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Brown Water Issue in St. Croix: Calls Amplify for Emergency Action

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St. Croix, a picturesque Caribbean jewel, currently grapples with a disconcerting challenge: murky, undrinkable brown water pouring out of household taps. The situation has prompted the local lawmakers to call for an official state of emergency, seeing it as a dire crisis that demands immediate attention.

Andrew Smith, the CEO of the Water and Power Authority (WAPA), elaborated on the issue during an in-depth conversation with the Senate Committee on Disaster Recovery, Infrastructure, and Planning. Smith pointed to the island’s water system that has been in place for over six decades as the primary culprit. As these iron pipes age, they corrode and release rust, muddying the water. A recent drought has further worsened matters, with WAPA’s water storage tanks dwindling to precarious levels.

It’s heartening to note that FEMA (Federal Emergency Management System) is poised to overhaul St. Croix’s entire wastewater mechanism. However, this doesn’t offer immediate relief to locals dealing with unsavory odors and the looming costs of comprehensive filtration solutions. Senators Alma Francis-Heyliger and Samuel Carrion stress the urgency of tapping into federal resources for more expedient help.

Smith, providing a granular analysis, commented, “The majority of this water discolouration arises from the deteriorating pipes, coupled with sediment from the iron content.” Adding that the drought’s role in reducing water storage has heightened the issue. Specifically, Frederiksted, a local town, has been hardest hit. But, contrary to rumors, Smith clarified this wasn’t due to underfunding but its geographical position relative to St. Croix’s water distribution infrastructure.

Flushing the system using fire hydrants, a standard procedure to address discolored water, is currently off the table. With the low water reserves, such a move would deplete pressures further, exacerbating the brown water situation.

Fixing this deep-seated problem isn’t cheap. Replacing the old, rusty pipes would siphon off nearly $1 billion, equivalent to the territory’s annual budget. Sensing the urgency, Senator Carrion has already penned a letter to Governor Albert Bryan Jr., emphasizing the need for an emergency declaration – a call that hasn’t yet received a response.

It’s encouraging that, by July, WAPA had advanced its application process for FEMA funds intended for a robust overhaul of St. Croix’s water infrastructure. Yet, this is a long-term solution. For now, WAPA is brainstorming localized solutions like utility-scale filtration units in the most affected areas.

Recent odor complaints linked to a Sargassum influx further complicate matters. Though larger algae particles can be filtered out, once they decompose, the resulting taint in the drinking water becomes a challenge to eliminate. Smith cited two primary reasons for the lingering stench. First, residents, due to the drought, are tapping into stored WAPA water, which retains the residual Sargassum odor. Additionally, the low water flow, which also causes discoloration, intensifies this problem.

In brighter news, WAPA has amped up its efforts with regular system flushes, additional water treatment chemicals, and frequent quality checks. According to Smith, the authority consistently aligns with the U.S. Environmental Protection Agency’s primary standards. However, there’s a slight caveat: testing doesn’t extend to end-users, which is where most quality complaints emerge.

Smith also addressed concerns about WAPA’s recent tariff increase under the Levelized Energy Adjustment Clause (LEAC) for water. He affirmed that the rates are strictly pegged to service costs. He clarified that their drinking water provider, Seven Seas, wasn’t to blame for the brown water issue. Historically, he added, an artificially-low LEAC led to inadequate funds, restricting WAPA from revamping critical aspects of its infrastructure.

This evolving situation in St. Croix underscores the pressing need for infrastructural investments and proactive measures to ensure residents’ well-being.

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Concerns Mount Over WAPA Rate Hike Proposal Amid Rising Solar Adoption

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The Virgin Islands Public Services Commission expressed grave concerns on Tuesday regarding a potential increase in the Levelized Energy Adjustment Clause (LEAC) rates proposed by the Water and Power Authority (WAPA). This move, officials fear, may further shrink WAPA’s already diminishing customer base.

