$2.85M interfund loan for sewer division assigned five-year payment term

The Commonwealth Utilities Corp.’s $2.85 million interfund loan approved by the Commonwealth Public Utilities Commission for the sewer division was assigned a per annum interest rate of 2.5 percent and must be paid in five years, according to CUC executive director Abe Utu Malae.

The CPUC earlier denied a proposal to increase wastewater rates of customers during its Jan. 27 meeting, citing the economic difficulty being experience by ratepayers.

But in recognizing the important function and continuous operation of the utilities company, CPUC had approved the electric base rate and water rate petitions, including reduction in the current levelized energy adjustment clause.

According to Malae, the interdivisional loan is a method to provide assistance to the wastewater division and which will not result in a cross-subsidization of services through the rate.

He said there is no other source CUC has been able to identify which could provide a loan for CUC to operate its sewer division at a cost which would be fair to CUC customers, and which would be consonant with the legislative policy of Public Law 16-17. This law states that CUC has the corporate responsibility and its customers have the right to reliable service at stable and affordable rates.

“While termed a loan, this inter-divisional loan does not constitute borrowing as set forth [by 4 CMC 8123]. There will be no adverse impact on the balance sheet of the corporation. This is because under the accepted accounting standard of consolidation, the corporation’s books will remain revenue neutral. CUC’s accounting department will account for the payments which are attributable to the loan,” explained Malae, adding that the logic for the loan is to defer the fuel expense in conjunction with sewer costs pending implementation of CUC’s master plan.

Under this plan, additional wastewater customers will be connected to the system and therefore enable the division to spread the loan repayment over a substantially larger customer class.

The $2.85 million, Malae said, will be made available to CUC’s sewer division from the electric division and the loan will be used by the electric division as credit against the municipal pumping charge which it will bill the wastewater division for electric service.