Judge averse to CUC receiver

U.S. District Court for the NMI designated judge David O. Carter did another on-site inspection Saturday of the stalled Commonwealth Utilities Corp.’s oil pipeline project and Power Plants 1 and 2 in Lower Base.

At a session after the inspection, Carter stated he is reluctant to appoint a receiver for some CUC projects—as the U.S. Environmental Protection Agency had requested—and even complimented CUC for doing “a lot of improvements” at its facilities and operations.

The receivership issue will be heard on Wednesday.

U.S. District Court for the NMI designated judge David O. Carter, third from left, stresses a point as he looks at a portion of the new oil pipeline that has “bad welding” based on visual inspection. Joining Carter’s on-site inspection on Saturday at the Commonwealth Utilities Corp.’s pipeline and other projects were CUC U.S. Environmental Protection Agency counsels and officials, and acting attorney general Gilbert Birnbrich. The parties, however, are now conducting “sensitive settlement negotiations” that may resolve the receivership issue. (FERDIE DE LA TORRE)

At a session last night, U.S. Department of Justice Environmental Enforcement Section senior attorney Bradley R. O’Brien disclosed that EPA, CUC, and the CNMI government have made substantial progress after their meeting earlier that noon.

O’Brien said the parties are now engaged in “sensitive settlement discussions” and that they want the discuss the matter off the record.

This prompted Carter to call the parties involved to his chamber for a private discussion. That included O’Brien, EPA assistant regional counsel Janet Magnuson, EPA environmental engineer and on-scene coordinator Michelle Rogow, CUC legal counsel James Sirok, acting attorney general Gilbert Birnbrich, Office of the Attorney General Civil Division chief Reena Patel, and CUC executive director Alan Fletcher. When Saipan Tribune left the courtroom at 6:55pm, they were still in the judge’s chamber.

Carter flew in from Santa Ana, Calif., so he could personally inspect the progress made on the oil pipeline and Tank 102 projects as well as other projects covered by stipulated order No. 2.

Before doing the inspection, Carter held a briefing on how he would conduct the inspection at the oil pipeline and Tank 102 in Lower Base.

The oil pipeline is an 8-inch aboveground receiving pipeline that delivers diesel fuel from the Mobil oil facility to CUC Power Plants 1 and 2 in Lower Base. The pipeline project was initiated in 2010 at a cost of $1.8 million but this has since ballooned to $6 million due to several problems that contributed to the project’s delay.

Tanks 101 and 102 are large aboveground oil storage tanks that were dismantled due to corrosion and tank roof damage. The removal of Tanks 101 and 102 left Tank 103 as the only large oil storage tank at Power Plants 1 and 2.

Tank 102 is critical to the CNMI’s needs as Tank 103 is CUC’s only aboveground storage tank that can hold more than one day’s supply of fuel. Tank 102’s construction was stopped early in the process because of poor workmanship by CUC’s contractor, according to EPA.

Although federal grant funding was enough to build Tank 102, EPA said that CUC must now find more funds to complete the tank since its previous contractor spent the grant money.

Present at Saturday’s briefing were O’Brien, Magnuson, Sirok, Birnbrich, Fletcher, some CUC engineers and managers, and some EPA officials.

Carter said he plans to inspect Power Plant 4 this afternoon, Monday.

Carter told Fletcher that CUC has been doing well with replacing its meters, although there are some failures.

Carter said he came to Saipan to resolve issues.

Fletcher rreplied that he wants to show what CUC has accomplished.

Carter and the parties then left the courtroom in separate vehicles at 9am to begin the inspection.

Carter and the parties first walked to the Mobil terminal at the seaport, where the pipeline starts, then all the way to CUC’s power plants in Lower Base.

During the walk, the judge took photos of sections of the old and new pipelines. He asked the accompanying officials several questions.

At one point, Carter had a question for Smithbridge Guam Inc., the terminated contractor for the oil pipeline project, but the company had no representative present. He then instructed Smithbridge counsel Mark Hanson to come to the site “right away.”

Sirok got a hold of Hanson on the phone and asked Carter if Hanson could talk to him on the phone. The judge replied “No, I want him here.”

Sirok later relayed to Carter that, according to Hanson, there was no need for him to be there because the contract of his client, Smithbridge, had already been terminated by CUC.

