30 Jan 2018
- By Junhan B. Todiño – [email protected] – Variety News Staff
COMMONWEALTH Utilities Corp. board acting chairman Weston Thomas Deleon Guerrero is asking CUC management to present all the listings of Capital Improvement Projects undertaken by CUC to determine a trade-off amount to help reduce its debts.
“I am expecting the CFO [chief financial officer Tony Castro] to submit the complete list of all CIP projects at the next board meeting,” he said.
He said CUC can offset the total CIP expenditures with its obligation to the Commonwealth Development Authority.
CUC chief legal counsel James Sirok said based on its preferred-stock agreement with CDA, they could buy back up to $16.2 million of its debt that was converted into equity at $45.5 million in preferred stock.
“For every dollar spent of our operational funds for capital improvement projects, we can slice off a dollar against the $45.5 million,” he said.
CUC executive director Gary Camacho said they have an upcoming acquisition of engines, including the replacement of engine no. 8.
He said they could offset their expenditure against their obligation with CDA.
Castro said the repair of engines, the purchase of parts and upgrades are all routine maintenance and not considered CIP project.
The recent $1.5 Koblerville waterline project could be included on the CIP project list, Sirok noted.
In his report to the Board, Sirok said CUC is “now on track” with its payments to CDA.
CUC is paying $270,000 quarterly or $1.08 million in annual dividends to CDA, he said.
In the federal grant pledge agreement, Sirok said CUC was to function as independent agency without subsidies from the legislature.
“The legislature embodied these principles in CUC’s enabling statute PL 16-17, and as a result of that principle, the US provided over $200 million to the CNMI to improve the utility infrastructure for water and waste water,” he said.
In granting $200 million, CUC agreed to develop a “full-cost-of-recovery plan” to set rates consistent with full-cost recovery, and to take full responsibility for power service. However, CUC was unable to do this as it has pending petitions with the Commonwealth Public Utilities Commission which, at present, is no longer functioning.
In the MOA, CUC acknowledged that it is indebted to CDA for $51.56 million, which includes a $30 million loan in 1988, a $16.06 million loan in 1989 for water and sewer projects, and a $5.5 million loan in 1990.
However, both parties agreed to convert the debt to equity of $45.5 million instead of $51.56 million.
The equity conversion granted CDA equity ownership in CUC through issuance of preferred stock equaling $45.5 million.
He said CDA agreed to waive the principal of $16,068,750 and also waive the accrued interest owed by CUC.
For its part, CUC waived 50 percent of the CNMI’s unpaid utility billings outstanding as of March 31, 2002.
“There was a trade off not just beneficial to CDA but also to the CNMI government as well,” Sirok said.
It was also indicated in the agreement that preferred stock would have a guaranteed annual dividend fixed at two percent of total aggregate value.
“But no stock was issued by CUC,” Sirok told the Board, adding they continue to discuss with CDA alternatives and how to refine its terms of payment.
Due to its indebtedness to CDA, he said CUC is unable to borrow money, and CUC rate payers will have to shoulder a rate increase to pay for debt.
As of Oct. 1, 2016, CUC owed CDA $4.32 million in dividends, he said, adding at that time there was a “threat” that the CDA chair would sit as CUC board chair unless CUC came up with a scheme to pay its dividends.
CUC agreed to pay over a period of time without accrual of interest and assigned the Public School System arrears of $3.84 million to CDA, and agreed the remaining $478,798 would be paid by CUC at $40,000 per month starting after the final payment made by PSS.
He said the dividends have been paid off.
Source: Marianas Variety : http://www.mvariety.com/cnmi/cnmi-news/local/101867-cuc-lists-cip-projects-to-offset-cda-debt