Fitch Ratings Warns of WAPA Insolvency, Cites PSC Failure to Raise Rates

A protester signals his dissatisfaction with WAPA during a PSC meeting in August. (Source file photo by Bethaney Lee)
A protester signals his dissatisfaction with WAPA during a PSC meeting in August. (Source file photo by Bethaney Lee)

Fitch Ratings, one of the three important public bond ratings agencies, placed the Water and Power Authority’s “CCC” long-term credit ratings on “Rating Watch Negative.”

Fitch’s credit, or “Issuer Default Rating,” grades go from AAA, for the highest quality, down through D, for entities already in default. The current “CCC” rating already indicates “substantial credit risk.”

In a statement, Fitch said the change to WAPA’s rating “reflects mounting concerns that a restructuring of, or default on, WAPA’s outstanding debt may be probable following comments by public officials that loan forgiveness and financial assistance from federal agencies should be sought as a means of addressing the utility’s weak financial profile.”

V.I. senators discussed asking for federal help at a March hearing.

Recently, Delegate Stacey Plaskett wrote the governor and V.I. Legislature urging for a declaration of a state of emergency for WAPA and suggesting the territory seek forgiveness of federal disaster loans. Loans of that type have been forgiven in the past in other jurisdictions.

Fitch also said it had concerns about cash flow and liquidity, “particularly given the Virgin Islands Public Service Commission’s continuing reluctance to approve requested rate increases,” potential problems securing fuel and reduced demand for electricity since the 2017 hurricanes. All these topics were discussed at the March 4 V.I. Legislative hearing.

Open discussion of restructuring WAPA’s debt raised concerns, as did what Fitch regards as a lack of fiscal transparency at WAPA- a concern that also applies to the V.I. government as a whole. According to Fitch, WAPA has not released audited financial statements since Fiscal Year 2017.

Generating Unit on St. Thomas (James Gardner photo)
Generating Unit on St. Thomas (Source file photo by James Gardner)

Fitch expects to resolve the ratings watch one way or the other as the situation becomes more clear. If there are signs of default or restructuring, that will lead to a lower rating. If there is greater transparency, audited financial statements are released and/or the PSC allows rates to go up, that may eliminate the “negative watch.”

The PSC has delayed ratings actions twice this year, on the premise that it needs more information. Rate increases are highly unpopular and local utility rates are very high, in part due to the use of propane and diesel, in part due to a small, isolated system divided into two electric grids, and partly due to other factors. There were protests at the last PSC meeting to consider rate increases, in early August. At that meeting, the PSC determined to delay consideration of rate increases until October.