Wednesday, April 20, 2011

CUC must seek alternative energy

IT’S a must that CNMI get away from fossil fuel dependence and into alternative energy.

Commonwealth Public Utilities Commission Chairwoman Viola Alepuyo stressed the importance of pursuing alternative energy, not only on Tinian, but in the Northern Mariana Islands.

“CNMI needs to get away from dependence on fossil fuel and into renewable energy —whatever form that maybe,” said Alepuyo in a discussion on Change Order No. 5 or CO#5 during the CPUC hearing last Friday.

The commission, despite discussing at length the prospects for alternative energy and Telesource’s contract with CUC, decided to defer the discussion for its October session before it decides on Change Order No. 5.

She said she saw an opportunity for CUC to not just get out from “from under Telesource’s thumb by removing the exclusivity clause on renewable energy; but also taking away the requirement of the $6 million buyout.”

She said, “CUC can’t pay for fuel to fill up its storage tank. We mandated that they have extra fuel for two weeks two years ago. They don’t have enough money to pay for two weeks of fuel. That is a luxury they cannot fathom much less comply with the order.”

“Is there an opportunity for CUC to make ‘lemonade out of lemons’? The record before me says there is. One of the ways is to pursue alternative energy,” she said.

She said CO#5 stated that at the end of the first five-year term the agreement would then automatically extend for an additional term of five years unless CUC can establish that they no longer require any fossil fuel based power generation on Tinian.

“Should the peak load on Tinian at the time of any automatic extension of this agreement be 1 MW or less, the parties will enter into good faith negotiation with an eye towards modifying the fixed capacity rate to better reflect the circumstances of the time,” Alepuyo said referring to the last sentence of the contract with Telesource.

Changes

According to a Georgetown report, among the substantive changes to CO#5included the following: (1) CO#5 extends the CUC-Telesource relationship by 15 years; (2) modification of the monthly Operations and Maintenance fee payment structure from the fixed O&M fee from approximately $56,000 per month to $198,000 and reduces variable fee from $0.0339 per kWh of production to $0.0239; (3) Both fixed and variable fee components of O&M to be adjusted annually following the first date of the change order by an amount equal to one (1) percent above the gross domestic product price deflator (GDPIPD adjustment) similar to the current agreement; (4) It eliminates Telesource’s responsibility for the cost of lube oil and transfers this responsibility to CUC, a change that was approximated at $250,000 to $300,000 per year.

Further, the order also called for the removal of the provision for a $6 million buyout.

It also relieves Telesource of the responsibility for risk management activities with CUC bearing the risk that includes losses due to theft of conductor or premature failure of equipment, among others.

The order also called for CUC to reimburse Telesource at cost at 15 percent when it performs certain delivery system construction requested by CUC. It further credits CUC up to $120,000 a year to support natural growth.

It also charged Telesource with the responsibility for the $50,000 a year for street light maintenance.

It also requires Telesource to provide CUC’s water division up to $30,000 a year of equipment, labor, and technical support.

It also asks Telesource to provide up to $10,000 a motnh of consulting or operational services subject to normal Telesource activities.

The report claimed that there were some unknown variables including how much Telesource or CUC spent for delivery system construction, street light maintenance, consulting among other operational services.

The report also stated that CO#5 will cost CUC customers approximately $33 million over the 15-year term of the change order should CPUC approves it.

It was found that with CO#5 approved, customers would see a $6.92 rise for each 1,000 kWh consumption.

In the first year alone, customers will be required to pay $1.5 million.

CUC concurred to maintain the status quo as the more “economic” option to take.

The $6 million buyout is another option to make although it remains questionable where to obtain the funds to finance the buyout.

The report also recommended CPUC to require CUC to provide certification of title inclusive of appropriate documents of conveyance and release of all “encumbrances, liens, and security interests” to evidence that it owns the Tinian power plant and ancillary facilities.

