CDA affirms suspension of CUC payments

Understanding the cash-flow situation of the Commonwealth Utilities Corp., coupled with the potential ripple effects of continued power rate hikes, the Commonwealth Development Authority agreed to suspend any payments from CUC relating to the millions of preferred stocks and dividends due the development authority.
CDA executive director Manuel Sablan told Saipan Tribune about the decision yesterday, saying it was made to prevent additional rate increases for CUC customers.

Years ago, CDA loaned out $45 million to CUC for its many projects. The utility agency never made any payment to this loan, which was later converted to “preferred stock” that entitles CDA to a stake or ownership of CUC’s equity, equivalent to $45 million. This conversion agreement was signed in May 2009, with a guaranteed 2 percent dividend to be paid every year to CDA.

Yet even then, CUC has not paid any dividends to CDA, Sablan said.

CDA comptroller Donnie Militante confirmed that as of fiscal year 2013, CUC’s unpaid accrued dividends now total $3.6 million. In CDA’s books, its collectibles from the corporation is now at $48.6 million, including the $45 million loan that was converted into equity.

Saipan Tribune learned that of the $3.6 million accrued annual dividends, $2.7 million was deferred in fiscal years 2010-2012 and $900,000 is for fiscal year 2013. This is supposedly payable at $180,000 every year.

“CDA’s ownership at CUC is basically a preferred position, which means we have a $45 million stake in its assets and capital account. From the standpoint of CDA, they still owe us [that amount[,” explained Sablan.

He said that CUC’s poor cash flow is to blame for the delayed payments. CDA, he said, understands that the corporation needs some help.

“We understand that if they were to make this payment they will have to increase rates, which will affect the same people we’re trying to help in our community,” said Sablan.

Sablan admits that it remains unknown for now how far CDA’s patience can stretch.

“We’re taking a position that we have to find other alternatives to make sure their payment to CDA will not trigger rate increases for customers. We do not want CUC to increase rates simply because they owe that money to CDA,” he said.

Sablan said it would be “anti-economic” of CDA if it will allow CUC to seek a rate increase just so it could satisfy its debt with CDA.

Sablan admits that the suspension of payments is an “informal” agreement among parties, which means the original agreement signed in 2009 officially stands.

Sablan welcomes the automatic membership of the CDA board chairman in the newly revived CUC board. That way, he said, CDA’s interest would be fully protected as CDA would have access to all information and policies that would be instituted at CUC.