WAPA needs at least $375 million over the next five years to stay operational and address its mounting debt. A new report from Ernst & Young (EY) lays out the full extent of the utility’s financial challenges — and the tough decisions ahead.

Despite the daunting numbers, WAPA CEO and Executive Director Karl Knight remains optimistic. “I think that is achievable,” Knight said in an interview with the Source, emphasizing the need for strategic financial planning. “This is not a deficit we have to overcome tomorrow, but it is something that we have to put thought into.”

Knight acknowledged that while there were no surprises in the EY report, it serves as an important consolidation of financial information. “There’s a sense that this is all the information compiled in one place where we can look at it. This is what the Senate asked for — an assessment by a turnaround management company. It provides a fresh set of eyes and a third-party perspective,” he said.

The report underscores that WAPA’s financial position is unsustainable under current conditions, with projected cash losses of $170 million, $87 million in past-due vendor bills, $27 million in deferred maintenance, and $88 million in outstanding debt by 2030. Moreover, additional risks — such as fluctuating fuel costs and system vulnerabilities — could push the total funding need to $498 million.

Debt Burden Far Exceeds Industry Standards

A key concern highlighted in the EY report is the staggering size of WAPA’s debt compared to industry standards. Typically, utilities carry a debt load that is about 5.5 times their annual earnings before expenses (EBITDA), meaning they could pay off what they owe in a few years under normal operating conditions. By contrast, WAPA’s debt is 945 times its annual earnings, making it, according to the report, nearly impossible to pay off through normal revenue.

Additionally, while most utilities have debt that amounts to about twice their yearly revenue (2.1x revenue), WAPA’s debt is 0.80 times its annual revenue — which may seem lower, but due to WAPA’s ongoing financial losses, it is still unsustainable. Unlike well-managed utilities that use their revenue to gradually reduce debt, WAPA relies on external funding and loans just to keep operating. Without significant restructuring, the utility will remain in a cycle of borrowing to cover basic expenses, according to the report.

“We don’t have an investment-grade credit rating right now, which means refinancing will be challenging,” Knight admitted. “But that’s part of why we’re bringing in a municipal financial adviser — to help us explore all options available to us.” The adviser will assess WAPA’s refinancing options, identify potential sources of relief, and help WAPA become a viable player in the credit market again.

Hiring a Municipal Financial Advisor to Improve Credibility and Stability

The hiring of a municipal financial advisor is a common practice among utilities facing debt restructuring. Municipal advisors play a crucial role in guiding public utilities through complex financial strategies, including debt consolidation, bond refinancing, and market positioning.

“We do have to start looking at the credit market again, and we need to see if there’s an opportunity to refinance some of our debt,” Knight explained. “We’ve been operating in the last few years without a municipal fiscal adviser, and it’s time to correct that. We want to secure an adviser who can help us consolidate debt, negotiate financing options, and ensure that when the opportunity presents itself, WAPA is positioned to take advantage of it.”

Knight also emphasized the importance of restoring investor confidence by resuming regular audited financial statements and maintaining clear communication. “We released an EMMA filing this past month, and we want to get back to a process of releasing monthly filings — keeping our investors aware of our progress,” he said. The goal is to improve WAPA’s standing in the credit markets and create a stronger foundation for future financing opportunities.

The Electronic Municipal Market Access (EMMA) system, managed by the Municipal Securities Rulemaking Board (MSRB), is the official database for municipal bond information. Utilities and government agencies use EMMA to provide transparency in their financial dealings, allowing potential investors to track credit health, bond issuances, and other financial disclosures. By committing to regular EMMA filings, WAPA, according to Knight, aims to rebuild credibility in the financial markets and improve its ability to secure new funding opportunities.

Turnaround Plan: Next Steps in Ernst & Young’s Engagement

WAPA’s engagement with EY is part of a three-phase turnaround plan mandated by Act No. 8471, which the Virgin Islands Legislature passed in 2021. The law required a turnaround management company to conduct a full evaluation of WAPA’s finances and operations, providing a structured approach to guide the utility toward stability.

• Phase one, now complete, involved a comprehensive assessment of WAPA’s financial health, analyzing outstanding debts, energy plans, operational costs, and potential risks. The Jan. 30 EY report represents this phase, offering a baseline for future improvements.
• Phase two, set to begin in the coming months, will focus on developing recommendations to address the identified challenges. EY is expected to propose cost-cutting measures, revenue strategies, and debt restructuring plans to improve WAPA’s long-term outlook.
• Phase three will involve decisions on whether to implement EY’s recommendations, including potential changes beyond the Levelized Energy Adjustment Clause (LEAC) and other revenue-generating strategies.

