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HomeNewsArchivesWAPA Pleased with Audit, Hopeful that St. Thomas Gets Water by Weekend

WAPA Pleased with Audit, Hopeful that St. Thomas Gets Water by Weekend

In addition to reviewing a 2010 external audit report Tuesday, the V.I. Water and Power Authority Governing Board discussed having the temporary reverse osmosis plants online by Thursday, just in time for the holiday weekend, so that water rationing can be relaxed on St. Thomas.

Eric Larson, a partner at Ernst & Young, LLP, who reviewed the audit report, said that the authority had a clean report, despite some concerns regarding weaknesses with management in their financial close processes, and the high cost of deferred fuel, which ultimately can affect rates.

Larson stated that there were not any unusual or controversial accounting entries on the financial statements; however, he brought awareness to the deferred fuel asset and accounting for Other Post-Employment Benefits (OPEB), other than pensions.

Larsen said WAPA follows the provisions of Accounting Standards Codification (ASC) No. 980, which allows utilities to defer certain costs of revenues based on the probability that the items would be recovered through rate-making.

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In this case, ASC 980 is measuring deferred fuel for future recovery, but according to Larsen, the current rates don’t cover the cost of the deferred fuels, or of certain OPEB costs, which causes an under-recovery of costs.

“The authority has had losses over the last several years because the rates were not set high enough,” Larson said.

He explained that the regulator has to set rates to recover the cost of operations in order to avoid deferred fuel liabilities, and that WAPA is authorized to include the cost of under-recovery in LEAC charges.

However, Larson said that the problem doesn’t only stem from deferred fuels, but from post-employment benefits as well, which he said could be responsible for driving WAPA deeper into the hole. He said the base rate hasn’t been set to a high enough level to cover post-employment benefits other than pension, which includes health insurance for retirees.

While the deferred fuel cost can be covered through the LEAC, there is no other mechanism to recover the cost of OPEB. Hodge explained that OPEB relates to the monies that must be paid for the healthcare premiums of all retired employees.

“The issue isn’t the accounting, the issue is the recovery of costs,” WAPA Executive Director Hugo Hodge Jr. said emphatically. “We have to petition the entity that sets rates because we don’t set the rates. We have to petition the PSC in our base rates to recover revenue requirements that include those OPEB numbers.”

According to Larsen, WAPA is well on its way to mitigating the problems, and he said the auditors are confident WAPA is “doing the right thing” to reduce the amount of under-recovery.

“I’m pleased with the audit,” Hodge said. “There’s many questions daily about the integrity of our operations, and it’s good to show to the public that on an annual basis we’re audited, and when they come back in this manner it shows the integrity of our operations.”

Also during the meeting, Hodge informed the board that half of the temporary reverse osmosis (RO) units should be online by Thursday, and WAPA intends to pump extra storage to relieve the rationing schedule which is in place for Christmas.

RO uses a filter to purify water rather than the steam process that is currently being used, and will provide a cost savings passed on to the customers. Three of the six temporary RO units will hopefully go online by the end of the week which will relax the conservation schedule over the Christmas weekend.

Since Nov. 15, WAPA has struggled to produce water since Unit 11, a boiler, sprang a leak and the repair process took longer than expected causing a strict conservation schedule to remain in effect for weeks. At one point, they even called in the V.I. National Guard to help mitigate the problem – they were able to set up mobile water plants, which produced 250,000 gallons a day at the height of the crisis.

The remaining three units will go online in early January. The total output of all six units will be 1.5 million gallons per day, which will greatly assist in meeting the 1.8 million gallons per day demand.

WAPA plans to continue running its existing desalination plants to help meet the demand and rapidly increase the storage capacity back up, which at its peak can hold 43 million gallons.

Permanent RO facilities will be online in 9 to 12 months, which was approved recently with a contract awarded to Seven Seas. Hodge said a temporary generating unit to be leased from General Electric will also give stability to power production on St. Thomas.

In a meeting last week with the Environmental Protection Agency, WAPA was able to clear the permitting process, allowing it to be fast tracked. Once the temporary generator is online, WAPA will be able to take its other units offline to complete repairs in a systematic manner, which will improve service reliability at the St. Thomas Harley Power Plant.

Hodge also reported that there will be a reduction in both the water and electric LEAC, effective January 1, as a result of a Public Services Commission meeting, which took place Monday night. Since they were unable to make a quorum, the new rates will go into effect by default.

In the “WAPA Working For You” segment, Auto Technician 1st Class Linus Nicholas explained his daily duties to the board. Nicholas has worked for 20 years at WAPA, and he said his job is to maintain and service all of the equipment, including vehicles, weed whackers, and cranes. There are about 95 vehicles in the Authority’s St. Croix fleet that are maintained by the mechanics in the auto shop.

Nicholas took board members outside at the back of WAPA’s building and demonstrated how he uses his scanner to diagnose vehicle problems on Hodge’s Sports Utility Vehicle.

In other business, the board authorized:

  • A time extension for St. Croix’s unit #11 turbine and generator inspection, which was delayed due to special parts which needed to be fabricated. The project is expected to be completed March 31, 2012.
  • Property clean-up at Devcon Property, which will cost $371,416: Marco, St. Croix Inc., Fleming’s Transport, and other vendors will conduct the clean-up near the Richmond Power Plant on St. Croix, in compliance with EPA rules and regulations.

