Rate increase requests WAPA at risk of default on debt

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ST. THOMAS - The V.I. Water and Power Authority risks defaulting on outstanding bonds if the V.I. Public Services Commission does not approve a water rate increase proposed during the WAPA board meeting on Thursday.

In separate proposals that the board approved Thursday, WAPA is petitioning the Public Services Commission for base rate increases in its water and electric rates.

Both requests come as permanent versions of emergency rate increases that the Public Services Commission granted in July to shore up WAPA's finances and to cover new post-employment benefit costs.

The Public Services Commission approved both emergency increases with the stipulation that WAPA file permanent rate increase cases by today, hence the board's action Thursday.

The Public Services Commission order approving the emergency water rate increase "was intended to cure the Water System's failure to meet the Debt Service Coverage requirement" of a 1998 series of bonds, according to Thursday's request.

WAPA Executive Director Hugo Hodge Jr. said the water system's debt coverage has been problematic for at least the last 10 years, during which time WAPA has "hovered right around the minimum threshold" of debt coverage.

Bond covenants typically require coverage ratios of 1.15 or 1.25, meaning the bond issuer should have at least 15 percent more revenue than debt, according to Hodge. The water system's ratio last year was "very bad," around 0.23, he said.

Hodge stressed that WAPA has not missed a bond payment on either the water or electric side, but he said the water system's bond covenants required WAPA to file for the base rate increase to improve its coverage ratio.

"You're making your bond payments, but what you have left is very, very minimal," Hodge said. "There's not much room for anything else."

Hodge said WAPA attempted to address the coverage issue with its last water base rate increase in 2009, but water sales have come in much lower than anticipated since then, exacerbating the problem.

He said the Public Services Commission's July approval of the emergency increase "was a bare minimum to satisfy what the auditors wanted to see."

"It's not enough to actually fix the system," Hodge said.

Thursday's petition for the base rate increase is enough to keep the water system's creditors at bay - at least for now, according to Hodge.

"This filing is to avoid them calling the bonds," Hodge said. "If there is no action by the PSC, that is something that is still a concern or a threat for the water system."

Hodge emphasized that because WAPA plans to reduce the water Levelized Energy Adjustment Clause at the same time that the base rate increase would go into effect, customers would see a net decrease in their water bills. He also pointed out that any change would be seven months away.

On the electric side, the proposed base rate increase would serve two purposes, according to Hodge.

It would allow WAPA's electric system to "break even" in accounting terms. Hodge said WAPA's electric system has shown a net loss during the last two or three years, but auditors have said the system needs to break even on paper because it is, at least in part, a government entity.

The base rate increase also would allow WAPA to pay for new post-employment benefit costs required by law.

Though the 2.5-cents-per-kilowatt-hour increase would not be as jarring as the 20 percent electric LEAC hike residents have been coping with since Oct. 1, Hodge urged ratepayers to view the potential rate increase as an investment because WAPA can use those revenues for maintenance and capital projects.

He also was optimistic that by the time the increase would go into effect next July, customers could be seeing some relief in the electric LEAC because of fuel diversification efforts, such as solar and biofuels.

- Contact Lou Mattei at 714-9124 or email lmattei@dailynews.vi.The V.I. Water and Power Authority is seeking Public Services Commission approval of the following base rate increases, which would go into effect July 1, 2013:

- Water: A 5.4 percent base rate increase, which would bring in $1.4 million, plus a line-loss reduction capital surcharge of $900,000, or 71 cents per 1,000 gallons of water sold. The increase would generate an additional $2.3 million a year for WAPA, but would be offset by a simultaneous reduction in the water Levelized Energy Adjustment Clause. The net result will be an overall water rate reduction of 43 cents for a typical bill of 2,400 gallons, according to WAPA.

- Electricity: A base rate increase of $18 million, or 5.1 percent. This equates to an increase of 2.5 cents per kilowatt hour. A residential customer using 400 kilowatt hours per month would pay an additional $10 a month.

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