CUC aims to renew customer surcharge

The Commonwealth Development Agency could take over the CNMI’s public utility if they are not paid back some $4.32 million in debt by October 2016.

To avoid this, the Commonwealth Utilities Corp. aims to renew a .021 per kilowatt-hour surcharge on its customers. This, however, is not expected to be an added burden on power bills. The charge expires May 1.

If the Commonwealth Public Utilities Commission approves the petition, which CUC expects to file near end of this month, the charge will be re-titled a “debt service surcharge.”

In recent correspondence with CDA, CUC learned that it has to pay the dividend payment they agreed to pay CDA starting October 2012. The payment, though, was deferred for three years.

The debt stretches decades back to 1985, when CDA loaned CUC $200 million from a federal grant pledge agreement they received so CUC could build its infrastructure. CUC hasn’t paid much back. A legal battle in 2001 over the money was resolved in a memorandum of agreement the next year, which was revised in 2004 to turn that debt into equity for CDA.

In 2009, the agreement was executed effectively 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 two 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.

In total, CUC has to pay $1.08 million to CDA per year, after paying off the deferred $4.32 million by October next year.

CDA can seek immediate board action from CUC in the event they do not pay their dividend payments, according to CUC counsel James Sirok, who updated the CUC board this week.

“If we don’t do that, the other alternative that they have is to take over the position they have as a preferred stock holder,” Sirok said. “One of the remedies they have…is to take over the management of CUC. They can either do that by asking the court to put a receiver in” or have CDA manage the utility.”

Board director David Sablan Jr. asked if this takeover was “legally enforceable.” Sirok indicated it was.

CDA is a preferred stockholder, he clarified. Preferred stockholders have some right to management of the corporate entity, Sirok said.

“Bottom line—as of Oct. 1 next year—we will owe them $4.32 million,” Sirok said. “The surcharge we are proposing will collect about four-and-a-half million dollars, on that two cents [charged].”

CUC rate consultant Dan Jackson said that CUC “needs to continue the .02 surcharge to pay off CDA or risk” takeover.

He noted this debt is a “liability” that hampers CUC’s ability to borrow money.

He noted that renewing the charge, “from a practical standpoint, rate-payment won’t change.”

“Bottom line, net impact would be no change in ratepayers’ monthly bills,” he said.

The board directors voted to go before CPUC to renew and rename the charge. The motion to vote included a public information campaign to inform customers of this change.