Utilities company has negative $303K in unrestricted cash
The Commonwealth Utilities Corp. is leaning toward insolvency as it currently has no money to pay for its day-to-day operations and debt service, among others.
Chief financial officer Matt Yaquinto reported to the CUC board that, as of May 12, they have a negative $303,463 in unrestricted cash.
“We have a negative unrestricted cash when you take into consideration what we have to pay Mobil and also our outstanding checks,” Yaquinto said.
The board has been warned of not having enough money earlier this year, with a projection that they will not have funds for operations by October. However, as early as now, CUC already has a negative unrestricted cash.
Unrestricted cash is the money that the corporation uses for its operations such as buying fuel, maintenance, supplies as well as capital improvements, debt service, and general and administrative costs, even including the board of directors’ expenses.
“Our fuel is our largest expense which is roughly $800,000 to $1 million,” Yaquinto said.
While CUC said it has “decreased spending in real terms to $28.2 million from 2005 to 2014,” they are averaging a cash loss of $1 million per month over the past year and have lost a “significant amount of customers.”
The financial report said that on 2014, CUC’s annual kilowatt per hour sales fell to $205 million. An average residential customer today now only uses approximately 400 kWh.
“It’s significant because basically we have the same infrastructure and you would have more fuel cost but your fixed cost or your administration cost, that basically doubles because you have to allocate kilowatt hours,” Yaquinto said.
Revenue must increase
According to Yaquinto, CUC “has not and is not currently billing or collecting enough revenues to ensure long term viability.”
“Revenues must increase,” Yaquinto stated in his report.
“Our revenue isn’t high enough to sustain were we need to go,” he added.
Due to its financial condition and history of losses, CUC is currently “not bankable,” according to Yaquinto.
“We can’t go out and get loans unless we get very high interest rates,” Yaquinto said.
“I looked at about 10 utilities in the mainland and usually they have approximately 23 weeks of worth of cash in their books. Now some of that and this includes Guam Power Authority, some of that is because they have issued bonds and they have covenants,” he added, “We’re not even close to that. If we can repair our balance sheet, then we may be bankable.”
To “increase revenue,” the CUC board discussed addressing losses and theft, utilizing and increasing the number of prepay meters, implementing new telephone pole rates for Docomo, and the anticipated hooking up of Best Sunshine International, Ltd. to the grid for their upcoming project, and addressing accounts receivables particularly from the government to benefit their financial status.
In an interview, vice chair Eric San Nicolas said they are doing something “big picture-wise” on addressing issues and restated how they are addressing the government accounts receivables.
“And then we’re communicating with the central government to continue their payment on a monthly basis. I believe that’s one of the items of discussions when we’ll meet with the acting governor [today],” San Nicolas said.
“And then we’re on the verge of finalizing another agreement with the [Commonwealth Ports Authority] board to address both of our concerns financially from both sides,” he added.
San Nicolas also mentioned renegotiating their contract with Mobil and hope that they realize savings from there.
These, according to San Nicolas, will “increase their revenue” without affecting customers.
“That’s the key, to put us in a better financial situation without burdening the residential customers,” San Nicolas said.
However, Yaquinto, in his report, stated that the government is only 17 percent of their total revenues and even if they paid their bills in full, CUC would still have had significant losses over the past several years.
“A lot has been said that the government, if they just get their bills, everything will be okay. But the government is just 17 percent of our revenues, 53 percent are commercial, and the rest are residential. So even if the government paid us, I think it’s roughly $25 million that they owe us, but we still owe OPA (Office of Public Auditor) money that we haven’t been paying. Even if they pay us 100 percent, we still have significant losses so we still have some issues,” Yaquinto said.
The Public School System, which earlier owed CUC some $3.8 million, has been paying the utilities corporation $100,000 every month. But this cash inflow for CUC would go directly to the Commonwealth Development Authority as they aim to keep their account current and pay partially what they owe CDA at $4.3 million.
The agreement CUC entered with Commonwealth Healthcare Corp. for it to pay its $16 million debt would result to a deficit of about $3 million to $4 million a year for CUC.
Issue with CPUC
San Nicolas also mentioned during the meeting how they would have generated about $6 million if only the Commonwealth Public Utilities Commission acted on their rate case last year, Docket 15-02, which sets a uniformed rate of $0.069 per kilowatt hour to residential customers and if the commission acted earlier this month on their Docket 16-01, which adds two line item of charges to customers for the typhoon recovery and capital improvement.
“If all of those would have come into play, as of right now, or maybe by the end of the fiscal year, we could have been $5 million or $6 million in a better position,” San Nicolas said.
“I just want that to be very clear, since members of the media are here, just so that we have an indication that this board is just not sitting doing nothing. Sometimes we are at the mercy of another body,” he added.
However, it was the board itself who motioned to withdraw Docket 15-02 in February this year after CPUC didn’t hold a hearing late last year. They also requested for the rate cases, including Docket 16-01, to be deferred during the rate hearing with CPUC this month resulting in it being moved to CPUC’s October session.