Substantial Doubts That The CNMI Utility Corporation Can Continue To Operate

Recurring net losses remain an ongoing concern, exacerbated by central gov's inability to manage its unpaid debt

By Emmanuel T. Erediano

SAIPAN, CNMI (Marianas Variety, March 23, 2017) – Its recurring losses are raising substantial doubts about the Commonwealth Utilities Corp.’s ability to continue operating, according to an analysis of CUC’s fiscal year 2015 audit report.

The analysis was presented by the Legislature’s fiscal analyst, David S. Demapan, during the Senate Committee on Public Utilities, Transportation and Communications meeting on Tuesday with CUC officials.

CUC chief financial officer Antonio Castro said the central government’s failure to pay its bills over the years was the reason for CUC’s financial difficulties.

He said if the central government’s unpaid debt was addressed earlier “we would not have been in that situation.”

At the same time, Castro said from $37 million last year, CUC’s receivables from the central government are down to $25.8 million.

According to Demapan’s analysis of the FY 2015 audit report, CUC incurred a net loss of $5.4 million in FY 2015.

Of this amount, $426,000 was for stipulated order penalties; $631,316, amortization of fuel purchase obligations; $363,497, depreciation; $378,536, maintenance; $2.4 million, general and administrative expenses; and $221,747, bad debts.

Recurring net losses remain an ongoing concern for CUC, Demapan said

“CUC [also] determined that $7.1 million and $6.9 million in accounts receivable in FY 2015 and FY2014 were not collectible…thus increasing its…uncollectibles.”

Demapan found it “extraordinary” that “the operating revenue account of [the Levelized Energy Adjustment Clause or] LEAC-fuel charge declined by $21.8 million or 37 percent — from $58.7 million in FY 2014 to $36.9 million in FY 2015. At the same time, [CUC’s] operating expense account of production cost declined by $20.6 million or 33 percent — from $61.7 million in FY 2014 to $41.1 million in FY 2015.”

In his presentation, acting CUC executive director Gary Camacho discussed the challenges CUC still faces.

These include collecting from CNMI government agencies, the revision and adoption of a new rate structure by the Commonwealth Public Utilities Commission, the need to be included in the developer-tax appropriation and exemption from the beautification tax.

On the operational side, Camacho said the challenges include access to key skill sets to meet professional demand levels, the executive order related to nonresident workers, completion of a strategic plan and the needs of fast-paced economic growth.

Of the more than $60 million in federal grants awarded to CUC, Camacho said over $43 million was obligated, leaving only $16.9 million unobligated for a 72 percent performance ratio.

Senate Committee on Public Utilities, Transportation and Communications Chairman Sixto Igisomar told CUC officials that he wants to see the corporation’s settlement agreement with the Department of Finance.

In an interview, Camacho said the settlement with the central government was signed over a month ago, and   pertains to terms of payment.

CUC, he added, has to review the government’s outstanding balance “to ensure that it is accurate.” CUC and Finance are collaborating “to ensure that things are properly billed.”

He added, “I want to mention that working with the governor’s office and the secretary of Finance has been wonderful.”

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