NMI Utilities Corporation Says Power Agreement Unlawful

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$190.8 million purchase deal lacks CUC administrators’ signatures

By Moneth Deposa

SAIPAN, CNMI (Saipan Tribune, Dec. 27, 2012) – Rep. Janet Maratita (IR-Saipan) and co-plaintiffs in the ongoing court case in federal court have found an ally in the Northern Marianas’ Commonwealth Utilities Corp. (CUC) yesterday after the agency urged the court to deny Saipan Development LLC's (SDCLL) motion to vacate the injunction order on the $190.8-million power purchase agreement (PPA).

In a 15-page document filed by CUC counsel Deborah E. Fisher, the utilities firm said the injunction is necessary until the motions to dismiss are determined because of the following reasons.

First, the SDLLC waived its objection to personal jurisdiction by failing to raise the defense in its October 5, 2012 motion to dismiss pursuant to Rule 12(h).

"Because SDLLC's motion to dismiss did not raise personal jurisdiction as a defense, that argument has been waived pursuant to the rule and is not a basis to vacate the injunction," stated CUC's latest filing yesterday.

Secondly, CUC argued that if it proceeded based on the PPA and related escrow and guarantee agreements, this will entail approximately $18 million in costs up front for which CUC estimates it will need an immediate increase in its rates.

According to CUC, the PPA contains a number of clauses, which suggest that the agency will have to expend funds just to implement the PPA. Some of these costs, it added, cannot be quantified at this time. But among the definitive expenses under the PPA included was the cost of a $9.5 million for a substation to connect a new power plant, which would be shouldered by customers. The PPA provides in Section 5.5 that the CUC is responsible for all interconnection facilities and this include a substation, transformers, and associated equipment.

The lifting of injunction, based on the declaration of CUC CFO Charles Warren, the agency will need to seek an immediate rate hike of approximately 88 percent over one year or 45 percent over two years to its electric base rate to fund for a new diesel power plant.

CUC added that in decommissioning and removal of the old substation and plant, estimated expenditure is $3 million plus a contingency of $2 million for unseen expenses-all to be sourced from ratepayers.

Additional expenses for CUC is the escrow account reserve required by PPA which is $3.8 million. The agency added that there remains many unknown costs on the deal which may result in added millions for the ratepayers before and after the construction of a new power plant.

CUC said "plaintiff is likely to prevail on the merits as the PPA is illegal on its face and did not meet CUC procurement regulations or CNMI legal requirements."

CUC, under its regulation, is required to procure any design-build-own-transfer project under its procurement rules and statute. CNMI law, it added, also requires that CUC procure any design-build-own-transfer project . This means the statute does not provide a sole source procurement option for a power plant; no contract may be awarded to any contractor who is not already permitted in U.S. or international jurisdiction or who has not operated a major source of emission in accordance with EPA regulations for at least five years.

Because the "PPA contract" does not contain signatures of the CUC executive director and its CFO or comptroller, the agreement is void, the utility added.

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