Nov. 4, 2003 — The Water and Power Authority's water customers will soon be getting a holiday gift they don't want. The WAPA board heard Executive Director Alberto Bruno-Vega make the case Tuesday morning for a seven-percent "interim base rate increase" for potable water to go into effect Dec. 1 and become a permanent boost by May 1.
The board approved the increase by a unanimous vote. The adjustment will also need the OK of the Public Services Commission, which has already indicated it will allow the hike to go through, according to Bruno-Vega.
The publicly owned utility needs to spend millions of dollars on repairs to the existing infrastructure and on expanding its water services on both St. Croix and St. Thomas. But the pressing need right now, Bruno-Vega said, is avoiding falling below the contractual obligation it has to bondholders of 1.25 percent of its bottom line committed to debt-service coverage. The director said he wants to hold that percentage to at least 1.5 and ideally at 1.75 to provide a "cushion" in case income levels drop.
"This will be the first rate increase in nearly 10 years," Bruno-Vega said.
The average residential customer, he said, currently pays $39.50 for 2,400 gallons of water each month. The average increase would amount to $2.77, but be far higher for heavy users. Commercial buyers draw an average 22,000 gallons a month and will see a median increase of $26.63.
One of the hardest-hit customers would be the government itself, which uses more than half the water sold by WAPA and owes the utility millions of dollars from past years for both water and electricity. Housing projects and hospitals are among the biggest consumers of potable water supplied by WAPA.
"If we do nothing, we will fall below our contracted debt-service amount," Bruno-Vega said. Some $1.5 million is currently needed to adhere to bond-covenant obligations and any violation would gravely endanger the ability of the WAPA to float more bonds at reasonable rates, he said, pointing out that the utility's bond rating is already at the "speculative" status, also known as junk bonds. The director said the "assumed" interest rate on any new bonds would be 6.5 percent.
The utility, in a deal with PSC, will invoke — if necessary — an accounting maneuver called a "regulatory asset" should it be in danger of violating any bond agreements. Essentially, existing expenses would be removed from the books and extended over the following two years.
WAPA wants to issue another $17 million or so in bonds for water-system improvements, including new storage tanks and expansion of water lines into Sunny Isle and Barren Spot on St. Croix. Much of St. Thomas does not get WAPA water, Bruno-Vega said, and there has been no expansion in business on the "water side" of the company for at least three years.
The director told the board that St. Croix has "serious problems with unaccounted-for losses" due to leaks, meter errors and theft. Losses of 10 to 15 percent are acceptable to most utilities, he said, but that figure is about 30 percent on St. Croix. Bruno-Vega said WAPA must "stem losses and add new water fields" in order to become a more viable entity.
The water system was transferred from Public Works to WAPA in 1988, and it was "in very poor shape," Bruno-Vega said. Seawater pipes, formerly used to feed fire hydrants, have been abandoned in place, he said, and much of the remaining cast-iron pipe system is old, decrepit and sorely in need of replacement.
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