The mess at CUC

CUC is on the verge of financial collapse and operational failure. CUC’s failures reflect poor stewardship of a utility that has, deliberately or not, been run to the ground. After long deliberation, I decided that it is time that I should publicly contribute toward helping CUC reverse course and become an entity that the people of the Northern Marianas can be proud of.

Let me make this clear: Despite numerous rumors, I have no plans to return to CUC to clean up the incredible mess. My ability to manage and develop CUC into a productive and responsive entity before my retirement is a matter of public record. As a resident, it is my interest that CUC delivers essential and affordable utility services. Like all consumers, I am also suffering from the effect of high power tariffs and constant outages on top of a collapsing economy. Also, Tony Muña is my nephew. He is a good accountant and perhaps a good manager. But to do an effective job, Mr. Muna needs to understand the technicalities of power generation, and I have concerns that he has not been given truthful advice.

I am concerned that CUC will execute contractual mistakes with Aggreko for the contract with temporary power. A source has provided a copy for my review and comments. I want to make these comments public so that our utility will not enter into another disastrous contractual mistake that will further burden the people of the Commonwealth.

The contract with Aggreko specifies a cap of 0.27 liters per kWh produced. Assuming that this is the level of fuel efficiency, at current price of $4.20 per gallon, the fuel consumption translates to about 30 cents per kWh. This, plus the rental charge of 5 cents, means that the cost to CUC should be at no more than 35 cents per kWh. However, under the contract, CUC can only penalize Aggreko at a maximum cap equivalent to 5 percent of the monthly contract value. Another clause in the same contract clearly warns CUC that if the mode of operation is changed, then Aggreko reserves the right to adjust the fuel consumption figure. So, if Aggreko uses more fuel, the risk to Aggreko is only a maximum penalty of $18,000 per month, while under the original contract it was a monthly sum of $360,000.

Let’s assume Aggreko’s fuel usage is similar to other rental machines in the industry. It may be likely that the fuel consumption will jump to at least .30 liter per kWh. On a monthly basis, at 10MW, this translates to additional fuel consumption of over $221,000. But the penalty cap on Aggreko is only $18,000. Who gets to pay the difference? CUC of course, and they will pass it either to the consumers, or sock it to the taxpayers. Well, if CUC and Aggreko agrees to unlimited penalty limit for fuel consumption above 0.27 liter per gallon, then Aggreko will have the incentive to ensure that the performance guarantee will be delivered. If the penalty cap is not removed, we are in for some more serious problems.

CUC must understand that Aggreko uses high-speed engines running at 1,800 rpm, most likely utilizing Cummins KTA50G3 engines. The heat rate specified by the manufacturer for these engines at ideal conditions—brand new running in base load mode—could achieve 0.27 liters per kWh. So has CUC done its due diligence? Has CUC specified in the contract that Aggreko must provide new machines capable of such fuel efficiency? What if Aggreko brings in rebuilt or old rental units where the fuel efficiency are lower? Did CUC question the specific fuel consumption of each engine to be based on site conditions? What is the electrical efficiency of each engine? When were these engines manufactured and what models are involved? The very fact that the contract mentions nothing of the engine specification and that the fuel consumption guarantee is meaningless raises strong questions about CUC’s understanding of power generation.

The Aggreko contract specifies that CUC will be responsible for used oil and filter disposal. Also, the contract requires that CUC provide six qualified personnel to assist in the operations of the Aggreko units. There are also site preparation costs that CUC must bear. These cost factors, including the interests on the deposits and advance payments, are not disclosed to the legislators in CUC’s submission. Hence, the costs are well under-estimated.

The contract also specifies that the standby cost of 3.5 per kWh shall be imposed in the event that CUC does not require the Aggreko engines to produce power. The contract for Aggreko is for a period of 12 months. Well, it certainly means that CUC has absolutely no confidence that the repairs at Power Plant 1 will completed in the next 12 months. If DCM can complete the rehabilitation before June of next year, why should CUC enter into a one-year contract for Aggreko’s temporary units? Well, if we give DCM the benefit of the doubt, say another 90 days (i.e., more than double their allotted time) to complete all repairs, then we will most likely end up with a billing for over $12,600 per day for Aggreko, simply for parking their engines at Lower Base. The Aggreko contract specifies that CUC must pay for the entire 12 months of service even if there is no need for the Aggreko engines. So, who will bear the burden of the idle machines costing us $12,600 per month for six months at $75,600?

To be continued.