Consultants: CUC operating $22.6M in the red for FY ’17 presents projections for next fiscal year

The Commonwealth Utilities Corp. is projected to operate more than $22 million in the red for the next fiscal year, CUC consultants from said during a board meeting on CUC’s proposed fiscal year 2017 budget Thursday.

CUC projects net operation losses at $22,668,109 fiscal year 2017. managing directors Dan Jackson and Robert Young spoke to the board on the net operating losses and possible strategies to address these.

Jackson said the proposed fiscal year 2017 budget would reinforce the “fact” of financial challenges CUC has but also an opportunity for CUC to improve its finances.

Under power projections, net revenue projections are at $27,130.905, with an operations budget is $26,049,442, amounting to an operating income of $1,081,463.

Under water projections, net revenue is projected at $12,681,088. Its operations budget is at $20,267,489, and an operating income loss of $7,786,401.

Under wastewater projections, net revenue is projected at $3,882,422. Its operations budget is at $6,160,593. Its operating income loss is $2,278,172.

In total, net revenue projections are at $43,694,415, with an operations budget of $52,477,524, amounting to an operating income loss of $8,783,109.

Total debt service and capital improvement outlays—including wharfage fees to the ports authority, old debt, construction, typhoon restoration, and vehicles—amounts to a total of $13,885,000.

Some $9.3 million of this falls under power, $3.77 million under water, and $775,739 under wastewater, giving a deficiency in power amount to $8.24 million, in water at $11.3 million, and in wastewater, at $3.05 million.

On the glaring water losses, Jackson estimated that for the 10 million CUC produces it is only “selling” about 3-4 million gallons a day.

CUC has reported 65 to 67 percent unaccounted for water from leaks, poor meters, or theft.

“That is an ugly figure,” said board director Ignacio Perez.

“Water is the real issue,” said board chair Adelina Roberto, when sought for comment after the meeting.

Jackson said the non-revenue water is similar problem for many Pacific utilities, noting terrain and storms that puts stress on distribution.

The consultants also proposed “Long-Term Financial Plan Principal Elements,” touting plans for new revenue growth, expense reduction, including limiting non-revenue water; additional grant funding, and revenue enhancement inclusive of “developer fees,” rate adjustments or increases, as options for the utility.

According to Young, the projections include the reopening of the Palms Resort, a megawatt of load or 5,000 kwh per year. He said they are also assuming to add three new customers a month, noting the opening of businesses like Bubba Gump, or IHOP, adjacent to new development.

“There’s gonna be a lot of new commercial activity,” he said. “You will see a gradual increase in customers” and toward the end of the projected budget, he said the board would start to “see the effect of the [Best Sunshine International, Ltd.] casino.

“That is a tremendous increase in electric sales. Maybe 40 or 50 percent of total commercial load right now. You are going to see a big bump in that,” he said, noting that this would not show until the following fiscal year when the Garapan casino is in full operations.

“2018 will be even better because you will see the full effect of Best Sunshine. Depending on construction schedules, there may be one or two hotels in that too,” he said.”

“…There are many steps, that CUC management has begun to take to address these issue,” said Jackson. “Right now the 2017 budget shows a lot of challenges”

One of these steps is revenue growth, he said, noting BSI’s additional load would result in millions of dollars of additional revenue. Second would be reducing expenses. Their biggest expensive is non-revenue water, he said. A third element would be to aggressively pursue grant writing.

And another avenue is development fees—where they could negotiate these fees with a interested investor or hotel—or standardize or schedule fees for how much the new development would cost CUC to expand its grid to take them on.

The consultants touted the development fees as one way to build a new power plant, which CUC anticipates the need for.

Young said the fees could have a set “floor. If a business does under 500 to 300 kws there would be no capacity fee, but if there went over this CUC could charge $1,500 a kw to build new power plant, for example.

“Based on [Coastal Resources Management] filing, CUC will need a new power plant fairly soon,” in three to four to five years, Young said.

Young proposed a policy of “growth pays for growth,” citing other firms examples of not raising rates but scheduling fees for new developers.

“If they want to come here, let them pay a developer fee for the infrastructure needed for them to serve them,” added Jackson.

On raising rates, Jackson said the raising rates is “not the only solution” but should be something considered to “leave all options” on the table.

The CUC board has repeatedly stated its desire not to raise rates on residential customers.

“We need all the money we can get. We’ve got a hole to close,” said Young.

Before the conversation progressed further, board director Eric San Nicolas—referring to the “media” several times—urged they reconvene their meeting tomorrow (Friday) so he could more “sidebar” conversations with the acting chief financial officer on the budget or operations information “so we are not interpreted in any shape or form.”

He said he didn’t want to put out the information “in open session right now because I don’t want to be misinterpreted again.”

CFO signatories removed

Citing “accountability,” the CUC board also unanimously voted to remove the chief financial officer from one of the required signatories on approving its checks.

Now only the CUC executive director or the CUC board treasurer may sign or approve checks.

Board chair Adelina Roberto said the CFO, “as custodian of the funds, should not be signatory on the checks.”

“For accountability more,” she said. “It’s just better for accountability.

San Nicolas made the motion to amend banking signatures reflect that the CFO signature be removed from the banking resolution and that signature would have to come from executive director or his designee and from the board starting from the treasurer or his designee.

Dennis B. Chan | Reporter
Dennis Chan covers education, environment, utilities, and air and seaport issues in the CNMI. He graduated with a degree in English Literature from the University of Guam. Contact him at

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