May 17, 2004 – Electric rates for the territory's consumers will more than likely remain high for some time, members of the Senate Government Operations Committee were told Monday evening.
Sen. Shawn-Michael Malone, the committee chair, said he held the meeting to find out why rate increases were approved recently and what can be done to reduce them.
"I think proper clarity has to be given on what was done," Malone, who also is a non-voting member of the Public Services Commission, said.
The PSC recently granted WAPA an increase in its Levelized Energy Adjustment Clause surcharge to 10.5 cents from 9 cents per kilowatt-hour.
Alberto Bruno-Vega, Water and Power Authority chief executive officer, told the committee that the utility had to seek an increase in the surcharge because of rising oil prices.
"We are experiencing today the highest fuel oil prices in the last 14 years," Bruno-Vega said, adding that the cost of oil now stands at $40.51 per barrel on the world market.
Bruno-Vega said WAPA is currently $15 million behind in recovering its oil costs through the LEAC surcharge, which is reviewed every six months, subject to adjustment based on the cost of fuel for the preceding period.
The authority has not fully recouped its losses "in the last two years," Bruno-Vega said.
He also said that the government currently owes WAPA $7.6 million, with the Juan F. Luis Hospital being the largest debtor, owing $2.9 million.
However, "the government is a good payer, even though it is a slow payer," Bruno-Vega said.
He said the authority would like to institute a monthly adjustment clause which would better keep up with fluctuations in oil prices. This would result in a gradual increase instead of a big jump every six months in the LEAC surcharge, he said.
"I believe that it is high time that we implement something of this kind," Bruno-Vega said.
The PSC chair, Valencio Jackson, told the committee that "it is our responsibility to pass on reasonable fuel costs to ratepayers — there is no alternative."
Jackson, who voted against approving of the most recent LEAC rate increase, also said that electricity customers are currently paying for some of WAPA's "past mistakes."
In 1995, the PSC approved a rate increase and the issuance of new bonds by WAPA to fund the purchase of a high-capacity GE Frame 6 generating unit. However, WAPA instead purchased what is known as Unit 22, which has been underperforming from the start.
"This has already cost ratepayers over $10 million in rates — and promises to cost millions more," Jackson said.
According to Jackson, two other "mistakes" were WAPA purchasing property on St. Croix for $3 million without the approval of its board or the PSC, and the authority reneging on a contract with Caribbean Energy Corp.
Jackson said other factors costing ratepayers money are the inefficiency of WAPA's plants and the high level of line losses of both electricity and water. Technical line losses and line theft have cost consumers $3 million in the last 12 years, he added.
"WAPA must do its part," Jackson said. "We cannot continue to pay for WAPA's inefficiencies."
All the money the government owes the utility is also a problem, Jackson said. "Unpaid bills of the government and its instrumentalities cause a severe cash flow problem to WAPA and increase the cost to all other ratepayers, who have to make up the deficiencies," he said.
Sen. Celestino A. White Sr. asked whether consumers could look forward to "yet another increase in the not-too-distant future."
"It all depends on the wild fluctuations of oil," Bruno-Vega said.
With oil prices expected to reach as high as $45 a barrel by summer's end, there may be no relief in sight. Consumers have seen four increases on their electric bills since February 2003.
Bruno-Vega said if oil prices continue to rise, WAPA might have to come back to the PSC for another rate increase.
Hubert Turnbull, a WAPA employee testifying as a concerned citizen, told senators that the authority's board doesn't have "any real direction."
"There is so much politics in WAPA," he said. "There are decisions that need to be made that are not being made." He said this is probably because some board members have no knowledge about water and power.
Possible solutions suggested to WAPA were reducing its line losses and inefficiencies and looking into hedging — a method of locking in a basic oil price for a set period of time.
As for oil prices rising or dropping, Jamshed Madan, a PSC consultant said: "That is truly outside of WAPA's control."
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