Tim: CUC in very precarious situation

Posted on Apr 21 2006

Lt. Gov. Timothy P. Villagomez said the Commonwealth Utilities Corp. is now in a very precarious situation because past problems were addressed using the band-aid approach, putting it now in a situation that is very critical.

With peak loads on Saipan averaging at approximately 64-65 megawatts, CUC is in an uncertain situation, with practically no reserve capacity, he said in his State of the CUC report yesterday at the Multi-Purpose Center.

“A forced outage at any of its engines would cause CUC to immediately implement load shedding, or worse, cause an islandwide blackout at any given moment,” said Villagomez.

In his 25-minute address, the Lt. Governor, who used to be an executive director at CUC, cited many factors that crippled the agency and offered short-term and long-term solutions.

Besides not having enough generating capacity, he said that half of the engines at Power Plant 1 are more than 20 years old, with engines No. 1, 2, and 3 now more than 25 years in service.

“This means half of the engines are nearing the end of their practical service life. This also means that they do not burn fuel and provide power as efficiently without some costly upgrading and rehabilitation,” he said.

Villagomez mentioned the following factors that caused “disaster” at CUC:

•Poor operating and management practices;
•Ineffective senior level management;
•Micro-management from the board of directors, which prevented CUC from fully implementing policies and procedures;
•Rapid escalation of fuel prices;
•Aging and inadequate utilities infrastructure; and
•Failure to utilize preventive measures, causing the breakdown and deterioration of power plants.

Villagomez said that, instead of taking steps to cure the problems, they were allowed to escalate.

“Ineffective operating and management practices were not halted or altered,” he said, citing the alleged mismanagement of the Power Generation Division.

Power plants were breaking down, yet a full-time plant engineer was nonexistent, he said.

Villagomez also noted that the power rates in the CNMI have remained stagnant from 1989 to the present—a period of 17 years.

“Everything else rose…including the cost of fuel…but CUC maintained the same rate: 11 cents for residential customers and 16 cents for businesses and government customers,” he said. “The consequences of stagnant power rates were obvious, but were ignored…and left unaddressed,” he said.

Villagomez said fuel expenses alone account for over 70 percent of CUC’s annual budget.

Even with the implementation of the emergency fuel surcharge fee in April 2005, a fee that brings in an average of $1.2 million per month, CUC still expects a deficit between $30-$32 million before the end of the year.

Being an independent autonomous agency, he pointed out, CUC should have been self-sufficient and that the central government should not have had to step in and bail out the agency.

“But it did…because the measures taken by CUC once the problems became a disaster was what can be referred to as the band-aid approach. Temporary and unreliable,” he said.

Villagomez said the delayed maintenance and overhauls resulted in power generation staff responding to problems as they arose.

As part of the immediate plans, he said in the next few weeks CUC will begin performing an immediate but phased-in approach to repairing and overhauling all of the eight engines at Power Plant 1.

“This approach means that CUC will be overhauling and repairing one engine at a time, completing the project, and then moving on to the next engine,” he said.

CUC, at the moment, is also in the process of reviewing a proposal from a regional expert in the generation business that will recover as much as 20 megawatt in a short period of time, Villagomez said.

He offered privatization as the long-term solution to ensure reliability and efficiency for uninterrupted power supply.

Villagomez said privatization of CUC’s power generation must be explored and implemented to prevent another disaster in the future. He appealed to legislators to help in “curing the disaster.”

He asked them to turn into laws House bills that would create a commission whose duty will be to conduct rate studies so utility rates may be adjusted accordingly, and authorize the Commonwealth Development Authority to write off loans to CUC.

“We may be at a low point…but this low point begs for our union…our joining together to strengthen and serve the CNMI. Your home, my home, our children’s home, and the home of many, many more generations to come. It’s time for a new CNMI,” Villagomez concluded his report.

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