No penalties assessed in buyout of PMIC contract

Faced with criticisms for its decision to terminate its power purchase agreement with Pacific Marine Industrial Corp., the Commonwealth Utilities Corp. disclosed yesterday that the buyout of PMIC’s contract two years ago actually saved the agency some $8 million.

CUC was not assessed any penalties for the remaining balance of the contract, according to CUC chief financial officer Charles Warren, showing documents related to the buyout.

CUC entered into a power purchase agreement with PMIC on Sept. 23, 1996, to run Power Plant 4. That PPA went through several amendments and renewals until both parties agreed to terminate the agreement in July 2012, with four years and one month (49 months) remaining on the contract.

That decision came about after CUC determined that the island’s Power Plant 1 is sufficient to provide power to the island even without buying power from PMIC . Since the contract’s termination, Power Plant 4 became a standby source of CUC’s power needs.

Based on the buyout agreement, CUC will make minimum monthly payments of $331,00 to PMIC for 49 months, for a total of $16.219 million.

CUC financial statements show that the termination cost is payable in 27 months, which is equivalent to $8.375 million. There were assets transferred by PMIC to CUC to the tune of $974,869.

According to Warren, CUC recorded $7.401 million in total “contract termination expense,” resulting in substantial savings to CUC of $8.817 million.

“As a result of the contract termination, CUC recognized loan payable to PMIC principal of $8.375 million with interest at 9 percent per annum,” states the documents obtained by Saipan Tribune.

It was disclosed that principal and interest payments are due in monthly payments of $341,286.

CUC’s loan balance as of Sept. 30, 2012, is $7.470 million.

For future repayments, CUC is scheduled to pay a total of $4.095 million representing the principal loan of $3.567 million and interest of $527,549 in 2013.

For 2014, scheduled repayment is $4.095 million representing a principal loan of $3.092 million and annual interest of $192,857.

In summary, for 2013 and 2014, CUC’s payment will total $8.190 million, of which $7.470 million represents principal loan and $720,406 for the 9-percent interest for both years.

“As you can see, PMIC and CUC mutually agreed to terminate the contract in July 2012. The annual payments for the early termination are about $4.1 million. We have nine more payments to make under this agreement. Since the early termination payments are essentially the same as the payments under the prior operating agreement, there is no rate increase associated with the early termination. Calling the payments an infrastructure surcharge is our effort at full disclosure and transparency,” Warren told Saipan Tribune.