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| M-02-08: Commonwealth Utilities Corporation - Compilation Report on the Procurement of Proposed 80/60 Megawatts Power Plant Project (Issued 10/07/02) Summary The former Chairman of the House Committee on Public Utilities, Transportation & Communication requested OPA to perform a survey addressing CUC's 80/60 megawatt ("MW") power plant project for Saipan. Following meetings with the former Committee Chairman and with CUC officials, OPA agreed to focus on (1) collecting historical background information on the project and (2) identifying and compiling related CUC costs. Based on a review of documents and information obtained, OPA compiled a chronology and accounting of the project. This compilation report does not constitute an audit as defined by Government Auditing Standards issued by the Comptroller General of the United States. OPA did not conduct tests of records or perform other auditing procedures considered necessary when conducting audits. In 1997, CUC initiated the process to install an expanded power generation plant for Saipan. In February of that year a request for proposals ("RFP") was issued for A&E firms to assist CUC develop an RFP for an 80 MW power generation system. Two and a half months later, CUC cancelled the RFP, deciding instead to prepare one in-house so as to expedite the procurement process. A new RFP was published in May 1997 soliciting proposals from independent power producers ("IPP") for an 80 MW power generation facility in Saipan. CUC received 13 proposals from IPPs worldwide and determined in November 1997 that six were within the competitive range. Ten days after notifying the 13 IPPs of the evaluation results, the first of several protests was filed alleging improper procurement practices. More than 20 months after the initial RFP was issued, CUC published in November 1998 another RFP soliciting an independent firm to re-evaluate the initial 13 proposals received. In January 1999, CUC awarded a contract to Burns & McDonnell to perform the re-evaluation. In June, CUC requested "best and final offers" from the nine firms determined to have submitted proposals within the competitive range. Burns & McDonnell ranked Enron International Mariana Power Company ("Enron Marianas") the highest among the qualified firms. However, rather than immediately negotiating with Enron Marianas, CUC decided instead to reassess Saipan's power needs in light of changing economic conditions. Hired by CUC to perform the reassessment, Burns & McDonnell recommended in December 1999 that the power generation capacity to be solicited be reduced from 80 MW to 60 MW. Accordingly, In January 2000 CUC cancelled the RFP for an 80 MW power generation system and directed its management to award a contract for a 60 MW plant. The CNMI Legislature disagreed with CUC's decision. Public Law 12-1, the Energy Sufficiency Assurance Act, was enacted in March 2000 which, in effect, revoked CUC's cancellation of the RFP. The Act also required CUC to award a contract only to an offeror who provides "low speed generators" and mandated that the award be made within 60 days of its enactment to the highest ranked offeror. Two months later, in May 2000, CUC conditionally awarded the project to Enron Marianas on the basis that its best and final offer ranked highest, and, further, that it was the only offeror who provides "low speed generators". In June, 3 new protests filed against the award were denied by CUC and subsequently appealed to OPA in September. OPA dismissed the appeals on the grounds that Public Law12-1 overrides OPA's jurisdiction to review issues raised pursuant to the project. In October 2000, 44 months after the initial RFP, CUC began negotiations with Enron Marianas. The following year, in March and April 2001, Enron Marianas' parent company notified CUC that it had decided not to pursue the power generation project, stating that the project was no longer consistent with the firm's goals. In July 2001, the General Manager of Enron's Guam company notified CUC that the earlier withdrawal of interest had no force or effect. Based on these communications with Enron, continuation of negotiations with the company was no longer certain. In October 2001, CUC contracted again with Burns & McDonnell to reassess power needs on Saipan. Citing revised load forecasts, the firm recommended cancellation of the project, noting that it is "…not needed, nor … in the best interest of CUC". The AGO advised CUC to proceed with Burns & McDonnell's recommendation to cancel the project. Two months later, Enron announced that it had filed for Chapter 11 bankruptcy. CUC incurred nearly $2 million in expenses related to the power project from 1997 through 2001. These include professional fees, travel expenditures, rentals, and demolition costs related to the project. Based on our analysis, 57% of the expenditures were incurred after Public Law 12-1 was enacted in March 2000.
CUC disagreed that rental costs should be included in our analysis. According to CUC officials, the relocation to new rental space was not due to the power project but rather to fire and safety hazards at the old location. OPA, however, found no supporting technical evaluation supporting this contention. Board meeting minutes and other documents and records obtained from CUC show that the relocation was primarily to make way for the power project. CUC also pointed out certain limitations in OPA's report, stating that the report does not address the basis for decisions made, internal and external factors affecting the project, and changing legal requirements. OPA agrees as such analyses were not part of the objectives of this report.
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