April 1, 2006 – The V.I. Water and Power Authority has been caught recently in the pincers of rising oil costs and the reluctance of its customers to keep paying for those ever-rising costs.
WAPA officials have maintained the utility can do little about the problem, though members of the Public Services Commission and the community at large have countered that much could be done if WAPA would just bring its inefficiencies under control.
Discussions at WAPA's Governing Board's meeting Thursday indicated the problem has reached the stage of a fiscal crisis.
First, there is WAPA's insurance dilemma.
Alberto Bruno-Vega, WAPA's executive director, had issued warnings to the board before about the upcoming problem. In the February meeting he said that he didn't even know if WAPA could get insurance for its property.
Bruno-Vega said the agency's inability to keep up with maintenance is forcing Aegis Insurance to terminate the Authority's insurance on March 31. (See "WAPA Experiencing Critical Cash Flow Problems ").
However, he added that WAPA was in discussion with its primary carrier and premiums would probably rise.
A press release after the board meeting said the overall premiums with the newly selected insurance carrier, AIG, through its local agent Theodore Tunick & Company will be $2.22 million, an increase of $522,000 over the previous coverage.
Bruno-Vega said the insurance problem was not only from the utility's deficiencies in its maintenance program but also due to the instability of the insurance market strained by large payouts after several recent major natural disasters.
The new policy includes higher deductibles particularly on the older generating units in the St. Thomas power plant. The Board authorized WAPA to finance the agreement with a short-term loan from FirstBank at 5.37 percent.
Bruno-Vega said WAPA's maintenance shortfalls are a direct result of its critical financial condition. He said unpaid government accounts and $27 million in under-recovered fuel costs have created serious cash flow problems.
The Authority's critical financial condition has also affected the stability of the water system, according to Nellon Bowry, WAPA's chief financial officer.
He told board members that WAPA is in danger of failing to meet its debt service coverage.
According to the press release, WAPA's debt service coverage has fallen to a level unacceptable to the bonding community.
Bowry said that water sales have dropped while production expenses continue to escalate. The Authority is presently drafting an emergency plan to come into compliance with the debt service coverage requirements by June 30. Continued failure to meet debt service coverage could potentially place the utility's water system in receivership, Bruno-Vega said. The electric system is separately financed and is not in jeopardy of not making coverage.
In other matters, the Board took the following actions:
— Authorized the negotiation of a leasing agreement with V.I. Asphalt which has rented WAPA's South Shore property since 1977.
— Approved a contract with MACK construction in the amount of $453,204 to improve the drainage at the Randolph E. Harley power plant as mandated by an Environmental Protection Agency.
— Authorized the pursuit of refunding of Electric System Series 1998 bonds to provide new money to repay a $5.5 million outstanding line of credit debt and to provide approximately $5.5 million in additional funding at the same interest rate for the new St Croix Waste Heat Recovery Boiler.
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