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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 Additionally, the Issuer Default Rating (IDR) for WAPA, also rated ‘CC’, has been retracted.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

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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Nearly All Impacted by WAPA Billing Error Receive Refunds

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The Virgin Islands Water and Power Authority (WAPA) has resolved a billing error that inadvertently affected around 3,000 customers due to a glitch during system testing. The mishap occurred on Monday evening when, during a routine trial in their billing system’s test environment, unintended charges were mistakenly applied to customer accounts.

WAPA acted promptly to address the error, successfully reversing the incorrect charges for all affected accounts except two. Customers who were impacted should see a reversal transaction on their account statements, which will display as a negative amount reflecting the refund.

The utility also clarified that for those customers whose charges are still showing as pending on their bank statements, these will automatically be removed without any action needed from the customer. WAPA stressed that these pending charges will simply disappear, and the customer’s balance will adjust accordingly.

WAPA expressed regret over the confusion and inconvenience caused by the glitch. They are currently making efforts to ensure all remaining issues are swiftly corrected to prevent future occurrences.

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Rotational Power Outages Scheduled in USVI Due to Weather and Equipment Challenges

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The Virgin Islands Water and Power Authority (WAPA) has scheduled rotational power outages across the St. Thomas/St. John and St. Croix districts. This decision stems from challenging marine weather conditions and malfunctioning generation units. The authority views these outages as a strategic approach to circumvent more extensive power disruptions and to keep electricity flowing in critical areas.

Ashley Bryan, WAPA’s Chief Operation Officer, emphasized the necessity of these outages. “While we recognize the disruptions our decision may cause, these measures are crucial to prevent broader outages and ensure ongoing electrical service over the weekend,” Bryan stated. She further highlighted the efforts to balance the impact of short-term outages on fewer customers against the risk of more widespread blackouts.

Specifically, in the St. Thomas/St. John district, the combination of adverse weather and a dwindling fuel supply raises the potential for widespread power failure. To counter this threat, WAPA plans to initiate rotational outages from late Friday or early Saturday, continuing through Sunday, prioritizing electricity for essential services.

In St. Croix, the problem is compounded by several offline generation units, which will lead to reduced power output from the Estate Richmond Power Plant beginning Saturday. To manage this, the authority will implement outages during peak times—noon to 1:00 p.m. and 4:00 p.m. to 7:00 p.m.—until further notice. WAPA is calling on all residents and businesses to conserve energy, which is vital for stabilizing the grid and ensuring functional feeders.

WAPA is actively working on these challenges to reduce the frequency and duration of disruptions and extends its apologies for any inconvenience these necessary measures may cause.

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