May 1, 2008 — V.I. Water and Power Authority Executive Director Hugo Hodge Jr. made his case for utility base rate increases to St. Croix Chamber of Commerce members Thursday, arguing rates must go up in the short run to lower costs in the longer run.
WAPA's governing board authorized Hodge to request the base rate increase from the V.I. Public Services Commission at their April meeting (See: "WAPA to Ask PSC for Base Rate Hikes in Water, Electricity.")
While the skyrocketing cost of oil has hit rate-payers hard on both water and electric bills, Hodge said that money doesn't help run the utility.
"On an annual basis, 78 percent of WAPA's expenses is oil," Hodge said to the Chamber members gathered at the Palms at Pelican Cove. "That means 78 percent is passed on from the consumer to Hovensa … which means I run the business on the other 22 percent."
Reasons for increasing the water base rate are different from those for increasing the electric base rate, he said. On the water side, the critical problem is WAPA has to increase its debt-service ratio or risk defaulting on $29.3 million in bonds.
The debt coverage ratio is a measure of how credit-worthy an organization is. In this case it is WAPA's annual operating income divided by the total amount of all interest and principal paid on all of WAPA's loans. The higher the number, the better the financial shape of the company.
"We are mandated by the bond-holder to maintain a debt-service ratio of 1.25," he said. "But in 2007 we came in at 1.16. This means we could become in covenant default, meaning $29.3 million in debt would come due on that day."
Hodge said he is asking for an increase of 9.1 percent in the water base rate, which he said comes to a 6.1 percent overall increase in typical water bills.
On the electric side of the equation, Hodge said an increase is needed to keep up with inflation and to allow WAPA to make capital improvements to increase power-generating efficiency.
"Since the last increase, the unions have had four pay increases on at least two contracts," he said. "Over the last five years the base rate has decreased. You are all businessmen here and you have all seen costs go up. … This increase will let us deal with what should have been done the last five years and to move ahead with capital projects to make our plants as efficient as possible."
Seemingly resigned, chamber members asked few questions about the increase, focusing instead upon efforts to move away from oil-based power generation and on what can be done to increase efficiency now. Hodge said all bids are in on WAPA's recent request for proposals for up to 20 megawatts of non-oil-based power production and he would be looking over them later that very afternoon.
Chamber chairman Omer ErSelcuk asked what means of energy production Hodge preferred.
"I think a mixture, especially on St. Croix," Hodge said. "I’m hoping Renaissance will have a good price, because of all the options, they already have a plant and so will be the fastest to bring online."
St. Croix Renaissance Park corporation has a pre-existing coal-fired generating facility on St. Croix's south shore, east of the Hovensa oil refinery.
Hodge said wind, geothermal and generating energy by burning municipal waste were also strong contenders, but emphasized the bids were just complete. The bids will be evaluated and a final decision made by June 30, he said.
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