over a national network, the biggest sales of power credits going to the lowest bidder. Remove these two factors from the studies, and the possibility of market forces keeping consumer electrical bills down is radically diminished. A private supplier has no incentive to supply inexpensive service to a small market in which it holds a monopoly. The perfect example is our current diesel supply arrangement.

Privatization of our electrical generation puts another level of profit taking between the consumer and the source.

– It has been reported that if Rota and Tinian customers were to pay the full cost of their electrical service to their private electrical suppliers, it would amount to approximately 30 cents per kilowatt-hour.

– On Saipan, it is reported that the actual cost is approximately 21 cents, or perhaps closer to 25 cents now, given the last shipment of diesel at $90 per barrel.

Dollars circulating in the NMI economy

– If the private utility has off-island corporate ties, it is likely that some of that profit does not stay and circulate in our economy, but goes off-island sooner, if not immediately. This will add to the dollar drain we already incur when paying for the diesel we must import.

The price of electricity will still be subject to the “special” price of fossil fuels for island nations.

– Is it prudent to commit to a long-term arrangement with a private supplier for the use of electricity powered by an outmoded technology?

The long history of difficulties in the CUC has been in great part driven by the cost of fuel.

– The financial state of our economy has been driven to the brink by the high price of oil. The triple and perhaps four-fold increase in the cost of fuel since 2000, coupled with electrical rates that did not rise in proportion, has diminished the ability of the CUC to provide proper maintenance and repairs to the generators. Could the CUC have been more efficient? Certainly; however, striving for greater efficiency is an ongoing task in any enterprise, as there is always room for improvement.

The competent core employees of the CUC know their business.

– Basic to our future is the way we handle this crisis. In the CUC is a competent core of trained professionals that has been running and maintaining the power generation plants on our islands.

We now have an opportunity.

– With the CUC now being a department of DPW, and under direct control of the executive branch, the efficiencies, costs, personnel, management and long range planning can be minutely examined, deficiencies corrected and future plans made in close coordination with related infrastructure functions of the government.

Demand the level of service from our utilities department that we would expect to receive from a private supplier.

– We can use the RFP generated a few years ago when privatization was explored as a guide. We can charge our own people in the CUC to meet the standards we would to hold a private provider to.

Look for cost-effective service solutions, based on what private suppliers would do.

– Pricing power at its actual cost, plus overhead.

– Cost-effectiveness for private providers includes not servicing remote and small population areas

– Cost-effectiveness for private providers includes wage cuts and workload consolidation

– These options are also available to the “CUC” as a department of DPW.

Are we putting off the inevitable?

– Privatization may get the immediate problem off our desks, yet eventually the outcome will be the same. It is only a short-term solution. There is no more inexpensive oil, the cost will continue to rise, and availability will go down. A for-profit, private energy supplier will be facing the same scenario.

Incremental replacement of fossil fuel electrical generation.

– I am reluctant to repeat the same pattern of repair and maintenance, moving from emergency to emergency, hoping for a different outcome. If it is time to replace generators, perhaps it is time to seriously consider the options available to use the natural resources we have to fuel our electrical needs. Replacing fossil fuel electrical generation, one engine at a time, could possibly be the incremental path to freedom from the cost of fossil fuels.

There is a renewable energy bill under consideration in the Legislature.

– It is forward thinking, and well written. The U.S. federal government is currently making available grants for the construction of energy generation from renewable resources. Perhaps the time is right to move forward with innovative techniques for energy production.

This issue requires careful examination and discussion. It is incumbent on me as one of your senators to share my views with all of you. It is also important that I hear your thoughts. We will all be fundamentally affected by the way we deal with this issue.

(Maria Frica T. Pangelinan is a senator in the 15th Legislature is and is the chairwoman of the Senate Committee on Resources, Economic Development and Programs.)