Recommendation 6: 2015 Integrated Resource Plan

FROM: Tourism and Infrastructure Committee, Governor’s Council of Economic Advisers

TO: Governor Ralph DLG. Torres and Chairman Jerry Tan

SUBJECT: Consideration to revisit and implement the 2015 Integrated Resource Plan

One primary consideration that impacts all committees created within the Governor’s Council of Economic Advisers is the affordability and reliability of power. Over the course of the CNMI’s development as a modern economy, power generation has been consistently considered both a prerequisite of private sector development and a perpetual hurdle toward accomplishing greater levels of economic growth.

In 1977, the Northern Mariana Islands Government, under the Office of Transition Studies and Planning reported in its Socioeconomic Development Plan for the Northern Mariana Islands 1978 to 1985, that “Power, water, sewer and solid waste disposal… are the service foundations for economic growth and social well-being.” The report found that at the time “Power supply is now uncertain, and power distribution lines are inadequate.” Providing that “This condition will be eliminated by the construction of new power generating facilities.”[1]

In 1991, the CNMI Office of Planning and Budget published its Economic Development Strategy to provide development strategies for a growing Commonwealth economy. In providing recommendations for the improvement of the availability, reliability and quality of electrical power, the study recommended that the CNMI “Install additional carrying capacity, improve and rehabilitate the existing distribution system bring it up to standards to improve the quality and reliability of power, to reduce line losses from 25% to 7% by 1995 and to allow for growth.”[2]

In 1991, two power generating units were placed in service in Saipan Power Plant 1, with 10 MW capacity respectively. This was the last time new generators were placed in service in Power Plant 1.[3]

Since these developments and plans, the 2015 Integrated Resource Plan, funded by the U.S. Office of Insular Affairs for the Commonwealth Utilities Corporation, found that power generating facilities in Saipan, supported fully by the assets in Power Plant 1 is “reaching the end of its useful life expectancy” with eight of the power generating units being between 25 and 35 years old. According to the plan, CUC engineers spend “considerable time and effort on a daily basis maintaining Power Plant 1, often needing to fabricate new replacement parts as needed, because specific replacements are often simply unavailable due to the vintage of the plant.”[4]

The Council wishes to assert that the reliability and affordability of power generation has been at the forefront of development planning efforts in the Northern Mariana Islands since before the Commonwealth’s existence. Despite the numerous attempts to justify investment and expansion into islands’ power generating assets, the CNMI economy has been consistently encumbered by a structural inability to finance and procure the needed assets for development.

The Council therefor believes that the 2015 Integrated Resource Plan, in its effort to build efficiencies in power generating planning and procurement, represents the most credible path forward for consideration by the CUC and that the present state of the islands’ power system demands a review and reform to the methods the CNMI generates and distributes power.

The Integrated Resource Plan

The Integrated Resource Plan (IRP) sought to provide a holistic evaluation of supply-side and demand-side power delivery and demand abatement resource options for the utility over a long-term planning horizon, while balancing the benefits of such options with recognition of constraints, most notably cost, commercialization of technologies and associated risks, and the priorities of CUC’s customers.

In implementation of this goal the IRP strategy focused on investigating two core questions

1. What is the domain of plausible resource scenarios that are actually available to CUC of a long-term planning horizon?

2. What are the analytical steps that must be taken to objectively evaluate these IRP Scenarios to arrive at a holistic plan to meet CUC’s long-term resource needs?

In investigating these questions, Leidos, the contractor hired to develop the IRP, undertook a lengthy process to interview stakeholders, and host workshops and working group sessions and meetings. These efforts culminated in a strategy to develop the IRP scenarios, issuance of energy supply requests for proposals, develop an understanding of the CUC system, development of engineering estimates to supplement the IRP assumptions and the evaluation of a series of potential residential and commercial demand-side management programs.

In the development of the IRP, Leidos supported the development and issuance of Energy Supply Requests for Proposals, which received bids on the range of energy options. The qualified Energy Supply Bids that were submitted in response to this RFP are listed in Table 3-3 of the IRP.

Recommended Actions

The IRP discusses the considerations, actions, and assumptions in detail throughout the report, however in brief, the following are the recommended actions provided by the plan that merits consideration and action.

1. Develop IRP Implementation Plan

CUC should establish an implementation plan for the IRP that include specific milestones. This plan should include:

a) Procurement Decision on the issued Energy Supply RFP bids and responses made during the IRP development process

b) Procurement Implementation to execute the require detailed implementation studies to identify technical considerations necessary to develop new generating and demand-side resources and integrate them onto CUC’s system

c) Procurement Negotiations to negotiate contracts for EPC, PPA or a combination of these arrangements

2. IRP Maintenance

CUC should revisit and make revisions onto the IRP to have it remain a viable plan and account for the dynamic nature of the electric industry.

3. Collect and Warehouse Operations Data

CUC should initiate a data collection and retention program to ensure future availability of data on hourly loads, generation, distributed PV penetration, sales, fuel costs, and other key systems parameters that were limited in accessibility during the duration of the IRP’s development.

4. Develop a Fuel Price Hedging Program

CUC Should establish a fuel price hedging program to mitigate price swings in world oil markets to safeguard CUC customers from the inherent volatility in fuel prices.

5. Conduct a Cost-of-Service Study

CUC should conduct a Cost-of-Service Study to identify the true costs of service by customer class and quantify administrative and general expenses to determine whether rate design modifications may be appropriate to more accurately recover CUC’s true cost of service.

To date, it is not clear whether any of these recommendations have been acted upon by CUC.

The Council of Economic Advisers finds that in the continuing degradation of CUC’s current power generating assets, the efficiency of the current assets, and the continual uncertainty and costs of current power generated by CUC, that consideration of the IRP process and a revisiting of its recommendations should be a priority for the Office of the Governor, the management of the CUC and its Board of Directors.

The Council firmly believes that the economic costs of inaction or delay on the support of this crucial infrastructure component of the CNMI economy would be devastating. Energy, the access to it, its affordability, and its reliability, has been and will remain to be an absolute prerequisite to economic growth and viability in the CNMI.

Concurred by the Members of the Tourism and Infrastructure Committee

Governor’s Council of Economic Advisers

[1] Office of Transition Studies Socioeconomic Development Plan for the Northern Mariana Islands 1978 to 1985, page 32 [2] CNMI Office of Planning and Budget Economic Development Strategy, Fiscal Year 1990-1991, page 92 [3] Commonwealth Utilities Corporation 2015 Integrated Resource Plan Final Report, Page 3-9, Table 3-2 [4] Commonwealth Utilities Corporation 2015 Integrated Resource Plan Final Report, Page 2-1