During a Senate Committee meeting on Government Operations, Veterans Affairs, and Consumer Protection, PSC Executive Director Sandra Setorie cautioned that raising the electric LEAC could be counterproductive. The LEAC has been held steady since 2022, falling below the actual costs of fuel and purchased power. The Virgin Islands government has been subsidizing these additional expenses, preventing them from burdening consumers. Despite this, WAPA has accumulated around $90 million in deferred balances and is considering applying for a LEAC increase to address this financial shortfall.

Ms. Setorie underscored the potential negative impact of higher LEAC rates on WAPA’s customer retention. The authority witnessed a 30% drop in sales from 2012 to 2017, a trend that might be exacerbated by increased electricity costs. She pointed out that, for many, solar and battery systems are becoming more cost-effective alternatives to WAPA’s services.

The committee, including Senator Ray Fonseca, reacted with concern to these revelations. Mr. Fonseca highlighted the vicious cycle where customer loss leads to higher bills. He inquired about WAPA’s strategies to expand its customer base, to which Ms. Setorie responded that the authority is planning to increase its focus on renewable energy sources like solar and wind to lower energy rates. WAPA’s commitment to this transition has been evident in its recent agreements for wind and solar power procurement.

Boyd Sprehn, the PSC’s general counsel, noted that WAPA anticipates lower operating costs in the future, due to sustainable energy initiatives and the transition from diesel to propane in power generation. These cost savings, he explained, could eventually be passed on to consumers.

Yet, with no concrete timeline for these developments, committee members, including Senator Milton Potter, expressed concern about WAPA’s immediate and long-term viability amidst increasing customer migration to alternative energy sources. Ms. Setorie concurred, acknowledging the risks faced by all power utilities in this changing landscape.

The PSC remains committed to guiding WAPA in integrating alternative energy, despite the slow pace of progress. Senator Novelle Francis raised concerns about the impact on vulnerable citizens who rely on WAPA, pointing out that those who can afford to leave the system are doing so, leaving those with limited means more exposed to potential cost increases. This scenario could necessitate continued government subsidies for WAPA, further straining public resources.

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WAPA: Inspector General Advances Audit Amid Fitch Ratings’ Withdrawal

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In a decisive move towards transparency and accountability, the Office of the Inspector General, following discussions with Senator Kenneth Gittens, has initiated a comprehensive audit of the V.I. Water & Power Authority (WAPA). This critical examination, a directive of Act 8731, will scrutinize several pivotal aspects of WAPA’s operations. The focus areas include the VITOL propane contract, the intricacies of the electronic metering system, the terms of various leases, the transfer of WAPA equipment to the British Virgin Islands, and the troubling loss of over $2 million to an offshore account.

Senator Gittens, voicing significant concerns, underscored the importance of this audit: “Without a thorough understanding and accountability for what transpired, how can we safeguard WAPA from repeating these errors?” His statement highlights the necessity of this audit in providing a detailed insight into WAPA’s internal mechanisms and in ensuring accountability for previous decisions and actions.

Inspector General Delia Thomas has acknowledged a minor delay in the one-year timeline mandated by the Legislature for this audit. Initially vetoed by Governor Albert A. Bryan, Act 8731 was later enacted following an override by the Senators on June 14, 2023, thus mandating the start of the audit.

The Importance of the Audit in Light of Fitch Ratings’ Withdrawal

The imperative nature of this audit is further accentuated by the recent decision of Fitch Ratings to withdraw most of its ratings for WAPA’s bonds. This withdrawal, attributed to a lack of sufficient financial information and ongoing concerns about transparency, underscores the need for meticulous scrutiny. Fitch Ratings, a renowned credit rating agency, has ceased providing ratings for WAPA primarily due to the utility’s limited transparency and the non-availability of audited financial statements.

Highlighting the essential role of WAPA in the everyday lives of the territory’s residents, Senator Gittens called for genuine accountability and improved governance within the utility. He pointed to a persistent pattern of mismanagement that must be resolved for the utility’s prosperity and the overall well-being of the territory. This audit represents a significant step towards rectifying past issues and setting a course for a more accountable and transparent future for WAPA.

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Fitch Ceases WAPA Bond Ratings Amid Limited Information

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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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