80.7 F
Charlotte Amalie
Thursday, March 28, 2024
HomeNewsArchivesWAPA Could Default on Bonds Without Rate Increase

WAPA Could Default on Bonds Without Rate Increase

March 25, 2009 — Though the fuel-surcharge portion of Virgin Islanders' water bills is going down, the V.I. Water and Power Authority needs to increase the base rate on water to keep from defaulting on $29 million in capital bonds, WAPA officials said Wednesday.
The utility is struggling to comply with the water system bond covenants, said Hugo Hodge, WAPA's executive director, at the March meeting of the authority's governing board. WAPA petitioned the Public Services Commission to review the water rate last April, and is still urging the PSC to address the petition, he said. (See "WAPA to Ask PSC for Base Rate Hikes in Water, Electricity.")
Two factors are hurting WAPA's finances on the water-production side: a built-in deficit from an old rate, and a recent drop in water revenue from reduced water demand.
The last rate review conducted by the PSC took place in 1994 and established a rate of $16.90 per thousand gallons in 1995, said Cassandra Dunn, WAPA's public information officer, at a board meeting in September. (See "WAPA Wants 11-Percent Increase in Water Rates.") This has resulted in a built-in revenue deficiency of about $7.4 million annually.
The shortfall has created a problem with WAPA's debt-coverage ratio, a measure of an organization's credit-worthiness. This problem, in turn, threatens technical default on $29.2 million in bond debt. Put simply, the debt-coverage ratio is WAPA's yearly operating income divided by the total amount of all interest and principal paid on all of its loans. The bigger the number, the better the financial condition of the company. The bond requires a debt-coverage ratio of 1.25, but at WAPA's 2007 annual review, the ratio was 1.16. In 2008, the water system barely met its debt-service ratio of 1.25, with coverage of only 1.29.
On top of that, water sales dropped 5.5 percent in 2008, cutting directly into the income part of the debt-ratio equation. The board voted to approve a revised water system operating budget of $42.1 million for fiscal year 2009 to maintain a 1.50 debt-ratio coverage and to have WAPA re-petition the PSC to allow a base-rate increase sufficient to generate the needed $3.5 million.
The Levelized Energy Adjustment Clause (LEAC), the fuel-surcharge portion of water customers' bills, has been going down. (See "PSC OKs Substantial Cuts in LEAC Rates.") Ironically, that decrease has no effect on the critical numbers, because fuel is not an operating expense.
To increase water sales, the board was asked to approve funding for Phase IV of the Smith Bay Portable Water System Expansion project. Making the request was Noel Hodge, WAPA's director of water distribution in St. Thomas/St. John. Construction will begin in July along St. Thomas' Route 32 from the Red Hook Pond to the National Park intersection, picking up water customers along the route, including Ivanna Eudora Kean High School, according to a statement released Wednesday by WAPA.
This is one of several projects to bring potable water to the east end of St. Thomas, and is funded with $1.3 million from the Tutu Aquifer Settlement Fund through an agreement with the V.I. government. When the road is excavated for the water project, an electrical duct bank will be put in along the same route to bring an overhead powerline underground, said Clinton Hedrington, director of transmission and distribution.
With people conserving energy, WAPA revenues are down on the electric side too, said Chief Financial Officer Nellon L. Bowry. Just as with WAPA's water side, the cost of fuel going up or down doesn't affect the operating revenue of WAPA's electric system. So last year's exorbitant electric bills did not help WAPA's finances, and the recent LEAC reductions did not hurt them. But reduced demand is hurting the utility's finances. WAPA filed a petition with the PSC in May 2008 to raise the electric system base rate.
Board members present at Wednesday's meeting were Chairwoman Juanita Young; Brenda Benjamin; Noel Loftus; Gerald Groner; Donald Francois; Cheryl Boynes-Jackson; Housing, Parks and Recreation Commissioner St. Clair Williams; and V.I. Department of Planning and Natural Resources Commissioner Robert Mathes. V.I. Personnel Director Kenneth J. Hermon Jr. was absent.
Back Talk Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.

Print Friendly, PDF & Email
Keeping our community informed is our top priority.
If you have a news tip to share, please call or text us at 340-228-8784.

Support local + independent journalism in the U.S. Virgin Islands

Unlike many news organizations, we haven't put up a paywall – we want to keep our journalism as accessible as we can. Our independent journalism costs time, money and hard work to keep you informed, but we do it because we believe that it matters. We know that informed communities are empowered ones. If you appreciate our reporting and want to help make our future more secure, please consider donating.