Lawmakers voted Tuesday to increase the maximum amount that the Virgin Islands Water and Power Authority can borrow and classify as debt – from $500 million to $750 million.
Bill No. 32-0312, heard before the Senate Finance Committee on Tuesday, would amend current statute that authorizes WAPA to issue and sell bonds with an aggregate principal amount of up to $500 million. In a letter proposing the bill to Senate President Myron Jackson (D-STT), Gov. Kenneth Mapp said the bill aims to give the authority the “critical flexibility” it needs to fund capital programs and operations of its power and water plants.
The bill, sponsored by Jackson at Mapp’s request, would also exclude from the maximum debt obligation any loans from federal agencies, as well as capital and operational leases agreed to by the utility. WAPA officials clarified that raising the debt ceiling would not increase the utility’s capacity to borrow above its existing contractual obligations.
When asked by Sen. Nellie O’Reilly how the increased debt limit – and the potential projects it would fund – would impact ratepayers, WAPA Chief Executive Officer Lawrence Kupfer said it depends on what those projects are. If they promote power efficiency, which is the authority’s overall goal, Kupfer said, it would drag the rates down.
Failure to raise the debt ceiling, however, may cost ratepayers. According to Kupfer, the current rates already take into account some projected savings from the lease of two higher-efficiency generating units from Aggreko LLC, which is projected to reduce the authority’s costs by $18 million a year. The project is scheduled to go online in January next year, but the savings have begun taking effect in July.
The Aggreko contract requires WAPA to get $1.7 million in irrevocable bank guarantees, an amount that would be counted toward the debt ceiling.
“Come January 1, if we can’t resolve this debt limit, Aggreko would not turn over the unit to WAPA, which would mean increasing the rates,” said Kupfer.
Three St. Thomas generating units under a contract with Wartsila – expected to save the authority $25 million a year – are slated to go online in December, but consumers would see saving beginning in October if they raise the debt ceiling.
WAPA’s debt ceiling has grown drastically since 1966, when it stood at a mere $10 million. The last increase occurred in 2008, when it rose from $350 million to $500 million. Kupfer lists the authority’s debt at roughly $320 million, way below the existing debt ceiling, but recent accounting changes and the post-hurricane recovery efforts would tip the debt over the $500-million limit, he said.
According to Kupfer, the 2017 hurricanes left the authority devoid of revenue and with no choice but to seek Community Disaster Loans through the Federal Emergency Management Agency. The federal law authorizing the roughly $91 million in disaster loans preempted the authority’s debt limit, Kupfer said, but they need to count the amount as debt anyway.
“We must be clear that the Community Disaster Loans must nonetheless be included as debt in connection with the issuance of any non-Community Disaster Loan debt under section 106 of [the Revised Organic] Act,” said Kupfer.
This puts the current debt at roughly $411 million, but another change involving accounting and regulation rules increases that amount by $160 million. The authority’s propane conversion contract with VITOL Corp., which was once listed as an operating lease and therefore exempt from classification as long-term debt, is now classified as capital lease by BDO USA, the authority’s auditing firm.
“Although the VITOL agreement explicitly recites the parties’ intention that the lease agreement not be treated as debt, the heightened sensitivity to clarifying what constitutes a capital lease versus an operating lease required additional focus,” Kupfer explained.
WAPA is in fact poised to pay VITOL a total of $310 million for the propane conversion project in the next 10 years after 12 percent in interest factored in each year. Pamela Goins, VIWAPA’s bond counsel, said the auditors would consider only the principal portion of the agreed upon amount – the initial $160 million – as capital lease.
Voting to advance the bill were Sens. Marvin Blyden (D-STT), Neville James (D-STX), Tregenza Roach (I-STT), Kurt Vialet (D-STX) and At-Large Sen. Brian Smith. O’Reilly abstained while Sen. Dwayne Degraff (D-STT) was absent.
Lawmakers also voted to hold in committee Bill No. 32-0263, which would authorize some $10 million from the Limetree operating agreement toward the construction of a new hotel property in Yacht Haven Grande on St. Thomas. According to Vialet, the “loosely worded” bill is waiting for an amendment from Jackson and Blyden, which is expected to tighten the bill’s definitions of the loan’s scope and repayment.
Voting to hold the bill were James, O’Reilly, Roach and Vialet. Blyden and Smith abstained while DeGraff was absent.