CDA frets about CUC’s ability to make dividend payments

The Commonwealth Development Authority plans to meet with officials of the Commonwealth Utilities Corp. to discuss the status of its dividend payment under the preferred stock agreement between the two agencies.

In a meeting on Feb. 22, CDA executive director Manuel A. Sablan and board members expressed concerns about CUC’s ability to meet its dividend obligation based on their financial situation.

CDA and CUC signed in May 2009 an agreement converting the latter’s $40 million debt with the former into cumulative, non-convertible and non-transferrable preferred stocks that would yield 2 percent annual dividends amortized interest-free for 15 years.

Sablan said that based on the agreement, the dividends would begin accruing by Oct. 1, 2012, three years after the payment moratorium.

“There’s a lot of concessions provided CUC,” Sablan emphasized at the meeting.

Sablan told the CDA board that he attended a public hearing by the Commonwealth Public Utilities Commission on Jan. 25 to comment on CUC’s efforts to increase its electric base rate owing to a $1.08 million revenue requirement to make dividend payments to CDA in fiscal year 2012.

Sablan testified at the hearing to remove the revenue requirement in the electric base rate evaluation, the same recommendation made by CPUC’s consultant, Georgetown Consulting, which was adopted by the commission during its Jan. 29 meeting.

Board member Marcie Tomokane argued that the purpose of the moratorium given to CUC was for them start putting up “an escrow or sinking fund” so that when October 2012 comes, CUC will have something to dip into to make payments to CDA.

“CUC cannot say that they have to raise their rates because they have to pay back because the sinking fund should have been there two and a half years ago,” Tomokane emphasized.

“We found out that they did not establish the sinking fund for that purpose,” replied Sablan.

Sablan pointed out that they need to meet with CUC to determine their financial position or “whether they have the ability to pay or not to pay.”

In an interview with the Saipan Tribune on Tuesday, Sablan explained that any increase in utility rates would have “a very negative” impact from the standpoint of promoting economic and commercial development in the CNMI.

Sablan said they plan to invite CUC officials in time for their board meeting this month. He added that they are also looking at inviting CPUC but it is currently not functioning due to a lack of commissioners. It needs at least two members to be active once again. At this point, Gov. Benigno R. Fitial has only re-appointed Viola Alepuyo, who still awaits her Senate confirmation.

Another board member, Pedro Itibus, also raised the issue of CDA having a representative in the CUC board “to have a say so in whatever decision that would be made.” A CUC board is non-existent at this point.

Board member Diego Songao added that CDA needs the dividend payments from CUC to fund more loans for potential investors in the Commonwealth.