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Dear Editor:
The Governing Board of the Virgin Islands Water and Power Authority (the "Board") is respectfully requesting that the 26th Legislature of the Virgin Islands not take action to override Bill No. 26-0047 (the "Bill") which was passed on May 5, 2005, and vetoed by the Honorable Governor Charles W. Turnbull, on May 28, 2005. This Bill, which is crafted as one that allegedly promotes "Emergency Job Creation and Economic Stimulus", is the second attempt to stop the Authority from going out for competitive bids to secure the lowest cost services from the spectrum of available alternative or renewable co-generators or small power producers. This Bill is, once again, not only an infringement on the statutory powers of the Authority but is special interest legislation that takes the process of securing an energy providers from a transparent and public one, to one that violates the basic tenet of the public competitive bid process that is the cornerstone of a healthy public policy.
On more than one occasion the Board has gone on record as stating that the Authority is required, pursuant to 30V.I.C. Section 116, to bid for the services of an electrical energy and/or potable water provider. 30 V.I.C. Section 116 provides:
All purchases and contracts for supplies for services, except for personal services made by the Authority, including contracts for facilities of the Authority, shall be made after advertisement for bids sufficiently in advance of opening bids for the Authority to secure appropriate notice and opportunity for competition; …
Also, 30 V.I.C. Section 116 contains a specific requirement for a Performance Bond to be issued to the Authority to guarantee performance and delivery of services.
Consistent with the powers granted it by law, the Governing Board authorized the Authority to issue an RFP to obtain the lowest cost services from the spectrum of available alternative or renewable energy or water providers. On September 2, 2004, the Authority issued its RFP. Had this RFP process been allowed to continue the Authority would, by this time, have selected the most qualified and lowest cost proponent, and submitted the terms and conditions of an agreement to the Public Services Commission ("PSC") for approval. Regrettably the PSC chose to exceed the rate making jurisdiction granted it by law, and issued an order prohibiting the Authority from pursuing its RFP to conclusion. The Board authorized the Authority to proceed to court, if necessary, to protect the Authority from this unprecedented assault on its powers. The matter is now before the Superior Court of the Virgin Islands awaiting a decision.
The ramifications of forcing the Authority into one-on-one negotiations are enormous. It is regrettable the Legislature did not allow the Board or management of the Authority the opportunity to comment on this Bill, the consequences of which are as follows:
1. Limitations on Participation:
Bill No. 26-0047, if enacted, would eliminate the participation of a number of local and off-island companies. The Bill, as you know, requires the Authority to enter into a power purchase agreement with a Qualifying Facility that is presently certified. Below is a summary of the prerequisites that such a Qualifying Facility must satisfy on or before August 31, 2005 to be eligible to be selected to negotiate:
1. Certification by the Public Services Commission
2. Certification to the Government of the Virgin Islands of an investment of no less than $150,000.00 within a four-year period on the island of St. Croix.
3. Creation and training of a workforce of no less than 400 permanent jobs, 90% of which are held by bona-fide residents of the VI.
4. Investment of no less than $150,000.00 annually to be distributed for specific public purposes.
When the Authority, in September of 2004, initiated the RFP process to secure alternative or renewable energy and/or potable water, at least fifteen (15) companies expressed their interest in providing these services. Among the technologies offered by interested participants were wind power, solar power, ocean thermal power, geo thermal power, coal and waste to energy. It should be noted that WAPA’s use of the RFP for this process is one that is used by most utilities throughout the United States that are subject to PURPA, which is the Federal law on which the local law is based. Many of the companies that expressed interest in the RFP process were qualified, or would have eventually qualified, to partner with WAPA in providing more affordable and reliable energy, thereby making the process to secure the lowest cost proposal an extremely viable one. However, Bill No. 26-0047, like its predecessor Bill No. 25-0058 which the 25th Legislature attempted to pass, is focused in favor of one company: Caribbean Energy Resources Corporation ("CERC"). In fact, many of the prerequisites of the Bill are eerily similar to proposals that CERC has made a matter of public record. Other viable companies may determine that it would be useless to participate, given that the other Bill is written to the specifications of one potential proposer.
