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Fitch Ceases WAPA Bond Ratings Amid Limited Information

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Overhead View of the Randolph Harley Power Plant, St. Thomas, USVI. Photo by ERNICE GILBERT, V.I. CONSORTIUM

In a significant development, Fitch Ratings has opted to discontinue several ratings for the V.I. Water and Power Authority (WAPA). This decision, which took effect in December, encompasses the withdrawal of ratings for about $74 million in electric system revenue bonds (series 2003 and 2010C) and $69 million in electric system subordinate revenue bonds (series 2007A and 2012C). These bonds were previously graded ‘CC’. Additionally, the Issuer Default Rating (IDR) for WAPA, also rated ‘CC’, has been retracted.

The basis for this move is rooted in the challenges Fitch faced in accessing comprehensive operational and financial data from WAPA. This scarcity of information, both from public sources and directly from WAPA’s management, led Fitch to conclude that there was insufficient transparency to uphold these ratings. As a result, Fitch has terminated not only the bond ratings but also its broader analytical coverage of WAPA. This includes the withdrawal of WAPA’s Environmental, Social, and Governance (ESG) Relevance Score ratings.

Regarding the bonds’ financial security, the electric system revenue bonds are secured by a pledge of net revenue from electricity sales and specific reserves outlined in the bond agreement. The subordinate revenue bonds, while similarly backed, hold a lower priority in payment hierarchy. In essence, primary revenue bonds are first in line for payment in scenarios of limited funds. Both bond types are additionally reinforced by special reserve funds dedicated to debt servicing.

Fitch’s decision also extends to the withdrawal of the Revenue Defensibility, Operating Risk, and Financial Profile ratings, labeled as ‘wd’. The ratings agency has also noted ESG considerations, particularly in governance. There’s a potential for the establishment of an oversight committee for WAPA, which could introduce increased political involvement and potentially lead to debt restructuring. Fitch sees this as escalating the risk of a distressed debt exchange.

Post-withdrawal, Fitch has stated that any future assessments for negative or positive rating actions are now irrelevant.

The Impact on WAPA:

  1. Increased Borrowing Costs: Lacking a current credit rating, WAPA may encounter higher borrowing costs. This is due to potential investors demanding higher returns for perceived increased risk, leading to elevated interest rates on future debts.
  2. Market Confidence and Liquidity Challenges: The lack of a credit rating can reduce market confidence in WAPA, potentially impacting its ability to raise capital. This could also affect the liquidity of WAPA’s bonds, making debt management more complex.
  3. Contractual and Reputation Implications: WAPA’s eligibility for investment portfolios requiring rated securities may be compromised. Additionally, the market’s perception of WAPA could be negatively affected, potentially harming its reputation.

WAPA, a government entity of the US Virgin Islands, is the exclusive provider of electric and water services in the territory, including the islands of St. Thomas, St. Croix, and St. John. The electric system caters to approximately 50,000 customers across residential, commercial, and large power sectors, including the USVI government.

The ESG Relevance Scores for WAPA previously encompassed aspects like Governance Structure, Environmental Impact Exposure, Financial Transparency, and Group Structure, each influencing the credit profile to varying degrees.

Following Fitch’s withdrawal, these associated ESG Relevance scores for WAPA will no longer be available.

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WAPA

Vitema Offices on St. Thomas Closed Due to WAPA Potable Water Disruption

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U.S. Virgin Islands – The Virgin Islands Territorial Emergency Management Agency (VITEMA) Director is advising the public that the St. Thomas offices are closed effective immediately due to a WAPA potable water disruption.

According to WAPA’s statement, the problem is expected to be fixed later this evening and, as such, VITEMA’s St. Thomas office will reopen as usual tomorrow, Wednesday, May 15, 2024 for normal operations, 8am-5pm.

The St. Thomas 911 operations remain functioning as usual.

