CNMI And Utility Sign Stipulated Agreement With US EPA

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CUC avoids $40 million in penalties, rates won’t increase

By Andrew O. De Guzman

SAIPAN, CNMI (Marianas Variety, Sept. 29, 2014) – There will be "no rate increases" and the cash-strapped utilities company saved approximately $40 million in Stipulated Order No. 2 penalties as a result of the signing of a joint stipulation between the United States, the CNMI government, and CUC, according to a statement released by the Commonwealth Utilities Corporation on Friday afternoon.

"As mentioned…, at this time there are no rate increases anticipated for CUC to meet its requirements under the order," CUC Executive Director Alan Fletcher told Variety yesterday.

"CUC is responsible for the annual TMO budget. These funds will come out of our existing budgeted funds for Power-Generation operations (non-fuel). We will be shifting money around in the budget to build the initial funding required by the Order."

"As with all funding in our cash-strapped utility, it be a challenge, but we are committed to meeting our obligations within our current revenue stream. As for CNMI’s funding commitment, it is best if you inquire with the AG’s or Governor’s office for this information," Fletcher told Variety last night.

On Friday, at 10:15 a.m., District Court for the Central District of California Judge David O. Carter accepted and signed a nine-page joint stipulation, or settlement agreement, between the United States, the CNMI government, and CUC to ensure compliance with Stipulated Order No. 2.

Friday’s signing concluded marathon sessions presided over by Judge Carter beginning Saturday afternoon, Sept. 20. That same morning, Judge Carter personally inspected CUC projects including pipelines projects from the seaport all the way to Lower Base, where Tanks 102, 103, and 104 were also inspected.

Representing the federal government were U.S. Department of Justice Environmental Enforcement Section Senior Attorney Bradley O’Brien; U.S. Environmental Protection Agency Assistant Regional Counsel Janet Magnuson; and EPA On-Site Coordinator Michelle Rogow.

Attorney James Sirok appeared on behalf of CUC; Attorney General Gilbert Birnbrich, Assistant AG Reena Patel, the civil division chief, on behalf of the CNMI government; and CUC Executive Director Alan Fletcher, along with CUC Petroleum Compliance Manager Andrew Longworth, and CUC Assistant Petroleum Compliance Manager Venugopal Prabhakara.

Gov. Eloy S. Inos, Sirok, Birnbrich, and O’Brien signed a separate joint stipulation between the United States on behalf of U.S EPA, the CNMI government, and CUC that requested Judge Carter to enter the then-proposed order.

CUC in a statement said: "The Order is a win for the cash-strapped utility. Benefits include avoiding the appointment of a receiver, allowing CUC input into the selection, budgeting, and scope of work of the EEMC and SO2 projects. In addition, primary funding for SO2 projects now becomes a responsibility of the CNMI government, with CUC’s funding responsibilities focused on the technical management of the oil portion of SO2."

"Most important for CUC and its ratepayers is that there are no rate increases anticipated based on the funding requirements of the Order. Also, of great significance is the federal government’s waiver of all SO2 penalties to date. These penalties total approximately $40 million," the CUC statement added.

EPA’s Regional Administrator for the Pacific Southwest Jared Blumenfeld, for his part, said of the Friday signing of the joint stipulation order: "Today’s action will go a long way to preventing a catastrophic oil spill in Saipan and Rota."

The joint stipulation, or settlement agreement, establishes an Engineering and Environmental Management Company, or EEMC, for all SO2 requirements and activities, with a five-year appointment, "vested with the power and authority to achieve expeditious compliance with SO2."

The settlement agreement also entails funding requirements including over $22.8 million spread over the five-year period, with initial funding deadlines this December: the CNMI as part of the remuneration, will deposit $5 million no later than Dec. 31, 2014 into the court registry, or registry funds, established by the District Court for the Northern Mariana Islands, and an initial $450,000 must be made within 90 days of entry of Judge Carter’s order, referring to CUC’s annual budget for the Technical Manager for Oil, or TMO, and associated oil spill, prevention, preparedness and response operations.

This budget must be separate from the power generation and distribution budgets and the EEMC budget and the registry funds, according to the joint stipulation order.

The CNMI government must deposit the following amounts on or before the dates specified into the registry or, if applicable, must file notice with the federal court of the U.S. Department of the Interior’s Authorization to Proceed, or ATP, for funding SO2 projects:

The notice must include a commitment from the CNMI government/CUC that the ATP and the grantee will not re-program the associated funds without mutual agreement of the parties.