Board members present were Gerald Groner, Noel Loftus, Cheryl Boynes Jackson, Karl Knight and Wayne Biggs. Absent were Alicia Barnes, Juanita Young and Brenda Benjamin.

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In addition to reviewing a 2010 external audit report Tuesday, the V.I. Water and Power Authority Governing Board discussed having the temporary reverse osmosis plants online by Thursday, just in time for the holiday weekend, so that water rationing can be relaxed on St. Thomas.

Eric Larson, a partner at Ernst & Young, LLP, who reviewed the audit report, said that the authority had a clean report, despite some concerns regarding weaknesses with management in their financial close processes, and the high cost of deferred fuel, which ultimately can affect rates.

Larson stated that there were not any unusual or controversial accounting entries on the financial statements; however, he brought awareness to the deferred fuel asset and accounting for Other Post-Employment Benefits (OPEB), other than pensions.

Larsen said WAPA follows the provisions of Accounting Standards Codification (ASC) No. 980, which allows utilities to defer certain costs of revenues based on the probability that the items would be recovered through rate-making.

In this case, ASC 980 is measuring deferred fuel for future recovery, but according to Larsen, the current rates don’t cover the cost of the deferred fuels, or of certain OPEB costs, which causes an under-recovery of costs.

“The authority has had losses over the last several years because the rates were not set high enough,” Larson said.

He explained that the regulator has to set rates to recover the cost of operations in order to avoid deferred fuel liabilities, and that WAPA is authorized to include the cost of under-recovery in LEAC charges.

However, Larson said that the problem doesn’t only stem from deferred fuels, but from post-employment benefits as well, which he said could be responsible for driving WAPA deeper into the hole. He said the base rate hasn’t been set to a high enough level to cover post-employment benefits other than pension, which includes health insurance for retirees.

While the deferred fuel cost can be covered through the LEAC, there is no other mechanism to recover the cost of OPEB. Hodge explained that OPEB relates to the monies that must be paid for the healthcare premiums of all retired employees.

“The issue isn’t the accounting, the issue is the recovery of costs,” WAPA Executive Director Hugo Hodge Jr. said emphatically. “We have to petition the entity that sets rates because we don’t set the rates. We have to petition the PSC in our base rates to recover revenue requirements that include those OPEB numbers.”

According to Larsen, WAPA is well on its way to mitigating the problems, and he said the auditors are confident WAPA is “doing the right thing” to reduce the amount of under-recovery.

“I’m pleased with the audit,” Hodge said. “There’s many questions daily about the integrity of our operations, and it’s good to show to the public that on an annual basis we’re audited, and when they come back in this manner it shows the integrity of our operations.”

Also during the meeting, Hodge informed the board that half of the temporary reverse osmosis (RO) units should be online by Thursday, and WAPA intends to pump extra storage to relieve the rationing schedule which is in place for Christmas.

RO uses a filter to purify water rather than the steam process that is currently being used, and will provide a cost savings passed on to the customers. Three of the six temporary RO units will hopefully go online by the end of the week which will relax the conservation schedule over the Christmas weekend.

Since Nov. 15, WAPA has struggled to produce water since Unit 11, a boiler, sprang a leak and the repair process took longer than expected causing a strict conservation schedule to remain in effect for weeks. At one point, they even called in the V.I. National Guard to help mitigate the problem – they were able to set up mobile water plants, which produced 250,000 gallons a day at the height of the crisis.

The remaining three units will go online in early January. The total output of all six units will be 1.5 million gallons per day, which will greatly assist in meeting the 1.8 million gallons per day demand.

WAPA plans to continue running its existing desalination plants to help meet the demand and rapidly increase the storage capacity back up, which at its peak can hold 43 million gallons.

Permanent RO facilities will be online in 9 to 12 months, which was approved recently with a contract awarded to Seven Seas. Hodge said a temporary generating unit to be leased from General Electric will also give stability to power production on St. Thomas.

In a meeting last week with the Environmental Protection Agency, WAPA was able to clear the permitting process, allowing it to be fast tracked. Once the temporary generator is online, WAPA will be able to take its other units offline to complete repairs in a systematic manner, which will improve service reliability at the St. Thomas Harley Power Plant.

Hodge also reported that there will be a reduction in both the water and electric LEAC, effective January 1, as a result of a Public Services Commission meeting, which took place Monday night. Since they were unable to make a quorum, the new rates will go into effect by default.

In the “WAPA Working For You” segment, Auto Technician 1st Class Linus Nicholas explained his daily duties to the board. Nicholas has worked for 20 years at WAPA, and he said his job is to maintain and service all of the equipment, including vehicles, weed whackers, and cranes. There are about 95 vehicles in the Authority’s St. Croix fleet that are maintained by the mechanics in the auto shop.

Nicholas took board members outside at the back of WAPA’s building and demonstrated how he uses his scanner to diagnose vehicle problems on Hodge’s Sports Utility Vehicle.

In other business, the board authorized:

  • A time extension for St. Croix’s unit #11 turbine and generator inspection, which was delayed due to special parts which needed to be fabricated. The project is expected to be completed March 31, 2012.
  • Property clean-up at Devcon Property, which will cost $371,416: Marco, St. Croix Inc., Fleming’s Transport, and other vendors will conduct the clean-up near the Richmond Power Plant on St. Croix, in compliance with EPA rules and regulations.


Board members present were Gerald Groner, Noel Loftus, Cheryl Boynes Jackson, Karl Knight and Wayne Biggs. Absent were Alicia Barnes, Juanita Young and Brenda Benjamin.