A decision by the Federal Emergency Management Agency to provide a $238 million grant for permanent repairs to the U.S. Virgin Islands Water and Power Authority is “credit positive” for the authority, Moody’s Investors Service said in a new report.
The FEMA grant will allow WAPA to move forward with various capital projects that are aimed at increasing the resilience of the electric transmission and distribution system against future hurricanes by replacing wooden poles with composite poles and bringing critical transmission lines underground.
WAPA estimates that the total project costs will amount to around $572 million, Moody’s stated.
“We understand WAPA is awaiting a final determination on the federal cost share for critical hazard mitigation projects and is evaluating the use of other grants, financing and cash to fund its portion of the costs,” Moody’s stated.
“Given the current weakened state of the economy and with high electric rates being a chronic issue for WAPA, the timing and manner of cost recovery will remaining a challenging issue for WAPA and is likely to be influenced by policy makers’ desire for lower electric rates,” the agency added.
WAPA has very “limited amounts of days cash on hand and faces about $30 million of outstanding government receivables,” it noted.
Hurricanes María and Irma nearly completely destroyed the authority’s electric transmission and distribution system in September 2017.
By March 2018, WAPA had restored power to all customers, substantially supported by the assistance of nearly 1,000 off-island linemen and monetary assistance from FEMA.
FEMA Public Assistance has reimbursed WAPA around $354 million for related emergency response efforts.
The $238 million grant comes in addition to this emergency monetary assistance and is considered permanent work for which FEMA provides at least 75 percent of the eligible costs with the territory or VI WAPA providing the remainder.
“At this stage, no information is available as to how VI WAPA will finance the remaining portion of the total estimated $572 million capital costs or the expected approach to be taken towards cost recovery,” Moody’s stated.
“We understand that VI WAPA is awaiting a final determination on the federal cost share for critical hazard mitigation projects and is evaluating the use of other grants, financing and cash to fund its portion of the costs,” it noted.
In the near term, VI WAPA will also be challenged to return to historical levels of collected revenues and cash flow from both governmental and private customers following a period of substantially lower revenues owing to the intermittent loss of its customer base immediately following both hurricanes, Moody’s stated.
“Uncertainty remains if and when the territory’s economy will fully recover from the damage from both hurricanes,” it added.