The V.I. Water and Power Authority will start receiving fuel oil to run its generators from Trafigura AG, beginning in December, saving more than $5 per barrel over Hovensa’s price, if contract negotiations WAPA’s governing board approved Thursday are finalized in time.
WAPA was forced to seek a new fuel supplier after the current provider, Hovensa, announced in January it would cease refinery operations on St. Croix and would no longer supply fuel oil to the utility after June 30. Hovensa later offered an alternate option to deliver fuel oil at discounted rates until the end of the year.
It agreed to sell each barrel at 20 percent below a market index tied to the published Reseller Barge price in July and 15 percent below in August and September. That discount will decrease to 10 percent in October, 5 percent in November and no discount in December, the last month of the agreement.
WAPA Executive Director Hugo Hodge Jr. said Trafigura’s terms represent "a significant overall cost savings of more than $5 per barrel, compared with what WAPA will actually have to pay Hovensa for fuel in December.
"Although it is not nearly as low," as what Hovensa would be charging had it continued to refine oil and supply the territory under its Third Extension Agreement with the V.I. Government," Hodge said.
The preliminary draft contract calls for monthly delivery of one 80,000-barrel barge and one 30,000-barrel barge per month to St. Thomas and three monthly barges to St. Croix of 30,000 barrels each of No. 2 fuel oil.
"If we save $5 per barrel, we are talking about a million dollars per month," said board member Wayne Biggs, who is also commissioner of Licensing and Consumer Affairs.
Although it has in the past, the utility does not plan to use No. 6 fuel oil this year, because the older boilers that use it are out for repair and because it would be difficult and expensive to get No. 6 fuel oil that will meet its emission permits, Hodge said.
The invitation for bids contemplated WAPA receiving all the oil at its Krum Bay facility on St. Thomas, then arranging to ship to St. Croix. But Trafigura offered to store fuel at its facilities on Puerto Rico and make monthly shipments to both St. Croix and St. Thomas, for a roughly $2 per barrel increase in the costs. WAPA staff felt this was more than worth the increase because it takes away the need to hire personnel and arrange and pay for that shipping and storage of fuel, and lessens WAPA’s risk of loss during transportation, Hodge said.
Both Hovensa’s and Trafigura’s price are tied to published price indices, but Hovensa uses the Reseller Barge price, which is based on a single supplier’s posted price, Hodge said. Trafigura’s indices are pegged at $9.97 per barrel over the ongoing average of the U.S. Gulf Coast Waterborne market prices for No. 2 oil posted in the Platts Oilgram Price Report and heating oil prices as published by Argus U.S. Products.
Trafigura is also willing to sell to WAPA with payment within 90 days – a substantial increase over the 30-day terms Hovensa has required, which Hodge said would save the utility a bit less than a dollar per barrel in lending costs as it struggles to raise the cash on short notice.
In a monthly human interest segment to the meeting, the board listened and watched as lab technician Nailah Elliott described her work performing chemical purity tests on the water WAPA uses in its boilers. Elliott, a 23-year-old St. Croix native who received her bachelor’s in chemistry at the University of the Virgin Islands, has worked for WAPA for a little over a year, she said.
In other business, the board voted to:
– continue a contract with Ashland Hercules Water Technologies for water treatment chemicals for one year, at a cost of $607,000;
– change the scope and cost of a contract to rehabilitate a storage tank at WAPA’s Estate Richmond plant to include a swale for proper drainage of storm water, adding $40,000 to the cost, bringing the total to $217,000;
– approve an annual contract for poles, transformers and wires for WAPA to have on hand throughout the territory for repairs, at a cost of $1 million;
– approve a contract for technical and consulting services with SAIC Energy, Environment and Infrastructure LLC to help prepare and submit a loan application to the Rural Utilities Service;
– and help with upcoming electric base rate cases scheduled before the V.I. Public Services Commission and prepare a periodic report on the electric system for the past three fiscal years.
All votes were unanimous. Attending the meeting were Biggs, Gerald Groner, Juanita Young, V.I. Energy Director Karl Knight, Cheryl Boynes-Jackson, Department of Planning and Natural Resources Commissioner Alicia Barnes and Brenda Benjamin.