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WAPA Wants 11-Percent Increase in Water Rates

Sept. 17, 2008 — In a short special session Wednesday, the governing board of the V.I. Water and Power Authority approved an 11 percent overall water-rate increase request and an accompanying water-production business plan, to be presented to the Public Services Commission for approval.
The plan, originally submitted to the board for review in July, outlines the proposed rate strategies that will be part of WAPA's base-rate increase petition to be filed with the PSC by Sept. 30. WAPA had filed for an emergency water-base rate increase in May, to address chronic revenue strains affecting water production. The PSC took no action at the time, choosing to include the request in a full rate investigation to be completed by early next year. (See "PSC Puts Off Vote on WAPA Base Rate Hike.")
The last rate review conducted by the PSC was in 1994 and established a rate of $16.90 per thousand gallons in 1995, according to Cassandra Dunn, WAPA's public information officer. This has resulted in a revenue deficiency of about $7.4 million annually.
The shortfall has created a problem with WAPA's debt-coverage ratio, a measure of how credit-worthy an organization is. Which, 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, Dunn said.
WAPA will ask the PSC for a 23.6 percent base-revenue increase, an 11-percent increase in the monthly billing of an average customer using 2,400 gallons. The average customer's bill would increase from $77.94 to approximately $87 dollars if the PSC approves. If not, WAPA faces a greater risk of technical default, causing it to suddenly pay much more for capital-improvement bonds — money spent only on debt service, which will ultimately have to be passed on to ratepayers.
The PSC will probably address the request in January, said WAPA Executive Director Hugo Hodge Jr.
WAPA is also proposing for the PSC's attention a new production-cost allocation method and a revised tariff structure, including a revised incentive rate tariff lowering rates for very large water users to give them an incentive not to leave the system.
The board also:
— authorized Hodge to seek legislation to increase the legal limit on WAPA's long-term debt from $350 million to $500 million to fund the five-year capital program for the electric and water systems; and
— authorized Hodge to renew the $5 million water system line of credit for five years with either Banco Popular or First Bank. WAPA entered into five-year agreements with these banks in 2003 but, because of the weak financial condition of the water system, there were no draws made against the existing lines of credit. And it authorized a five-year renewal of the $13 million electric system capital projects line of credit, also with Banco Popular and First Bank.
All votes were unanimous. Board members attending the meeting were chairwoman Juanita Young; Brenda Benjamin; Noel Loftus; Gerald Groner; Donald Francois; Cheryl Boynes-Jackson; Housing, Sports and Recreation Commissioner St. Clair Williams; Commissioner of Planning and Natural Resources Robert Mathes; and V.I. Personnel Director Kenneth Hermon Jr.
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