The Virgin Islands Public Finance Authority (VIPFA), chaired by Gov. Albert Bryan Jr., selected EY to carry out this turnaround process. Knight emphasized that this plan is an essential step in breaking WAPA’s cycle of debt and operational inefficiencies.

Strategic Projects and Operational Improvements

While the financial situation is dire, several key initiatives underway to improve WAPA’s operations and long-term sustainability are not factored into the report, according to Knight, who described the assessment as more of a snapshot of past WAPA. Along with the recent commissioning of four new Wärtsilä generators, Knight said:

• Solar Energy Expansion: Another solar farm is nearing completion.
• Fuel Cost Reductions: WAPA has issued an RFP to renegotiate costs for liquefied petroleum gas (LPG) and secured a contractor to renegotiate diesel fuel costs.
• Billing and Metering Improvements: WAPA is making critical investments in modernizing billing and metering systems to improve collections and reduce inefficiencies.

Knight believes these steps will reduce operational deficits and help stabilize WAPA’s finances. “There are things happening that I think will ultimately show a path forward — still very positive,” he said.

Another major component of WAPA’s long-term recovery strategy is the use of federal funds, particularly through FEMA’s investment in replacing outdated infrastructure.

In the past three years, WAPA has secured significant federal funding to modernize its infrastructure and improve service reliability. In June 2024, FEMA approved the replacement of the Richmond Power Plant on St. Croix and two generating units at the Randolph Harley Power Plant on St. Thomas. These upgrades are expected to modernize power infrastructure, improve reliability, and incorporate more renewable energy sources.

However, recent federal actions have raised concerns about the future of FEMA funding. A potential elimination of FEMA, as reported by national news in past weeks, could disrupt federally backed infrastructure projects and shift the financial burden of disaster recovery and infrastructure upgrades to local governments.

“We’re moving forward with all pistons firing,” Knight said. “I think our funds are secured, but the projects on the drawing board need to move into reality. We still have to be smart — making sure we have the right advisers, consultants, and teams in place to dedicate their full attention to these initiatives.”

Why Rates Can’t Be Reduced Immediately

While some customers may expect immediate relief on their energy bills following WAPA’s latest efforts, Knight made it clear that rate reductions aren’t possible in the near term due to the utility’s ongoing financial challenges.

“Passing on rate savings from Wärtsilä’s new generating units, for example, isn’t something we can do right now,” Knight said. “We still have a financial hole to dig ourselves out of.”

Instead, he explained that WAPA’s focus right now is twofold, including reducing the operational deficit month by month to ensure that revenue consistently covers day-to-day expenses and addressing outstanding payables, deferred fuel balances, and vendor debts, which Knight described as a multiyear process that will take at least two to three years to stabilize.

“Our goal is to get to a place where we can operate efficiently and pass savings along to customers,” Knight said. “But for now, the priority is ensuring that we don’t slip further into financial instability.”

And, as WAPA moves forward with its three-phase turnaround plan, Knight emphasized that the utility must remain focused on long-term investments that will lead to sustained cost reductions and emphasized that the municipal financial adviser will play a critical role in determining when and how savings can be passed on to customers without compromising the utility’s ability to meet its financial obligations.

“In the short term, our customers may not see an immediate drop in rates,” he said. “But everything we’re doing now is aimed at ensuring that we never find ourselves in this kind of financial crisis again. Yes, there is a hole we need to dig ourselves out of. But this report provides a solid baseline of where we are — and, more importantly, where we need to go from here.”

Editor’s Note: The Ernst & Young report was submitted to the Office of the Governor, the Virgin Islands Public Finance Authority (PFA), and Senate President Milton Potter’s office on Jan. 30. Efforts by the Source to obtain the report were initially redirected to the PFA, which stated that it would need to be acquired from Government House. However, Government House Communications Director Richard Motta indicated that he first needed to obtain a copy from the PFA. The Source ultimately secured a copy of the report last week through an industry-published website, which also released an analysis of the findings on Monday.

St. John taxi drivers will be exempt from a planned 3 percent transaction fee for one year following discussions between Senator At Large Angel Bolques Jr. and the National Park Service (NPS). The exemption, which delays the fee until Jan. 1, 2026, provides relief for local drivers and additional time to adjust to the federally mandated fee structure.

The decision follows months of engagement between Bolques and NPS officials regarding commercial use authorization fees affecting transportation services within the park. Initially, after discussions in December 2024, NPS agreed to extend the fee deadline to February 2025. Continued advocacy led to the full-year exemption, according to the press release.

Bolques expressed gratitude to NPS officials, including Superintendent Penelope Del Bene, Deputy Superintendent Scott Simmons, and Concessions Management Specialists Paul Jones and Esther Francis, for their cooperation. During meetings, officials also provided updates on developments at the Caneel Bay property, the press release stated.