 

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Loud Boom at Randolph Harley Power Plant Leads to Safety Precautions

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A startling boom at the Randolph Harley Power Plant in St. Thomas prompted an evacuation of the V.I. Water and Power Authority (WAPA) personnel on Thursday. Contrary to initial fears of an explosion, the noise was identified as a safety feature activation—a rupture disk—intended to prevent damage to critical systems, according to WAPA spokesperson Shanell Petersen.

This safety mechanism, which triggered the evacuation, responds automatically when it detects potential threats to the plant’s integrity. The activation caused significant concern, initially described as an explosion by a WAPA official. In response, the V.I. Fire and Emergency Services dispatched teams, and the Virgin Islands Police Department secured the plant’s perimeter.

Petersen explained the evacuation was a necessary precaution due to the intensity of the noise. She clarified that such measures ensure the safety of the staff, highlighting that the rupture disk’s role is a proactive safety response.

The event occurs amid ongoing challenges for WAPA in maintaining consistent power in the St. Thomas-St. John District. Following a district-wide outage on Wednesday, the region experienced similar power interruptions again today. Petersen noted that the rupture disk incident does not directly relate to the generation of power but is a separate safety measure.

The power issues have had widespread repercussions. The V.I. Department of Education had to cancel classes in the district for the second consecutive day. “Due to the ongoing power outage affecting the St. Thomas-St. John District, all schools within the district will remain closed today, Thursday, May 9, 2024,” announced the Department. “We apologize for any inconvenience and ask the public to follow official updates for further information on school operations.”

Additionally, the V.I. Superior Court announced closures due to a water service interruption, and the V.I. Economic Development Authority reported disruptions to its telephone services.

In related community impacts, the Lockhart K-8 Music Department has postponed its Spring Concert scheduled for today due to the unstable power supply, affecting not only educational institutions but also community events across the island.

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PSC Commissioner Calls for Hiring of Hearing Examiner Amid Concerns Over Water Safety in St. Croix

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During a recent meeting with representatives from the Water and Power Authority (WAPA), Public Services Commission (PSC) member David Hughes expressed significant concerns about the current state of water testing in St. Croix, following last year’s alarming discovery of elevated levels of lead and copper. Hughes pressed for immediate action, questioning the delay in hiring a hearing examiner—a role outlined on the PSC’s website as crucial for overseeing utility compliance with regulations.

Hughes emphasized that the role of the hearing examiner is to work closely with utilities to ensure they meet the commission’s standards, particularly in regular testing to safeguard public health. “The PSC should be actively ensuring that WAPA maintains a consistent testing program that we can trust on behalf of consumers,” he stated.

The dialogue grew tense when Hughes criticized the commission’s efforts, responding to PSC Executive Director Sandra Setorie’s assurances that progress was being made with, “We as a Commission are not fulfilling our obligations.” He pointed to WAPA’s reactive measures—conducting 65 water tests in response to complaints about water discoloration—as insufficient and indicative of a need for a robust, ongoing testing program.

WAPA’s Director of Water Distribution for St. Croix, Don Gregoire, defended their practices, stating that the water is tested daily in their own laboratory, following EPA guidelines which now mandate biannual testing. However, Hughes countered that without full transparency and understanding of the testing procedures, the commission could not confidently endorse the program.

The urgency for better oversight was further highlighted by a lawsuit alleging serious deficiencies at the St. Croix laboratory, including outdated certifications and improper sample collection. These revelations support Hughes’s argument for enhanced oversight to ensure WAPA’s accountability and transparency.

Hughes also pointed out a broader issue of information deficit and lack of transparency from WAPA, underscoring the PSC’s duty to keep the public informed. “We’re not doing our job in regulatory oversight,” he lamented.

In a positive note, WAPA Chief Operating Officer for Water, Noel Hodge, announced a substantial FEMA grant aimed at overhauling St. Croix’s water infrastructure over the next two decades, with a detailed capital improvement plan underway and initial construction expected to start within three years.

Hughes’s call for the appointment of a hearing examiner underscores a critical need for PSC to enhance its regulatory role and ensure that such public health emergencies do not recur, reflecting a commitment to uphold safety and transparency in public utilities.

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