CDA, CUC sit down to talk about $45M agreement

The Commonwealth Development Authority and the Commonwealth Utilities Corp. met Friday in what some board members noted as a milestone event to discuss their preferred stock agreement.

“The purpose of this meeting is to determine essentially whether CUC is capable to live up to that agreement,” CDA executive director Manuel Sablan said at the meeting.

In 2002, a memorandum of agreement was signed and was revised in 2004 to turn CUC’s debt into equity for CDA. About five years later, the agreement was executed, turning that total debt of about $200 million and the total interest debt of $138,672 into equity, or $45 million in preferred stock held by CDA. CUC’s dividend payment was set at 2 percent, or $900,000 a year of that amount. The deferred payment of three years is amortized over 15 years, for $180,000 a year.

“What really strikes me is that the first loan that was advanced to CUC was made back in 1988 and only $100,000 was paid to CDA from that time today. That’s 27 years ago,” Sablan said.

He pointed out that CUC has some cash flow and therefore must appropriate some of them to pay CDA, as the utilities corporation is also able to pay its obligations to CPA.

“Not only do you have a positive cash flow of $4.1 million, but after deducting all of this, you still have up to $1.2 million,” Sablan said.

“A couple of days ago, I read in the newspaper that you’ve entered into a settlement agreement with [the Public School System] so they can start making payments on their account. …Why can’t that account be assigned to CDA so that you can demonstrate, show some activity on this?” he asked.

Sablan told the CUC board to have a structure on how they’re going to pay.

“What I’m asking you really is just sit down and find a way to structure this because what’s happening right now is we’ve entered into an agreement for the last 27 years and was never able to receive a penny and it’s not revolving,” Sablan said.

“The records are telling me that you’re capable to pay, at least some, if not all,” he added.

Sablan said they want to bring CUC’s account current as the agreement is technically in default.

Fuel savings, infrastructure surcharge

CUC board members reiterated that they want to be able to pay CDA without increasing their rates for the customers.

Speaking on behalf of the board, CUC board member David Sablan brought up several suggestions on how the company can go about paying CDA.

“We have some savings on the oil price. We have saved now 18 cents per kilowatt hour,” Sablan said. “We have an opportunity now to maybe take back two cents of that savings. It’s not raising the rates, it’s actually taking some of that savings and every cent of savings on the kilowatt hour, equates $2 million,” David Sablan said.

He said they will discuss this among the board as well as the need for them to continue pursuing government entities who owe them in turn such as the Commonwealth Healthcare Corp.

He also mentioned continuing the infrastructure surcharge that is already in place to help them with their obligations but added that they also need to present that to the Commonwealth Public Utilities Commission. The infrastructure surcharge was put in place to help purchase the contract for Power Plant 4 in Puerto Rico.

“I suggest it to our board to reconsider this, and I wanted to bring it back to the attention of the board, to continue that infrastructure surcharge but call it something different. We have to call it something different when we present it to PUC,” Sablan said.

Sablan noted that they are aware that they have to pay CDA about $4.2 million by September of next year for their account to be current.

“We are insolvent but we have an opportunity because we have a revenue source to improve on our cash position by just addressing these matters that need to be addressed and need to be put as a priority. I think if we do that, the general public would agree with maybe us asking back that 2 cents per kilowatt hour in savings,” David Sablan said.

CUC also noted the need to increase their revenue stream by getting more customers, especially on their wastewater and sewer system.

“We have a revenue issue. We need to increase our revenue. Even if you decrease our personnel expenses 100 percent, we still would have issues because of how much fuel costs,” CUC chief financial officer Matthew Yaquinto said via telephone.

Continued discussion

Sen. Sixto Igisomar (R-Saipan), who chairs the Senate Committee on Public Utilities, Transportation and Communications and who also attended the meeting, called for cooperation and collaboration.

“If CUC is able and willing to negotiate and work with the government as well and with PSS and CHCC then it’s only natural that other agencies will be forthcoming in helping CUC,” Igisomar said.

CUC board chair Adelina Roberto said they will be discussing the suggestions and concerns in the meeting with the rest of the CUC board at their next meeting this December and will communicate with CDA.

“We would take all this into consideration and present it to the rest of the board,” Roberto said. “We have not forgotten.”

“What I am hearing is there is some willingness from the CUC board members and in fact they have laid out several options on how we can resolve these obligations of CUC to CDA and this would have to be discussed also among CUC board,” CDA chair Diego Songao said.