The Virgin Islands Public Service Commission rejected a proposed increase in the islands' base electrical rates, complicating the Water and Power Authority’s hopes of refinancing its debt to its fuel suppliers.
WAPA Director Lawrence Kupfer on Wednesday told the commission that the authority was in a “terrible financial condition” and that if it didn’t take steps to change this, the islands could “have rolling blackouts” by the end of the year.
WAPA owes propane fuel supplier and plant conversion contractor VITOL $160 million and diesel fuel supplier Glencore $9 million. Part of the debt to VITOL has a 10 year maturity and a 14% interest rate.
If the increase in base rates were approved, Kupfer said he had investors who would be willing to refinance this debt at 20 years and a 6 per cent interest rate.
Kupfer said he was seeking a 2.5 cents per kilowatt-hour increase in the base rate and an identical 2.5 cents cut in the Levalized Energy Adjustment Clause (LEAC). All in, customers now pay 43 cents per kilowatt-hour.
WAPA has about $200 million in bond debt outstanding. Its senior debt is rated Caa1 by Moody’s Investors Service and CCC by Fitch Ratings.
The PSC commissioners were uniformly skeptical, and some hostile, to Kupfer. “WAPA cannot sustain itself,” one commissioner said. “We’re not addressing WAPA holistically… We have to bring the costs down to residents and do it now.”
Commissioner Andy Rutnik pointed out that the LEAC was supposed to be exclusively for paying fuel. The fact that WAPA now has a large outstanding bill with its two fuel vendors shows that “you collected the money but you didn’t pay the vendors. You can’t dance around that.”
Rutnik said the authority was broke because of its own decisions and not the 2017 hurricanes. Indeed, the hurricanes were positive because they brought in money, he said.
Rutnik said the authority has to make major decisions about generation and to shake up its management.
Virgin Island Senator Alicia Barnes said that the authority has a history of making bad decisions and then trying to minimize the decisions while asking for rate increases. This is why the authority is getting “pushback,” she said.
Commissioner David Hughes made identical motions for both of the authority’s rate motions. He motioned that consideration of them be deferred until the authority provides the commission with requested data and the commission’s consultants have delivered their reports.
Hughes pointed out that the commission has already explained to the authority that it wants these things before it takes action on its rates.
Commissioners voted 5-0 in favor of Hughes’ motions.
