Power Struggle - Magens Point Resort vs. WAPA

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Issue #130
Jul/Aug,2013
POWER STRUGGLE
Magens Point Resort vs. WAPA
At Magens Point Resort on St.
Thomas, USVI, grief arrives monthly in
an envelope from the Virgin Islands Water and Power Authority (WAPA).
Electricity rates on St. Thomas are
soaring as WAPA passes through to its
customers the escalating cost of fuel,
which comprises 76 percent of the utility’s budget. Today a kilowatt hour on
St. Thomas costs 56 cents, more than six
times what a typical residential customer
in south Florida would pay. By the end of
2013, the price of a WAPA kilowatt hour
could rise to 70 cents, reports Michael
Shelby, Magens Point’s president.
WAPA is “the largest threat to our
wellbeing,” Shelby wrote to owners in a
February 2013 newsletter. “We ran into
a perfect storm consisting of the reces-
sion, a high member fee delinquency
rate, the tightening of the financial markets, the unwillingness of local banks to
make short term business loans, rapidly
increasing operating and utility costs,
frivolous lawsuits, and the exhaustion of
developer cash reserves.”
The resort declared bankruptcy on
September 27, 2012, primarily to delay
payment of its utility debt while Shelby
explores “going green” with technology
that will substantially reduce its dependence on WAPA.
Solar and Wind
“In looking for ways to cut down
expenses,” Shelby wrote, “we had hoped
to reduce power cost 20 percent by installing more efficient pumps, energy ef-
ficient a/c units, compact fluorescent and
LED [light emitting diode] lights, solar
water heaters and the like—only to have
WAPA increase the power bill 20 percent
by the time that we finished.”
Now he is considering installation
of photovoltaic solar panels on all of the
resort’s roofs and in other suitable locations to provide an alternative source of
electricity. Three companies have submitted proposals, all within a 12 percent
range. One company offers a lease-purchase arrangement with $100,000 down
and another $700,000 over nine years,
after which the resort will own the system. It has a 25-year life expectancy and
will provide about 220 kilowatts of electric power.
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“Combined with an aggressive program to replace high energy consuming
equipment such as air conditioners and
hot water heaters, energy costs can be cut
approximately in half,” Shelby wrote.
“Over the term of the lease, the estimated
utility savings are $1,840,535 at the current utility rate.”
Shelby also has explored wind power, but he is worried about the noise the
turning blades would make, and about
grid connection and net-metering issues.
“A Colorado company invested
$600,000 in two 90-kilowatt generators
on towers above a mall,” he recounts.
“The company managed to hook to the
grid, producing usable power, but WAPA
fought with it for four years over the
effect of the wind power on the grid.
Meanwhile, the generators sat so long
without working that they froze. They
have to turn to lubricate themselves.”
Paying the Bills
Once a solar-system vendor is selected, installation should take four to six
months. Meanwhile, all pre-bankruptcy
bills are on hold but current WAPA bills
and other operating expenses must be
paid. A court-appointed trustee will
oversee this process, assuming money
is available. If not, the resort could be
closed and its assets liquidated.
To carry Magens Point through this
period, Shelby levied a special assessment of $590 per membership week. By
mid-May, about 30 percent of the total
assessment had been paid. “We’re working on the other 70 percent, to see how
we can collect it, if we can collect it,”
he says.
He is also selling new memberships
“here and there” but hesitates to launch
a vigorous sales program. “There seems
to be a consensus that the slump in timeshares is going away,” he says, “but the
smaller you are, the less deep your pockets are, and a sales program can eat your
money big-time—especially if you’ve
misjudged the market.”
Right to Use
Magens Point Resort is a right-touse club on a 7.68-acre site overlooking
Magens Bay Beach on the north shore of
Page 7
St. Thomas. It has three components:
• Megans Interval Resort, Inc., owner of the 22-unit Magens Bay Villas Club
at Megans Point Resort;
• Tropic Leisure Corp., owner of the
30-unit Tropic Leisure Club at Magens
Point Resort;
• Magens Point, Inc., a hotel operating entity that manages the property’s
housekeeping, maintenance, and reservations.
Shelby is president and chief excutive officer of all three. The resort opened
in 1967 as a hotel, which Magens Point,
Inc., acquired in 1976. “I came aboard
in 1982, and helped to finance and build
the Magens Bay Villas complex,” Shelby
says. “Two units are original condos that
I didn’t purchase. I converted the rest
from hotel rooms into studio suites by
adding kitchenettes in 1993.” All units
have a private lanai, ceiling fans, air
conditioning, tiled floors, cable TV, telephones, and computer and Wi-Fi access.
About 1,700 of a possible 2,700
membership weeks are owned. “Some
people have multiple weeks and/or multiple units,” Shelby says. The initial memberships in the 1980s were 30-year contracts; the Tropic Leisure Club contract
was for 60 years or 60 weeks, whichever
occurs first. Members can “accelerate”
their usage on a space-available basis by
paying additional maintenance fees to
spend more weeks in one unit in a given
year, or to bring a group and simultaneously occupy multiple units.
A Scenic Location
Glance at a map of St. Thomas and
you’ll quickly appreciate Magens Point
Resort’s strategic location. The resort is
Jul/Aug, 2013
just a half-mile from a sugar-sand beach
that forms the landward margin of Magens Bay, which is sheltered from the Atlantic Ocean by a long, craggy peninsula
jutting westward from the north shore of
the island.
Magens Point is the only resort adjacent to Mahogany Run Golf Course,
the island’s only golf links. “We’re 100
yards from the 11th fairway and a mile
from the clubhouse,” Shelby says.
Recreational facilities at the resort
include a large freshwater pool, two
lighted tennis courts, two hot tubs, the
Health and Wellness Therapeutic Spa,
and a video lottery gaming room that offers blackjack, poker, and keno.
Two Restaurants
The resort has two restaurants. Magens Point Bar and Grill, which operates
from 9 AM to 11 PM, has sublet part
of its space to Simply Italian (“the best
Italian restaurant on the island,” Shelby
says), which serves dinner from 5:30 PM
to 10:30 PM. Also present are a gift shop
and convenience store, a coffee shop,
and a deli.
The resort nestles on the north slope
of mountains that form the island’s
spine. A mere 10-minute drive across
those mountains stands the Virgin Islands’ capital, Charlotte Amalie, on the
south shore, This historic city, founded
in 1666, attracts visitors with duty-free
shopping and Danish colonial architecture. Fort Christian, built from 1672 to
1680 and now a museum, is the oldest
standing structure in the Virgin Islands.
Other landmarks include the oldest Lutheran church and second-oldest synagogue in the Western Hemisphere.
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