Previous Story
AGO clears way for CUC privatization
|
Posted on Aug 28 2005
The Commonwealth Utilities Corp. does not need or require the Legislature’s blessing for the privatization of the two Lower Base power plants because its proposed 20-year contract with an independent power producer does not constitute either a public debt or public indebtedness, according to the Attorney General’s Office.
In a legal opinion addressed to Gov. Juan N. Babauta, assistant attorney general Alan J. Barak maintained that the CNMI government will not be incurring public debt or public indebtedness if CUC signs a 20-year contract with a private firm to run Power Plants 1 and 2.
The Constitution restricts the government from incurring public debt without express legislative approval. It also restricts public indebtedness past a level of 10 percent of total assessed valuation, and prohibits the use of public indebtedness for government operating expenses.
Currently, CUC is in the process of hiring a private company that will refurbish Power Plants 1 and 2, run the facility, and generate power for CUC for 20 years.
“The contract is not a public debt or public indebtedness because it provides for annual payments, does not engage the full faith and credit of the CNMI, looks to repayment solely from the utility rates, and such a contract is specifically authorized in CUC’s statute. Substantial U.S. case law supports these conclusions,” Barak said.
Barak also pointed out that various utilities throughout the United States have long-term contracts similar to that proposed by CUC. Such contracts, he added, have been upheld for ages as not constitutionally restricted debt.
“As a matter of policy, it is difficult to imagine any publicly owned utility carrying on its business if its supply agreements had to meet legislative pre-approval. CUC is required by statute to conduct itself like a business. Businesses must have the flexibility to enter into short- and long-term supply contracts without having the contracts reinterpreted as statutorily limited public debts,” he maintained.
