March 19, 2004 – In an apparent attempt to soften the blow of passing along fuel costs to its customers, the governing board of the V.I. Water and Power Authority voted Thursday to roll back subscriber electrical rates by 5 percent. At the same meeting the board authorized its executive director to approach the V.I. Public Services Commission with a request to increase the levelized energy adjustment clause (LEAC on customers' bills).
The board also approved a recommendation from the executive director to seek an opinion from the Office of the Attorney General on a Washington State Supreme Court decision which may affect responsibility and surcharge for street lighting.
Executive Director Alberto Bruno-Vega told board members that a hike in the LEAC could not be avoided, saying the utility had already absorbed $50 million in fuel costs because of fluctuations on the world oil market. WAPA, facing current oil prices approaching $34 per barrel, is having a hard time paying its fuel bill to HOVENSA, he said.
Bruno-Vega said there is no way to predict how high the price of fuel oil may climb and those increases will continue to affect the consumer or the utility.
"The fuel prices are escalating significantly … WAPA, as of today, we are about $50 million in the red and WAPA cannot continue with this trend. We try to be fair on one side of the electric rate, meaning the base rate, which is to cover all the other costs except fuel. But here, we have no control whatsoever. It depends on OPEC. Whenever someone sneezed in the Middle East, a spike goes up," the executive director said.
He justified cutting the base rate because of changes in world financial markets. " Bruno-Vega said the electrical base rate reduction is based on the fact that the Authority has exceeded its debt service coverage ratio as presented in the financial projections made last year during a worldwide recession," said utility spokeswoman Patricia Blake Simmonds in a statement released after the Thursday meeting.
The director said he expects new subscribers and the growth of the distribution system will attract enough new business to make up any losses causes by cutting the base rate. If approved by the PSC, WAPA customers could save up to $3 million every year as a result of the rate reduction.
According to Maurice Sebastien, assistant chief financial officer, WAPA is currently carrying a deferred fuel balance of $13.9 million on the electric system. That, he said and outstanding bills owed by the V.I. government of $8.7 million continue to challenge the company's cash flow.
WAPA already has a request before the PSC to raise the LEAC charge on electrical bills, but Bruno-Vega said he wants to amend the petition to reflect increasing costs. He proposed spreading the pass-along costs over a two-year period to ease the anticipated shock when subscribers open their newly adjusted bills. He rejected a suggestion by public regulators that WAPA take three years and soften the financial blow even more.
Former PSC chairman Andrew Rutnik, who now serves on WAPA's governing board, said it's most likely the public regulators will grant the request to raise the LEAC on customers' electric bills but WAPA will have to show the PSC it has increased its efforts to cut waste because of inefficient production and line losses. "They feel as if as much effort as is humanly possible by WAPA should be put into getting rid of those inefficient plants," he said.
Bruno-Vega also acknowledged the utility's current struggles with repairing and maintaining some of its largest generating units, which force it to operate less efficient units in order to ensure continuity of service.
"I don't argue that you have to maintain electricity. I think that in all fairness … maybe we should consider replacing those units. I'm talking about long-range planning for short-range problems," Rutnik said.
Bruno-Vega said it was his understanding that PSC wants WAPA to submit in writing an explanation about what was being done to reduce waste and theft of service. He also told the board about a conversation he had Thursday morning with the Inspector General, who is working on an investigation on theft of service, and reminded board members they had authorized the company to conduct a generation assessment study that is expected to provide a clear analysis of where efficiency can be improved.
Once that study is completed, Bruno-Vega said, it will be easier to determine which electrical units are too costly to operate and which can be improved to increase their efficiency and become more fuel-efficient.
Other matters considered at the meeting, according to the release, included:
— A recommendation by the executive director and approved by the board to request an opinion from the Office of the Attorney General on a Washington State Supreme Court finding that, No. 1, the government cannot transfer responsibility for street lighting to the utility; and No. 2, a street light surcharge amounts to double taxation. Current V.I. costs for this service exceed $2 million per year, the statement said.
— Ernst & Young, WAPA's external auditors, presented a draft fiscal year 2003 audit to the board. Ernst & Young partner Arturo Ondina suggested the authority may want to review methods of water system debt coverage for 2004, although it did meet audit requirements for 2003.
— The board approved appropriations related to the overhaul of St. Croix Unit 11 turbine, for St. Thomas Unit 18 inspection and repair, and for compliance with environmental requirements for two power plants.
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