CUC asks for suspension of debt payments to CDA

Citing financial distress and a desire not to charge customers with rates for debt payment, the Commonwealth Utility Corp. requests a five-year suspension of all debt and interest payments to the Commonwealth Development Authority.

In the letter sent this month, CUC executive director Alan Fletcher asks that CDA suspend “all payments, accrual of dividends, and any associated liability” for debt payments owed to CDA for a period of five years.

Right now, CUC is required to pay back $4.32 million in deferred debt by October 2016. This payment ties to debt that stretches all the way back to 1985.

“As CDA may be aware, CUC is currently under extreme financial distress,” Fletcher writes to CDA executive director Manuel Sablan. “In addition,” he said, “the CUC Board of Directors currently seeks to avoid burdening its customers with including the CDA debt obligation and any accrual of liabilities for unpaid dividends into its tariffs.”

Fletcher, in other words, was referring to the board’s preference to not charge customers with rates set to pay debt owed to other agencies like CDA and the Commonwealth Ports Authority.

In his letter, Fletcher also emphasized that any accrual of liabilities for unpaid dividends be suspended.

“Simply, a deferral of payments, with continued accrual of the dividend, will only result in increased rates, as the liability for full payment of the accrued dividends at some time in the future will still have to be put into rates at the time payment is to begin. Since the dividend payment due will be larger than today, the effect on the rates at that time will also be greater than it would be today,” Fletcher said.

In an interview yesterday, acting CDA executive director Oscar Camacho said this was a matter that would be deferred to their board.

Camacho said they have acknowledged the letter but they could not make any decision until their board, which currently lacks a quorum, is organized.

The request to suspend their debt also comes in hand with the board’s vote earlier this month to withdraw a 2.1 cent “debt service surcharge” that had been pending with the Commonwealth Public Utilities Commission.

CUC’s debt to CDA goes back 1985, when CDA loaned CUC $200 million from a federal grant pledge agreement they received so CUC could build its infrastructure. In 2001, a legal battle over the debt 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, this agreement was executed and turned 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 was set to pay a dividend payment set at 2 percent, or $900,000 a year. In total, CUC has to pay $1.08 million to CDA per year, after first paying off the $4.32 million it has already deferred for three years by October 2016.

While CUC wishes to exclude debt obligations from its rate, this is allowed and promoted by its establishing mandate. The mandate states that all their electric rates and charges would be “sufficient to recover all costs associated with the” utility’s operations as well as costs for “adequate financial reserves for any debt associated with electric service,” among others.