With new contract, fuel surcharge may go down
THE Consolidated Commission on Utilities last night unanimously passed a resolution authorizing the Guam Power Authority to enter into a two-year contract with Hyundai Corp. for the supply of residual fuel oil, or RFO, worth approximately $360 million or a total of at least $700 million for the contract period.
The Hyundai fuel contract is anticipated to commence Sept. 1, 2013 and expire Aug. 31, 2015 with three one-year extension options renewable annually upon mutual agreement of both parties.
Hyundai’s bid, according to GPA, offers a significant reduction from the previous fuel supply contract by at least $10 million.
There were eight different companies interested in the procurement but only three companies submitted bids to provide fuel for GPA’s baseload generating plants. They are: Vitol Pte. Asia Ltd., Hyundai Corp., and Petrobas Singapore Pte. Ltd.
After undergoing a careful review process, GPA determined Hyundai to be the lowest, most responsive bidder, meeting the requirements of the bid solicitation.
According to GPA General Manager Joaquin Flores, the review process was “rigorous and thorough.”
With CCU’s authorization issued during last night’s meeting, Flores said the transition to the new supplier can proceed more quickly and ensure the continued provision of quality and reliable power for GPA’s ratepayers.
“The emphasis on capability and stability with the RFO contract will provide a reliable and secure source of fuel between shipments and storage in GPA tanks prior to use at the power plants,” Flores said. “Meanwhile, the need to continue with maintenance and investing in plant improvement projects will complement GPA’s effort to deliver on alternative energy resources to diversify and lessen our reliance on imported fossil fuel.”
GPA will now submit the fuel oil contract to the Public Utilities Commission for final review and approval, in compliance with the PUC contract review protocol established for the power authority. PUC has a contract review threshold of $1.5 million for GPA and contracts and obligations exceeding this amount are subject to the commission’s review and approval.
GPA anticipates that the final contract will be signed in early August after final approval from PUC.
GPA first released an invitation for bid for fuel supply services in September 2012 as it anticipated the expiration of its contract with Petrobras.
The Petrobas contract expired Feb. 28 and has been extended up to Aug. 31 to give time for the completion of a new contract for the new fuel supply services.
Although Petrobras has supplied residual fuel oil to GPA for three years, the company had notified GPA of a profit decrease under the existing contract due to the increasing costs of blending components needed to meet the power utility’s specifications.
Art Perez, GPA communications manager, said the power authority is very happy with the decision rendered by the CCU. With PUC’s ratification of GPA’s recommendation to award the contract to Hyundai, Perez said ratepayers can expect significant savings with the possible reduction of the levelized energy adjustment clause, or LEAC, rate.
“We are really excited about that. It was a welcome relief when we first filed a petition earlier this year to lower the LEAC,” Perez said.
In response to a question from CCU Commissioner Simon Sanchez on the the new fuel contract's possible impact on the LEAC, Flores said if the price of fuel remains steady, ratepayers will see a decrease of about $26 or about a 9 percent total bill reduction.
However, since GPA still has to burn the fuel procured from the current supplier, the fuel shipment from Hyundai would not take place probably until late September.
“We won’t be consuming that fuel until late November, December or January. During the December to January months, fuel oil prices will then be reflected in this next LEAC period. In February to August, you will see the full effect of the contract,” Flores said.
Prior to approving the resolution, Sanchez said that “by approving this contract, we set the stage for the possible reduction to the LEAC for the Aug. 1, 2013 to February 2014 period – even a greater reduction than we proposed last month.”