‘CUC transfer is temporary’

The transfer of the Commonwealth Utilities Corp. to the Department of Public Works is only temporary and that, once it is “cured” of its woes, it will revert to its original status: an independent utilities corporation, said Gov. Benigno R. Fitial.

During a press conference Friday afternoon on Capitol Hill, Fitial said that the executive order he signed, which placed CUC under DPW effective last week, will be in place for only a limited time.

“The executive order is only a temporary measure. One of the main problems at CUC is the lack of effective and sound management. We issued this memo so we can [effectively] control CUC. …As soon as we get everything in place, CUC [will be CUC again],” said Fitial.

When asked, the governor said he hopes to see CUC back to its former status within the year.

In his letter to the Legislature Friday, Fitial projects to solve the CUC crisis within 90 days.

Lt. Gov. Tim P. Villagomez, who is currently in-charge of CUC, likewise said that the administration will be implementing different measures simultaneously to fix CUC problems regarding its finances and power plants.

He said efforts are also underway to pursue privatization of the power generation.

The Fitial-Villagomez administration has a four-step plan to end the CUC crisis.

– restore CUC’s financial solvency;

– increase power production;

– allow CUC to effect cost rate recovery for operations, debt service, and reserve; and

– continue to explore privatization option.

SOLVENCY

The administration said that CUC’s total net assets balance reflects a net deficiency of $13 million in fiscal year 2003 and $30.3 million in FY 2004. The net balance represents resources available for use after debts are settled.

“A deficiency in the net assets accounts represents complete financial insolvency. CUC is currently insolvent,” said Fitial.

During Friday’s press briefing, special assistant for Management and Budget Antonio Muna said CUC’s financial solvency “will be immediately restored” if its debt with the Commonwealth Development Authority is written off through legislation.

He said CUC’s net asset would immediately improve to $116.8 million.

He said that CUC’s solvency is crucial since it would make it bankable and allow it to go into financing to fund its capital repairs and fuel purchases without having to rely on the central government.

The House of Representatives has already passed a bill that aims to write off CUC’s debts with CDA, reportedly totaling over $146 million.

Based on the current the setup, CUC is required to convert $61.6 million in principal debt into preferred stocks in favor of the CDA.

On top of this, CUC has incurred some $85.6 million in loan interests payable as of FY 2004.

CUC incurred the CDA loan several years ago for infrastructure projects.

POWER PRODUCTION

The Fitial administration said that, upon making necessary repairs to Power Plant 1 and 2, CUC will be able to generate an additional 20 to 30MW.

CUC acting executive director Anthony C. Guerrero said Friday that Power Plant 1 and 2 engines currently produce 53MW.

With additional 20MW, CUC would be able to increase revenues by $3 million a month based on the 19-cent rate per KWH.

Savings per KWH with respect to cost of fuel may be as much as 5 cents, said the administration.

Villagomez said that, with more efficient engines, the cost per KWH would be reduced to 12 cents.

PUC

After the emergency status, Fitial said CUC will continue as a public corporation, which would be given the same privilege “without political interference and conditional to approval of its requested rate by an established Public Utility Commission.”

He said a PUC would be a third party “to ensure the fairness of the rate/rates requested by CUC.”

A revitalized CUC, he said, will not only be requesting 100 percent rate recovery for its power, but also for its water and sewer services.

“Allowing CUC to recover 100 percent of costs, debt service and fuel reserve would ensure its financial solvency,” said Fitial.

PRIVATIZATION

To ensure a long-term solution, Fitial said that “it is important for the CNMI government to continue to explore privatization options for utility services to ensure that the public is assured reliable utility services at the least amount of cost.”

He said reliable utility services are necessary for continued economic growth and prosperity of the CNMI.

Fitial, as a political opposition leader during the 14th Legislature, had heavily criticized the Babauta administration’s power privatization program.

DIFFERENT APPROACH

Villagomez said Friday that the administration’s privatization would be very different from the privatization plan presented during the Babauta administration.

“There’s a lot of uncertainties in the privatization plan by the previous administration. The full cost…was quite high,” he said.

He said these “uncertainties” not covered by the previous administration included CUC’s debt payment, land payment, and fuel farm.

He said the previous plan only included Power Plant 1.

“We are correcting all [engines],” said Villagomez.

He said the present administration would also settle issues regarding CUC land, its debts, and the need to have a fuel farm.

He said the cost of privatization would also significantly reduce since the engines would have been refurbished.

The previous privatization proposal was projected to cost $60 million and involved the takeover of the eight-engine Power Plant 1, its rehabilitation and upgrade, and installation of two new 15MG engines.

The plan called for a 20-year contract with an independent power provider.

CONSULTANT

Villagomez said the administration has hired a privatization consultant, Guido & Associates, to evaluate CUC’s power situation and guide the administration on the privatization program.

He said the consultancy contract amounts to $100,000.

Villagomez said another contract was signed with Hardy Group, costing $2.2 million, to repair power plant engines in Lower Base.

Meantime, CUC said that since January this year, it has spent $885,000 for engine repairs.