Report: Debt settlement vital to CUC recovery

Debt settlement with the Commonwealth Development Authority is a critical factor in the recovery of the Commonwealth Utilities Corp, according to Georgetown Consulting Corp.

In its report to the Commonwealth Public Utilities Commission filed March 6, the consulting firm said debt restructuring will help CUC access short- and long-term credit markets that would address its complex problems.

“Resolution is critical to CUC since it will not be able to access short- and long-term credit markets until this matter is resolved [with CDA],” the report stated, describing the matter as “complicated” that dates back many years.

The Legislature tried to address the issue with the passage of Public Laws 15-12 and 15-44 but these, the consultant said, did not resolve any of CUC’s problems.

“The history of this matter is that funds originally provided to CUC by CDA were from a $140-million direct assistance ‘grant’ from the federal government. There was no repayment requirement of the CNMI to the federal government in connection to this ‘grant,’” the consultant noted, adding that CDA simply acted as a channel for the CNMI government in the distribution of grant the funds.

Funds were also distributed by CDA to other government agencies without the requirement that they pay principal and interest on the funds.

Public Law 15-12 states “that it is in the best interest of the CNMI to write off in full CUC’s loans from CDA in order to promote the stability of CUC and to secure the continuity of public utility services to the people of the CNMI.”

Georgetown Consulting said this has not happened. However, it indicated that CUC is wiling to resolve the issue.

“CUC has indicated a willingness to resolve this matter. However, CDA has not at this time expressed a willingness to have the PUC serve in a role to adjudicate this matter. In the meantime, the matter remains unresolved and CUC is effectively barred from capital markets,” the report said.

Given CUC’s urgent need for capital to comply with the requirements of a federal stipulated order, Georgetown Consulting views the matter as one of the most critical issues facing CUC today.

“We believe that CUC is ready to make the policy and business decisions necessary to allow it to execute or renegotiate the proposed settlement agreement. However, absent reaching a definitive agreement with CDA, this issue continues to stalemate CUC’s ability to access capital markets,” it added.

The consulting firm believes that without such access, CUC’s path to financial independence and service to CNMI ratepayers will remain seriously compromised.

Georgetown Consulting found out that a number of factors put CUC in an extraordinarily weak financial and operational position, leaving it in a day-to-day crisis mode. These include lack of resources, in-house capabilities, or a management team required to directly address all issues.

Utilities operation was specifically affected by grossly inadequate water and wastewater user rates that currently only cover a fraction of the true cost of operation, unprecedented fuel price volatility, tardiness in collection efforts, loss of garment industry customers, and the overall decline in tourism.

Georgetown Consulting said all these factors led to a lack of liquidity that has had a negative impact on the financial and physical conditions of CUC.