May 8, 2008 — After hearing the V.I. Water and Power Authority’s case for water and electric base rate increases, the Public Services Commission voted Thursday to postpone voting in order to gather more information and delay the impact on ratepayers.
WAPA Executive Director Hugo Hodge Jr. made an emergency request to increase the base water rate so WAPA can fend off the risk of technical default on $29.2 million in bond debt.
WAPA Chief Financial Officer Gregory Rhymer and Hodge said all payments are being made and there is no risk of any interruption in payments. The risk is of a technical default in the terms of the bond.
The problem is with WAPA’s debt coverage ratio, a measure of how creditworthy an organization is. Put simply, it 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 is. The bond requires a debt coverage ratio of 1.25, but at WAPA’s last annual review, the ratio was 1.16.
While the oil surcharge — the Levelized Energy Adjustment Clause — has gone up, that money passes through WAPA to the Hovensa oil refinery, so it doesn’t help the utility’s financial strength. WAPA is thus asking for an increase in the base water rate that would amount to about 6 percent of the average consumer’s bill.
PSC Chairman Joseph Boschulte asked Hodge if WAPA can do any more from within to adjust the debt ratio.
"We have done a lot internally," Hodge said, listing several examples. "We’ve changed how we do overtime to where certain projects usually done after hours are being done during working hours."
That saves money but makes the work more inconvenient for consumers. Internal efforts have increased the ratio to 1.22, but cannot make it the rest of the way, he said. With the rate increase, the debt ratio would be closer to 1.75, allowing some leeway for growth or changes in the water system, he said.
PSC attorney Boyd Sprehn advised the PSC to hold off on deciding the water rate question for 60 days.
"The emergency is not that WAPA will be unable to pay bills," Sprehn said. "The emergency is meeting terms of the bond. Making this filing (to the PSC for a rate increase) has taken some of the pressure off."
If the PSC fails to vote by its deadline, by law, the rate increase will go into effect thirty days after the deadline, Sprehn said.
WAPA Chief Financial Officer Nellon Bowry said the rate will still need to increase soon.
"The filing of the request … temporarily halted the march to default," Bowry said. "But you still have to cure the default."
While WAPA is close to meeting the debt ratio now, negotiated worker salary increases that take effect over the next two years will put the goal out of reach without a rate increase by early 2009, he said.
WAPA’s request for an electric base rate increase is less immediately pressing, but still necessary if the utility is to improve efficiency and properly maintain itself, Hodge argued.
"In ’03 there was an increase of nine percent, then a decrease in ’04 of five percent," he said. "Meanwhile, all other costs … you name it, have increased."
PSC commissioners were sympathetic, but not ready to approve the increase right away.
"We just want to be thorough, and strike a balance before the decision," commissioner M. Thomas Jackson said. "You definitely cannot continue and function without this and at the same time the community cannot pay more. So we are definitely between a rock and a hard place."
In a single action, the board voted unanimously to suspend debate on the water base rate for 60 days and suspend the question of the electric base rate for a period "not to exceed eight months."
Voting yea were: Boschulte, Jackson, Donald G. "Ducks" Cole, Verne C. David, Sirri Hamad and Alecia M. Wells.
In another action, the PSC voted to allow WAPA to redirect $2.18 million from an existing bond to pay to repair the waste heat recovery boiler on St. Thomas by June or July rather than January 20009. The boiler saves energy by reusing steam from other generators. At today’s prices, the boiler will save more than $1.6 million in oil every month so getting it running six months early increases the savings.
Voting yea were: Boschulte, Cole, David, Hamad and Wells. Jackson was momentarily out of the room and his vote listed as "absent."
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