One glaring statement that is included in the Bill that amply demonstrates that this Legislation is written with CERC in mind is contained in the fifth WHEREAS clause of the proposed law, which provides:
WHEREAS, using an environmentally friendly waste derivative fuel source in addition to burning conventional oil to produce power would pass on savings to customer.
CERC is the only one of the three companies presently approved as Qualifying Facilities that is proposing to supply a waste derivative fuel (i.e. petroleum coke). As such, the other companies that are proposing other technologies are either not favored for consideration or eliminated from consideration, since the Bill’s focus and its prerequisites are aimed at selecting the company that uses a waste derivative fuel source.
Since the Bill skews participation in favor of waste derivative fuel sources, if it is enacted into law, WAPA will be forced to negotiate an agreement with an entity which may not have the experience, or the financial capability, to build and operate a power production facility. WAPA is mandated by the Bill not only to negotiate, but to arrive at an agreement with a company whose primary focus would be to make a commitment to create downstream industries that have little or nothing to do with producing power, invest several million dollars, and provide no less than 400 "permanent" jobs. It is interesting to note that "permanent jobs" as described in section 9(a) of the proposed bill are jobs that are available for "two years after the execution of the agreement." The environmental permitting process alone may take that long, meaning that no ground breaking can be initiated for the construction of a facility until after that time. The promise of job creation may be a commitment that is impossible to keep.
The Bill is aimed at providing jobs for the residents of St. Croix, and money for the economy of the V.I. Certainly those are laudable goals. However, the Legislation fails to balance those goals with its prior legislative mandate that requires the Authority to competitively bid for services, and with the need of the Authority to find a proponent that will not only provide sound, reliable and low cost energy, but that will reduce WAPA’s dependence on fuel oil. Most importantly, a proponent is also needed that has the financial capability to make, and maintain, the financial investment commensurate with the magnitude
of this undertaking. One very viable participant, St. Croix Renaissance, may be excluded from participation in this process since the Bill appears tailored to a participant that uses a waste derivative fuel source and can make the same commitments as CERC. Renaissance and CWT may well be able to provide the most reliable and low cost power, but we may never know because they may not live up to CERC, whose proposals have become the barometer on which a contract can be consummated. Because the Bill is suited to the interest of one company, the people of the Territory may be forced to forego a participant that can provide relief in the immediate future to the skyrocketing cost of water and power, and wait for four years until CERC comes on line. The fact is that St. Croix Renaissance has existing facilities that could possibly begin operations in eighteen months.
The primary reason the Authority issued an RFP for alternative or renewable energy was to allow it to decrease its reliance on fuel oil to run its water and power generating facilities. The rising cost in oil prices over the past two years indicated that the Authority could not continue to remain dependent on oil for its operation. The RFP process was aimed at locating producers that would provide an alternative or renewable energy source. The apparent leading contender for this contract, CERC, intends to use petroleum coke ("pet coke") as the source of the energy that it will sell to WAPA. Pet coke is a waste product of refining crude oil and does not allow the diversification WAPA requires so that it can curtail its reliance on fuel oil.
2. Limitations on the Negotiation Process
The Bill negatively impacts the Authority’s ability to negotiate an agreement with the guaranties and security that will best protect the interest of the people of the Territory. Under the proposed Bill, once the pre-requisites have been satisfied, WAPA is obligated to sign seal and deliver an agreement to purchase power. Section 2, subsection 3(b) (1) of the Bill provides that the small power producer or co-generator "may" be required "prior to the commencement of the construction of the proposed facility…to enter into a performance bond with the Government of the Virgin Islands." What is not considered here is the security that the company must provide to WAPA as part of the contracting process. WAPA requires a letter of credit for both the construction and the performance phase of the project. Performance penalties are also required, as well as insurance. In setting the pre-requisites outlined in the Legislation, WAPA may now be prohibited from requiring the small power producer or co-generator to secure guaranties that will protect WAPA and its rate payers in the event of failure of performance.
