Last month (6/10/2025), the VI Public Services Commission (PSC) decided to reduce WAPA’s LEAC rate by 23.5%; from 22.22 cents to 17 cents per kilowatt-hour (kWh). Since the LEAC is about 45% of the electric bill, that change converts to about 10.6% overall rate reduction. The resulting revenue decrease threatens to push WAPA over the edge of the insolvency cliff; the proverbial straw that could break the utility’s back. Worryingly, the seriousness of the threat is being obscured by rancorous rhetoric.
The impact on WAPA of such rate reduction is as predictable as reducing blood flow to a person dying of exsanguination. In Sept. 2024, the PSC’s own rate consultant advised as follows: “WAPA simply goes into each [LEAC] period knowing that it would lose money. As a result, WAPA has no working capital, has deferred payments to vendors in significant amounts, and is significantly in arrears in maintenance. WAPA is in a very depressed condition. WAPA continues to lose money on nearly every kilowatt-hour of electricity it sells.” The LEAC had been at 22.22 cents since March 2022.
More recently, Jan. 2025, Ernst & Young Turnaround Management Services, hired by the Pubic Finance Authority, provided its initial assessment of WAPA, in part as follows: “WAPA’s financial position is unsustainable under current conditions; WAPA operates at a structural deficit, meaning that rates charged to customers are insufficient to cover costs of fuel, other operating costs, and debt payments; WAPA cannot pay its bills as they become due; it is operating in the zone of insolvency.”
For years, credit rating agencies have documented and warned of WAPA’s slide to insolvency. In Sept. 2019, Moody’s rating agency downgraded its rating of WAPA’s Electric System bonds – to bottom of the rating scale. Moody’s justified its decision as follows: “WAPA’s capital structure is unsustainable without improvements in cashflow generation, given the weak liquidity profile; with no unrestricted cash and use of overdraft to manage liquidity.” The LEAC was 20.79 cents per kWh then.
In Dec. 2022, Fitch Ratings followed suit and downgraded WAPA’s bonds – to the bottom of its rating scale. Fitch explained its decision as follows: “the rating reflects heightened default risk as a consequence of WAPA’s weak operating fundamentals, cashflow and liquidity, and suggests default is probable.”
The diagnosis has been clear and consistent: WAPA is suffering from chronic cash deficiency; and is teetering on the edge of debt default and insolvency – even with LEAC at 22.22 cents per kWh. Which is why a 17-cent LEAC poses a serious threat to its fiscal viability.
A business enterprise gets its cash from three main sources: customers, lenders and owners. In WAPA’s case, they are ratepayers, lenders and taxpayers – represented by the GVI. With revenues from ratepayers demonstrably insufficient – and about to be significantly reduced by the PSC’s decision; and with credit unavailable due to poor credit ratings, the onus will fall on the cash-strapped VI Government to fill the fiscal gap.
No business could survive losing money on nearly every sale. But unlike a private enterprise, voluntarily going out of business is not an option for WAPA or its owners.
