Ernst & Young hired to advise distressed Virgin Islands utility

The U.S. Virgin Islands government has hired Ernst & Young to assist financially troubled Water and Power Authority in returning to fiscal health.

Earlier this year the Virgin Islands Senate directed hiring a “turnaround company” for the utility and last week the Public Finance Authority selected E&Y from the four finalists.

Within 120 days EY must submit an initial assessment of all WAPA operations to the senate and governor.

Within 60 days of that report, EY is required to issue a set of detailed recommendations to reduce the fuel-cost-based and other electric rates, consolidate and manage its debt, incorporate renewable energy, and achieve other goals.

In phase three, EY will assist WAPA instituting the recommendations.

“EY is a well-respected company but I am not sure of their expertise in electrical generation,” said former Virgin Island Sen. Kurt Vialet. He expects WAPA will soon announce a new acting chief executive officer to replace Andrew Smith, who is leaving at the end of June, and a process for selecting a new CEO.

The governor should not recommend the new CEO, Vialet said, which local media have reported Gov. Albert Bryan Jr. has done.

WAPA’s bond debt is unrated after Fitch Ratings in December, withdrew its CC rating due to a lack of information.

In the last two months the authority has been struggling with a series of power outages more frequent than the elevated outages that have plagued the islands in recent years.

In other WAPA news, the U.S. Federal Emergency Management Agency approved $400 million to $600 million for major capital improvements to the authority’s electrical system. Specifically, on Wednesday it committed to replacing a power plant in St. Croix and several generating units in St. Thomas. WAPA believes these changes should improve the electrical system’s reliability and affordability.

At the end of May the Federal District Court for the District of Puerto Rico denied WAPA’s motion to quash an order for WAPA to freeze one of its two operating cash bank accounts.

The Middle District Court of Florida earlier sided with a WAPA creditor to freeze the account and the Puerto Rico court affirmed the decision, which impacts a $6.9 million account usually used to make fuel payments.

According to the latest available unaudited figures, as of September WAPA had $15 million of current liabilities on bonds, $470 million of current liabilities, $179 million of long-term electric system review bond debt, $284 million of total long-term debt, and $1.081 billion of total liabilities.