A representative of the Commonwealth Utilities Corp.’s rate consultant, economist.com, disclosed Friday that the utility agency incurred about $80 million in operating losses since 2006.
In a joint hearing of the 19th Legislature’s Public Utilities, Transportation and Communication Committees, Dan V. Jackson said that CUC might have one year left if it continues to struggle financially and that the No. 1 reason for CUC’s tenuous state is the non-payment of the government’s past arrears.
Jackson disclosed that government receivables have been increasing since 2013. In October 2013, government arrears stood at $20.39 million. It rose in March 2014 to $26.16 million. It rose further to $27.06 million in October 2014, and, as of February this year, it is now at a whopping $28.74 million.
Government arrears equate to 61 percent of CUC’s operating budget.
CUC executive director Alan Fletcher told the PUTC committee that if the government does not pay its bills on time, it negatively impacts CUC’s entire operations.
Jackson echoed Fletcher’s statement that nonpayment of government bills is “seriously hindering” CUC’s ability to make payroll, pay for oil regularly, and for other operating expenses. It also delays capital improvement projects and seriously affects the “performance and reliability” of the entire utility system.
“Failure of the government to pay its utility bills was one of the principal factors in the U.S government’s 2014 motion in U.S District Court, asking for the appointment of a receiver for CUC,” Jackson said. “Without resolution of this issue, CUC faces potential insolvency within a year.”
Jackson noted that if the government pays its bills, CUC would have sufficient cash to fund payroll and other expenses, be able to finance overdue capital repairs, and be able to build a financial reserve to deal with future crises.
However, payment of government past due accounts will not enable CUC to lower rates or solve all of CUC’s financial challenges in the immediate future, but it would improve the reliability of the system as development occurs in the CNMI.
According to Jackson, CUC’s electric sales have declined by 50 percent in the last 10 years and an inflation of costs has accumulated beyond CUC’s control.
Two examples are the Stipulated Orders 1 and 2 and prior capital projects that require CUC to spend millions of dollars in capital repairs.
“CUC serves an isolated island community requiring much higher reserve capacities, back up systems, and redundancies to protect against forced outages or down times, resulting in a higher cost of providing service,” Jackson said.
Financial, rate challenges
Jackson said that CUC’s net loss for fiscal year 2015 potentially could be even greater than $7.5 million due to newly enacted public laws.
Public Law 18-19 lowers water and wastewater rates for the Public School System, in effect creating an instant $1.7 million shortfall in CUC’s revenues.
PL 18-66 appropriates $4 million less than required to pay overall government’s utility bills and PL 18-71 offsets $5 million in Commonwealth Healthcare Corp. and PSS receivables due to CUC and converts them into a government obligation.
“Enforcement of these laws means that CUC would have to increase rates to make up for lost revenues,” Jackson said.