Within 90 days of the date of the order, the CNMI "shall provide a financial guarantee approved by the United States guaranteeing that the payments required in the years 2016-2018 shall be made to the registry or otherwise fund the SO2 requirements...."

The funds are intended to reimburse the EEMCs expenses, and "shall not be utilized for CUCs day-to-day expense, and shall be used solely for approved EEMCs expenses for SO2 projects."

As to the annual budget for TMO, the joint stipulation order said the activities associated with this budget must be restricted to oil-spill prevention, preparedness, and response activities, including but not limited to operations; maintenance; training; and waste management.

The annual budget for TMO and associated activities must serve to build capacity for CUC to transition to taking over capital improvement, operations and maintenance for its oil infrastructure, oil-spill prevention, preparedness, response and related needs.

CUC is not required to maintain more than $900,000 in the TMO annual budget, according to the settlement agreement, adding such funds must not be utilized for any purpose other than those specified under the terms for TMO.

CUC currently has approximately $2,271,000 in grant funding available for SO2 projects. The SO2 projects approved for this funding include but are not limited to: CUC pipeline; tank erection cleanout and testing; secondary containment; and used oil disposal. CUC agreed that such funding will solely be utilized for SO2 projects subject to approval by the federal granting agency, according to the settlement agreement.

The United States waived SO2 stipulated penalties that have accrued as of Sept. 25, 2014 and withdrew its motion seeking a receiver, the contempt citation, and other relief.

CUC and the CNMI do not admit liability, and have withdrawn their Sept. 19, 2014 notices of dispute.

The U.S. Environmental Protection Agency, for its part, supports CUC’s integrated resource planning efforts.

CUC issued the following statement Friday afternoon.

"CUC announces it has reached agreement between the federal government, the CNMI government and the Commonwealth Utilities Corporation to ensure compliance with Stipulated Order No. 2 ("SO2").

"U.S. District Court for the Central District of California Judge David O. Carter accepted and signed on Friday morning a nine-page Order ending marathon negotiations which produced the agreement for the Order.

"The First Joint Stipulated SO2 Order ("Order") avoids the appointment of a Receiver by the US District Court. Instead, the parties agreed to the appointment of a third-party engineering and environmental management company or EEMC for implementing SO2 requirements and activities. The Order also provides for secure funding of SO2 projects by the CNMI government and CUC.

According to Alan Fletcher, Executive Director, "CUC’s negotiation team was in close contact with Board Chairman David J. Sablan on the details of the agreement throughout the negotiation process. CUC notes, that while no settlement agreement is perfect, the Order provides huge benefits for CUC, while not increasing utility rates for consumers who struggle daily to make ends meet.

"CUC would like to thank Judge David O. Carter for his leadership and guidance, as well as Bradley O’Brien of the US Department of Justice, Janet Magnuson USEPA legal counsel, Michelle Rogow USEPA On-Scene Coordinator, Gilbert Birnbrich, CNMI Attorney General, and Reena Patel, CNMI Assistant Attorney General, and CUC’s legal counsel Jim Sirok, for the long, intense, but fruitful negotiations. The negotiating teams worked long hours starting last Saturday to hammer out the agreement. Their time, consideration, and commitment to developing a fair and cost-effective solution for the people of CNMI are sincerely appreciated."

From Honolulu, EPA said, "The U.S. Environmental Protection Agency and the U.S. Department of Justice announced an agreement as part of a Federal District court order [Friday] with the Commonwealth Utilities Corporation (CUC) and the Commonwealth of the Northern Mariana Islands (CNMI) that furthers oil spill cleanup, preparedness and response efforts and critical infrastructure improvements at all of CUC’s power plants.

"Today’s action will go a long way to prevent a catastrophic oil spill in Saipan and Rota," said Jared Blumenfeld, EPA’s Regional Administrator for the Pacific Southwest. "We appreciate CNMI’s efforts to pursue alternative energy strategies that will reduce the need to store costly imported oil that has the potential to be spilled."

"Under the order, CUC and the government of the CNMI will agree to the appointment of an engineering and environmental management company that will report to the court. That consultant will perform all of the work required by the 2009 stipulated order that required CUC to stop and prevent oil discharges from its oil pipeline, storage tanks, and facility operations at its power plants. Also as part of this order, CUC and the government of the CNMI will provide sufficient funding to complete the work.

"As part of today’s order, DOJ will withdraw its motion that was filed on September 11 with the court requesting the appointment of a receiver for CUC."

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