In a letter to acting Assistant Attorney General John C. Cruden of the U.S. Justice Department’s Environment and Natural Resources Division, Sablan said CUC’s problems “are fundamental and systemic, and cannot be resolved through conventional means. Because these fundamental and systemic problems are at the root of grave and continuing threats to public health, drastic remedies must be considered.”
She said the Justice Department and the U.S. Environmental Protection Agency should ask the federal court to appoint a receiver for CUC.
Asked for comment, Press Secretary Charles P. Reyes Jr. said Sablan’s request “may be inappropriate in this context because it exceeds the scope of the request for comments and because she places way too much confidence in the federal government. While her points about past mistakes and mismanagement may be well taken, the real solution to taking the politics out of CUC and replacing it with economics is a proper privatization, or the use of a qualified independent power producer.”
Sablan believes that an “independent, qualified receiver under the careful supervision of the court can take the decisive and appropriate actions necessary to bring the CNMI’s utilities into compliance with the Stipulated Orders.”
She added, “Receivership would also help insulate CUC from the local political interferences that plague the agency to this day, and would facilitate the organizational restructuring, financial management and accounting improvements, infrastructure development, strategic planning, and other requirements of the Stipulated Orders that are so desperately needed in order to transform CUC into the fiscally solvent and well-managed utility agency that it has thus far never been.”
Under the stipulated orders, CUC is required to address its long-standing noncompliance with the Clean Water Act and the Safe Drinking Water Act.
Sablan, Ind.-Saipan, said the stipulated orders “constitute a critical and much needed step toward correcting the deplorable and substandard conditions of CUC’s water, wastewater, and used oil management systems, which have caused great risk, suffering, and injustice to the people of the CNMI for far too long.”
She believes, however, that CUC cannot “meet the numerous, complex, and most likely costly provisions” of the stipulated orders.
CUC is broke, she added, and has been under the governor’s control since Dec. 2007.
Created by law, the Public Utilities Commission is supposed to regulate CUC but it “has been subjected to political meddling, with the enactment of several public laws and executive orders that have diminished the extent to which the commission can effectively and credibly regulate CUC,” Sablan said.
She added, “Under [his] state of emergency [declarations], the Governor has exercised broad powers to suspend any statute or regulation of any CNMI agency or activity if compliance would affect necessary action to cope with the emergency, including regulations relating to electric rates, procurement, PUC review, occupational safety, and environmental protection. Despite these declarations, and any corrective measures taken thereto, conditions at CUC have continued to worsen. Repeated requests from the Legislature for a comprehensive plan and financial management strategy that go beyond day-to-day crisis management for CUC have gone unanswered.”
She doubts CUC’s ability to comply with the stipulated orders, “particularly under the present management and political conditions.”
According to Sablan, “CUC’s financial statements over the years present a picture of steadily deteriorating fiscal health — including ballooning deficits, mounting debts, noncompliance with loan agreements and federal grant conditions, and worsening cash flow problems. Indeed, despite being the sole utility agency of the CNMI and despite its mandate to operate on a full cost recovery basis, CUC has not been profitable in nearly every fiscal year since its inception in 1987. In December 2008, during a public hearing conducted by the PUC, both the hearing examiners and the CUC Executive Director described CUC as ‘insolvent.’ The latest 2007 independent auditor’s report for CUC identifies material weaknesses and significant deficiencies in internal controls over financial reporting and major federally funded programs, offers a qualified auditors’ opinion, and expresses doubt about CUC’s ability to continue as a going concern. This report has been considerably delayed and has not yet been finalized because CUC has yet to respond to the auditors’ findings or submit its plan of corrective action.”
The stipulated orders do not specifically address Saipan’s ongoing power crisis, but Sablan said “it would be counterproductive to separate the CNMI’s power issues from its water, wastewater, and used oil issues, and to exclude the power utility from any potential receivership scenario.”
“The funds for all three utilities have been commingled for years; to this day power operations subsidize water and wastewater operations, and the rate structures for the latter services remain insufficient to recover actual costs. The power crisis also simultaneously diverts considerable financial, human, and other resources away from the water, wastewater, and used oil crises. In addition, frequent power outages contribute to failures in the water and wastewater treatment and delivery systems, which require a dependable source of electrical power. Any plan to correct CUC’s water, wastewater, and used oil deficiencies, if it is to be meaningful and lasting, must take into account the entire utility system, including power.”
Sablan said she realizes the seriousness of her request for receivership.
“I make this request only after having carefully examined CUC’s nearly twenty-two years of mismanagement, planning failures, noncompliance with both federal and local mandates, fiscal abuse, political meddling, and neglect — and the public health and environmental catastrophes, both real and threatened, that have resulted,” she added.
“It has become increasingly evident that CUC’s problems are beyond the capacity of existing management at CUC, and of the present political leadership, to effectively resolve on their own. I fully support the Stipulated Orders, but urge DoJ and EPA to move for the appointment of a receiver for CUC, in consideration of the totality of historic and present-day fiscal, organizational, and political impediments that are crippling CUC’s ability to realistically comply with the federal mandates and to provide the most essential of public services to the people of the CNMI.”
Sablan chairs the Public Utilities and Infrastructure Committee of the Saipan and Northern Islands legislative delegation.
Reyes, in an e-mail, said CUC “is doing everything in its power to comply with federal regulations and salvage its financial situation, and it has been aided by lower fuel costs and the governor’s emergency actions, including the necessary executive orders. We have to remember that if we took Rep. Sablan’s advice, we would not have contracted with Aggreko, which she opposed, and we would still be in the dark. She should not fault the governor for taking bold but absolutely necessary actions to mitigate the situation she described.”
Reyes credited CUC Executive Director Tony Muna, the former receiver of the Bank of Saipan, for ending the daily blackouts.
“And he did it without spending the roughly $1 million per year that a receiver and his/her technical advisors would cost the federal court,” Reyes said.
He added, “[Sablan] describes an ‘insolvent’ CUC. Past subsidies for skyrocketing oil costs killed CUC’s finances. The governor appointed the new PUC, as the financial and technical regulator, to address CUC’s structural failings. With a team of experts they have already begun overseeing rates, charges, and quality of service.”
According to Reyes, Fitial “installed a financial specialist [Muna] with an excellent track record. Her complaint now is that her legislative committee, a political one with no hands-on utility business experience, cannot oversee CUC’s day-to-day operations.”
Reyes said “the past boards destroyed CUC, most recently in 2001-05. It would cost almost half a million dollars per year of the peoples’ money to staff them, train them, and pay for their meetings. And virtually no one today can meet the complex technical qualifications which the Legislature (properly) set for these non-paying board positions.”
Sablan, Reyes said, “is impatient for CUC improvement. But it takes time for competent people to fix 20 years’ mismanagement. The power is on. We’ve brought in top electric and water/wastewater engineering managers. We’ve canceled bad contracts. Another board is not the answer to CUC. Good management is. Let’s give Tony Muna and his team an opportunity to build on the past months’ improvements at CUC and the independent PUC a chance to oversee the process.”