Taxi drivers are encouraged to use the exemption period to prepare for the 2026 implementation. Bolques plans to work with the Taxi Cab Commission (TCC) to assess St. John’s tariff system and facilitate discussions between taxi operators, NPS, and TCC to explore ways to mitigate the impact of the upcoming fee, the release stated.

The exemption follows Bolques’ broader efforts to support the territory’s transportation sector and ensure fair regulatory policies, it stated.

Updated Feb. 10, 2025 | 11 p.m.

Elections Supervisor Caroline Fawkes responded Monday night to concerns from poll workers about a lack of communication regarding delayed payments, emphasizing that the Elections System of the Virgin Islands (ESVI) has kept those affected informed. She explained that deputies and judges were responsible for notifying staff about the delays, and vendors seeking updates were directed to her office. While it is not the supervisor’s role to individually contact 200 workers, Fawkes said ESVI followed established communication protocols to ensure everyone was aware of the situation.

Fawkes reiterated that some election workers received payments while others are still waiting due to the gradual processing of requisitions. She explained that a single staff member cannot input 100 requisitions at once, and approvals are made at different intervals depending on available funding. Additionally, election officials were notified as early as October during training sessions that payments could be delayed. Despite these challenges, she said the Elections Office does not control the release of funds, which is handled by the Department of Finance.

Internal emails between ESVI and vendors do show updates sent to many of those awaiting payment, with one vendor acknowledging the effort to keep them “informed and reassured,” though Fawkes did say emails or texts could be missed at any given time. A December 2024 email from Deputy Supervisor Terrell Alexandre also stated that ESVI was working with the Office of Management and Budget (OMB) to secure the necessary allotments to process outstanding payments. Fawkes said Monday that Elections remains committed to working with Finance officials to resolve the issue.

According to Fawkes, outstanding check payments in the St. Croix district total 73, while 75 remain on St. Thomas-St. John, for a total of 145 checks still left to be issued.

Finance Commissioner Kevin McCurdy did not return calls from the Source Monday for comment.

February 9, 2025

Poll workers who staffed the November 2024 General Election have yet to receive full payment for their work, with some still awaiting funds more than three months later. Frustrated by the lack of communication, several workers have reached out to the media, seeking clarity on when they will be paid and why they were not notified earlier about the delays.

Supervisor of Elections Caroline Fawkes confirmed to the Source that while $400,000 was allocated for the election, not all payments can be released until the Finance Department has the necessary funds. Each poll worker is classified as an independent vendor with a unique vendor number, and while some have been paid, others remain in limbo, she said.

“I know they were hoping that since it’s tax time, more revenues would be coming in between January and April,” Fawkes said, noting that she has been in regular contact with senators and has been advocating for a resolution within the Office of Management and Budget and Finance for the past three months. Cash flow remains tight, and poll workers are in line alongside other vendors awaiting payment, she added.

“This is the worst I’ve ever seen during an election cycle,” Fawkes added, stating that payments have been processed but still require final release from the Finance Department.

Meanwhile, members of the Board of Elections have also been contacted by concerned workers. In a letter sent last week, one poll worker detailed the long hours and demanding conditions of the job, writing, “Poll workers are made to arrive at 5 a.m. and stay on-site with no breaks, working with hundreds of voters until polls close at 6 p.m. They then remain until the judge leaves, which can take up to two additional hours. How could the supervisor of Elections not ensure that poll workers were paid for their time and hard work within 90 days?”

Many of those still waiting for payment are retirees who rely on the extra income to cover living expenses, according to one worker who contacted the Source Friday. Several workers also said that beyond the financial strain, they were disappointed by the lack of communication from election officials.

Financial Constraints and Outstanding Vendor Payments

In his State of the Territory Address on Jan. 27, Gov. Albert Bryan Jr. acknowledged the government’s financial struggles, including more than $50 million owed to vendors. He announced the establishment of a $50 million line of credit to help manage the territory’s cash flow and vendor obligations, noting that $25 million had already been used to reduce outstanding debts.

Whether the revenue picture has improved remains unclear as officials contacted over the weekend said there were no new updates regarding vendor payments. Additionally, a review of the Finance Department’s transparency website found that detailed information on outstanding vendor payments is not readily available.

The most recent audited financial statements for the government of the Virgin Islands cover the fiscal year ending Sept. 30, 2021, and were published in March 2024. The Office of Management and Budget’s 2023 Annual Revenue and Expenditure Report, the last posted, indicated overall revenue increases but also did not specify the status of vendor payments.

Meanwhile, the USVI Open Budget website provides a transparent breakdown of government revenue and expenditures, updated weekly. However, the site does not show a real-time breakdown of outstanding vendor payments and the most recent publicly available data primarily covers prior fiscal years.

Officials have recommended contacting Finance directly for the most updated numbers.