Carter later cited about 12 to 13 welds on the new pipeline and that seven to eight of those can’t be verified whether they’re good or not.

Longworth explained that they’re bad welds based on visual inspection.

Next up for inspection was Tank 102 and other tanks at the power plants. After less than three hours, Carter, accompanied by a court security officer, walked back to near Mobil where he parked his vehicle.

At 2pm, Carter called the parties for a session in the courtroom, where they discussed the receivership issue, the inspection, and other issues.

Carter described the inspection as a “very educational walk” with both parties. He said there’s “positive things in that walk” that he was not aware of before.

He said he wants Smithbridge counsel Hanson to be in court today, Monday, for a session. Sirok stated that Hanson will attend the hearing.

Carter said he wants to see an inventory of materials for the pipeline project that are apparently in Smithbridge’s possession.

He said he learned that Smithbride is reluctant or not willing to turn over some materials, apparently because they have not been paid yet.

Sirok clarified that there’s no lawsuit between Smithridge and CUC, only a dispute. Sirok said CUC and the CNMI have not received a notice of dispute from EPA.

Sirok said if EPA wants to take action against CUC under stipulated order No. 2, then they are required to have an informal process such as filing a notice of dispute, before they could proceed with formal process.

“This court really has no jurisdiction for the motion of receivership,” Sirok pointed out.

Sirok said until administrative remedies are exhausted, then EPA can take judicial review.

Birnbrich said the CNMI joins in CUC’s position.

EPA counsel O’Brien said Sirok “unfortunately fails to review the stipulated orders.”

Citing a section of the stipulated order, O’Brien said EPA can bring court action without administrative process because of its unique nature and because serious health and environmental concerns are at stake.

In this case, there is imminent substantial danger to the environment, he said.

O’Brien said no one can dispute that the old pipeline poses a danger to the public’s safety, health, and environment.

He said Tank 103 has a leak that contributes to oil contamination at Power Plants 1 and 2, and that it appears to be leaking.

Carter edged in a word of praise for CUC, saying “it is certainly improving” and that he does not want to have a showdown with the Executive Branch on the receivership.

He said that jumping to a receivership is something that he is hesitant to make because a receiver historically becomes a chief executive officer in-house.

“I’m worried of receivership,” he said. “I’m hesitant to do that.”

O’Brien said it is ridiculous and bad faith to say that the court has no jurisdiction, citing CUC’s numerous violations and failures of stipulated orders over the past several years.

Sirok said he is not saying that the court has no jurisdiction on stipulated orders, but only on receivership.

Sirok said the pipeline does not pose an imminent substantial danger. He reiterated that CUC has not discussed any dispute with EPA yet.

Sirok said the report about a leak at Tank 103 is speculative as there’s nothing in the declaration other than Rogow’s, and that there is no specific data to support it.

Carter noted that during his prior visit, there was a lot of oil contamination at the tanks. Sirok replied that that was a year ago.

Birnbrich said the CNMI is a signatory to the stipulated orders, but specifically was not ordered to do anything. He said a dispute resolution process would be the ideal, but not receivership.

O’Brien said there is funding issue for the CNMI, but they did not ask the court to find it in breach and in contempt. He said what they asked from the CNMI government is to fund CUC so it could comply with the stipulated orders.

As for CUC, O’Brien said they asked for contempt, breach, and receivership. He said the court can find CUC in breach and appoint a receiver without finding it in contempt.

“We have a contaminated power plant and leaking pipeline or possible leaking pipeline,” he said.

Carter said his indication but not his ruling is that he is reluctant to appoint a receiver. He is, however, inclined to carve out an order for Tank 102 and pipeline.

The parties later agreed with Carter to hold informal talks yesterday at noon.

“You have to negotiate, but you don’t have to resolve,” the judge told the parties.

Carter recently expressed “deep concerns” over the delay on the construction of the oil pipeline. He pointed out that the pipeline construction has only, at most, preliminarily started. The original deadline for construction of the new pipeline was February 2011.

The federal court signed stipulated orders for CUC in 2009, setting the requirements and deadlines for the utilities agency to meet. The orders represent an agreement between the CNMI and the EPA on how CUC will come into compliance with the requirements of the Clean Air Act and the Safe Drinking Water Act.