CPUC meeting

During the April 15 meeting on Capital Hill, in responding a determination point whether CUC has met its burden of establishing by preponderant evidence that the change order is necessary, prudent, and cost-beneficial to customers, Alepuyo said, “It is very troubling for the commission to have CUC submit a petition for approval a contract that has already been entered without explanation and without anything on the record, stipulate a denial.”

CUC’s general counsel Deborah E. Fisher replied, “I wanted to make a clarification. The stipulation does not say CUC agrees to the denial.”

To this, hearing examiner Harry Boertzel agreed.

Alepuyo said there was record before the commission.

Fisher said in the stipulation CUC entered into, it did not recommend a denial. CUC brought a petition and CUC did submit a response — a legal memo. “But it did submit a response.”

Boertzel explained the discussion on the Telesource issue. CUC filed a petition requesting change order be approved which Georgetown Consulting recommended to be rejected due to burden of proof.

In the discussion on Telesouce’s contract, Alepuyo said, “There is a potential to decrease the contract by four years or increase it by one or the other extreme as Georgetown said to increase it by six years to make it 15 years.”

She asked if the people of Tinian were not given opportunity for renewable energy because of the Telesource contract and Fisher replied that Telesource is the only company that can provide alternative energy to Tinian as she understood the contract.

It was mentioned, however, that the ratepayers can have their own alternative energy source through net metering and “nothing prohibits that.”

Geothermal energy

Responding to an inquiry by CPUC chairwoman Alepuyo, Economists.com managing director Robert Young recommended for the CNMI to explore geothermal energy sources.

Young explained, “With solar, you only get it in the day; there is definite peak to it. So the only way it provides 24-hour power is with battery backup and that raises the cost of solar [power] expense.”

He added that the power with wind energy was the absence of wind turbines that can withstand typhoons. “There is a huge risk,” he said.

He told Variety during the break that there are available retractable wind turbines but these are not big enough to power a community.

He said tidal current was an option but there is nothing yet in production.

“The best alternative [form of energy] is geothermal,” he said.

He told CPUC that it is a proven and existing technology with 400-500 megawatt geothermal plants operating in the United States.

The consultant believed it is cost effective and ideal for the CNMI.

Deferred action

CPUC Chairwoman Alepuyo and the CUC agreed that the discussion of the determination point No. 7 or CO# 5 be deferred for the October session of the commission.

In the discussion, Alepuyo maintained that CUC has not met the burden of proof. “I still stand by that decision. I think the record by the commission is taken in its totality. I understand Georgetown’s argument that if the contract is to go for the full 15 years, that’s going to cost $33 million — that’s’ undisputed by CUC.”

Alepuyo reiterated her challenge to CUC: “My challenge to CUC is make it work — make ‘lemonade out of lemons.’”

She said CPUC had acted and moved as fast as CUC did with the latter requesting the commission to decide “on an expedited basis” on CO#5.

Alepuyo said if CUC needed more time to review CO#5, “We’ll do what is necessary for you to make sure that it is done right.”

Fisher said, “CUC would like to move to defer this until the October session so that we have an opportunity to look at a little bit closer at it—to do some analysis.”

Alepuyo decided to table the discussion for October. “You heard the issues the Commission has raised. If I am mistaken, by all means, tell me it is wrong. I don’t want to make this decision under mistaken assumption. If it is wrong, point it out.”

The Georgetown report was deemed comprehensive by all parties.

It computed the financial impact of the CO#5 over 15 years to cost $32,638,649 from 2011 to 2025. Its analysis stated the following financial impact: $1.57 million, 2011; $1.63 million, 2012; $1.69 million, 2013; $1.75 million, 2014; $1.81 million, 2015; $1.88 million, 2016; $1.95 million, 2017; $2.02 million, 2018; $2.09 million, 2019; $2.25 million, 2020; $2.42 million, 2021; $2.6 million, 2022; $2.8 million, 2023; $2.98 million, 2024; and $3.2 million, 2025.

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