EPA asks court to appoint receiver for CUC projects

Disappointed with the Commonwealth Utilities Corp. alleged continued violation of court orders and deadlines and the CNMI government’s continued failure to fund CUC, the U.S. Environmental Protection Agency asked the federal court yesterday to appoint a receiver to implement some CUC projects. It also asked the court to find the utilities agency in breach of stipulated court order and in contempt.

EPA, however, is not seeking the appointment of a receiver for CUC generally—at least for now—but someone who will take charge of implementing the court’s stipulated order No. 2, or SO2.

SO2 focuses on oil issues such as repairing and replacing infrastructure, managing tanks and pipelines, and spill prevention and response.

In the U.S. government’s motion filed yesterday, U.S. Department of Justice Environmental Enforcement Section senior attorney Bradley R. O’Brien pointed out that the appointment of a receiver is especially important when serious health and environmental concerns are at stake.

Aside from seeking a receiver, O’Brien asked the court to find CUC in breach of SO2, require the CNMI government to fund CUC as it relates to the orders, and find CUC in contempt for failing to comply with SO2.

When sought for comment, CUC executive Alan W. Fletcher said the issue of a receiver has come up before and that they believe this motion is a follow up to their July 2014 status conference where the judge directed the Department of Justice to file a motion if they were so inclined.

Fletcher said the motion is several hundred pages long and CUC continues to wade through the documents.

He said the motion is currently scheduled to be heard on Sept. 24, 2014, but they anticipate the hearing to be moved to allow the parties to respond.

“In the meantime, it is business as usual, as there is no effect on our daily operations,” Fletcher said.

If the U.S. District Court for the NMI grants EPA’s request, the receiver and the receiver’s authority shall not be subject to the review or approval of CUC or the CNMI.

CUC and the CNMI shall be jointly responsible for the receiver’s expenses. Within 30 days, CUC and the CNMI shall deposit $7 million into an escrow account approved by the federal court.

The $7 million payment is intended to reimburse all or a portion of the “receiver’s expenses,” until the 12th month time period funding is placed in the escrow account.

O’Brien said the $7 million will be for the oil pipeline and Tank 102 funding and receiver expenses (including the existing funding earmarked for these projects). O’Brien said CUC and the CNMI must annually pre-fund the receiver’s expenses, with the receiver compensated after providing sufficient demonstration and obtaining court approval.

The oil pipeline is an 8-inch aboveground receiving pipeline that delivers diesel fuel from the Mobil oil facility to CUC Power Plants 1 and 2 in Lower Base. EPA had determined that until the pipeline is replaced, it poses a threat to U.S. waters.

The Tank 102 Project involves a 500,000-gallon diesel fuel tank that will replace Tank 010, which has been found to be a source of pollution and is non-repairable.

Since entry of the stipulated orders, O’Brien said the U.S. has awarded CUC more than $50 million to implement the orders and other water and wastewater projects. He said EPA spent nearly $7 million for power plants remediation and provided substantial technical assistance.

“Yet CUC has repeatedly shown itself incapable of meeting SO2’s requirements and the court’s deadlines, despite the United States’ grant funding,” O’Brien said.

CUC told the court and the U.S. government that the CNMI government’s refusal to pay its utility bills and fund CUC has contributed to CUC’s failure to comply with the orders.

Indeed, O’Brien said, the CNMI government has turned a deaf ear to the need for funding as it has amassed over $27 million in unpaid utility bills—with no apparent intent to shoulder its share—leaving the burden of funding to rate-paying local citizens and other utility users.

U.S. District Court for the NMI designated judge David O. Carter has presided over 56 status conferences and personally inspected many of CUC’s facilities. However, O’Brien said, the court’s good-faith attempt to create a functional facility has been unsuccessful.

At the July 2014 hearing, the U.S. government did not request the court to appoint a receiver but elected to allow CUC and the CNMI another opportunity to show that SO2 projects and funding are on track.

“The United States was, again, disappointed,” O’Brien said.

He said CUC re-affirmed that the construction start date for Tank 102 is speculative because the construction contract must first be approved by the Commonwealth Public Utilities Commission.

Subsequent to the July hearing, he said, CUC informed the U.S. that the CPUC hearing is currently set in September, though a CPUC decision may not be made at that hearing.

O’Brien said the uncertainty compounds the construction reversal resulting from CNMI’s bid protest process that caused the initial Tank 102 contractor to be replaced, which resulted in an extended initial construction schedule.

CUC missed the extended construction deadline of Feb. 8, 2013.

O’Brien said CUC’s report on the pipeline was worse.

He said CUC reported fundamental flaws with the quality of the work being performed by CUC’s construction contractor, Smithbridge Guam Inc.

The next day, he said, the pipeline designer and third party construction manager, Vanderpool Pipeline Engineers Inc., informed the court that Smithbridge should be replaced due to incompetence and poor work quality.

O’Brien said that, on Aug. 29, 2014, CUC issued a notice of default and termination to Smithbridge; that same day, EPA received notice that CUC requested Vanderpool Pipeline Engineers Inc. to demobilize from Saipan.

“Thus, the pipeline is stalled—again—notwithstanding CUC was initially required to complete the construction by Feb. 24, 2011,” O’Brien said.

He said CUC recently informed the court that although CPUC approved the Tank 102 contract, CPUC now takes the position that it has expanded authorities to review and approve the pipeline project, thereby significantly affecting the “ability of CUC, EPA, and the court to manage” the pipeline project.

O’Brien said the CNMI’s conduct plays an important role in CUC’s failures. He noted that the CNMI government’s refusal to pay its utility bills or to otherwise fund CUC undermines CUC’s ability to fund projects, places the funding shortfall on other rate-payers, and fosters CUC’s untenable position that projects must be funded by federal grants.

O’Brien said as demonstrated throughout the years, and exhibited during 56 status conferences before the court, CUC’s managerial incompetence, institutional inertia caused by procurement and contracting constraints, and lack of financial resources due in part to CNMI’s refusal to pay its utility bills or to otherwise allow CUC funding, collectively provide compelling reasons for the court to intervene in this case to fashion an appropriate remedy once and for all “to get the job done.”