An additional constraint that limits WAPA’s ability to effectively negotiate this contract is the fact that the Bill requires, at Section 2 subsection 3 (d) (6), that the price at which WAPA must purchase energy "may" not be "higher than what it would cost the Water and Power Authority to generate such power". Existing Legislation at 30 V.I.C. section 49 (c) allows for WAPA to purchase power based on either its cost to generate power or purchase it from another source. The latter option benefited the people of the V.I., in the form of lower rates, when WAPA sought to determine the purchase price of power based on what it could purchase from another source. The current Bill now disallows WAPA from determining the fair market value of the cost of purchasing power through the competitive process, and instead requires it to use its cost of generating power as the yardstick to measure its avoidable cost. Hence, all the small power producer or co-generator needs to do is propose a price that is equal to or cents below what it takes WAPA to produce power, and WAPA is obligated to purchase power at that price. The change in the existing language to 30 V.I.C. section 49 (c) from "shall" to "may" also has the implication that the purchase price could exceed WAPA’s avoided costs. In either case there could be no rate relief, or negligible relief, to customers.
One of the Authority’s other concerns is that the Bill does not address the amount of power that WAPA is required to purchase from a small power producer or co-generator. WAPA’s operating experience has revealed that it cannot purchase more than eighteen (18) to twenty (20) MW of power during peak hours and more than five (5) to eight (8) MW during peak hours. The purchase of any more power than is stated herein will force the Authority to shut down some of its generating units. Should this occur, WAPA will be forced to cut back on water production and will not be able to supply the potable water needs of St. Croix.
As it presently stands the PSC has, to date, certified three companies as Qualifying Facilities. The total amount of megawatts of power that these companies can collectively sell to the St. Croix power plant operations is 78. CERC has proposed to sell 25MW of power; Renaissance is proposing to sell over 50 MW of power; CWT has proposed to sell 10MW of power. CERC has gone on public record as stating that it must sell the entire amount of power it produces on a full time basis, with no variations for peak and non-peak hours. The load on St. Croix is approximately 52.9 megawatts. If WAPA is required to purchase all the power that any one of these companies has to offer, with no variation for peak and non-peak operating hours, it will be required to shut down, or severely curtail, its power production facilities on St. Croix. This could well result in possible layoff of plant personnel, and reduction in the production of potable water, not to mention the impact on the reliability of the system which WAPA is entrusted by law to uphold.
Further evidence that this Bill will limit the Authority’s ability to negotiate is that the Bill requires an agreement to be consummated by September 30, 2005, failing which the PSC shall conduct an investigation to determine "if any party has acted contrary to the best interest of the community". If the PSC determines that any WAPA’s Board member or employee has not acted in the best interest of the community, or is motivated by self interest, the PSC may recommend fines, dismissal from the Authority or removal from the Governing Board. Clearly this provision of the Bill is poorly drafted. It fails to state to whom these recommendations for penalties would be made; and further fails to delineate the penalties that may be imposed. Additionally, the Bill fails to identify the legal authority of the PSC to administratively impose penalties on WAPA’s Board members and employees. Moreover, the Bill seeks to expand the powers of the PSC to matters outside of regulating fees.
In addition to the above, the Bill places a "bounty" on the head of WAPA Board members, its Executive Director and its staff. The implication of the Bill is that the Board and the Authority’s staff lack the honesty and integrity to participate fairly in this process, so much so that the Legislation sees fit to place a "shotgun" at the head of dedicated public servants. It is a travesty that the Board and staff of the Authority face limitless fines and the loss of their positions because they are attempting to serve the people of the Territory. The Authority’s ability to vigorously negotiate an agreement that is in the best interest of the people of the territory is compromised because of the unequal bargaining power between the parties. When the members of the Authority’s Board and its negotiation team are faced with the threat of dismissal and unlimited fines, how level can the playing field be? On the other hand, if the eligible company has acted contrary to the best interest to the community, the company faces "cancellation of any and all agreement with the Government of the Virgin Islands related to the proposal." No unlimited fines or loss of livelihood is impose
d on the company officials and employees.
WAPA’s Governing Board is opposed to this Bill. We have consistently maintained that the process of selecting a power provider for the residents of this Territory must, in order to obtain the best possible price and the most reliable service, be conducted by a competitive process that is open, impartial and transparent. We hope that the Legislature will give serious consideration to our request not to override the Governor’s veto of bill No 26-0047.
Sincerely,
Daryl M. Lynch
Chairperson
