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Powering USVI Without Propane Would Cost WAPA $200,000 Daily & $6 Million Per Month

St. Thomas 𑁋 To understand the energy crisis affecting the U.S. Virgin Islands and its sole energy distributor, the Virgin Islands Water and Power Authority, you must first understand WAPA’s evolving customer base. Customers paying into the system for years are largely aware of many ways to power cities and homes with today’s latest technology. 

Residents living in the Virgin Islanders pay one of the highest utility rates in the United States — which doesn’t come as a surprise for many ratepayers. In recent weeks Governor Bryan has pointed out that the territory currently has more than $1.5 billion in infrastructure grants for energy improvements. 

These grants “are dedicated to making sure that the USVI has reliable and affordable power in the territory. However, despite the vast amount of federal storm-recovery dollars on the books,” Bryan said, “funds have been allocated, they have not been released to the local government.”

The most striking takeaway from the developments that unfolded in the past weeks are the cracks that became visible as WAPA’s tightening cash flow and loss of propane vendor Vitol forced its hand. Without propane shipments from Vitol, it would cost the utility to $200,000 daily to revert back to diesel fuel for power generation.

The Public Service Commission said that “burning diesel rather than propane will cost ratepayers $200,000 per day more than burning propane.” Resulting in “$6,000,000 more per month than burning propane and $72,000,000 more annually than burning propane, which represents an increase of $0.20 cents per/kWh hour to customers.  With the price of crude trending up, the negative impact of burning crude/diesel could be even more severe.”

WAPA had two options:

  1. Change the rates it uses to bill customers for power consumption by lobbying the PSC for reconsideration of the base rate and fuel surcharge adjustments.
  2. Alter plant operations after the loss of its propane supplier which guaranteed these rates which could result in generation and capacity issues as well as rolling blackouts. 

A third option presented itself when the Bryan-Roach administration and members of the 33rd Legislature called emergency sessions to discuss developments caused by Vitol’s exit and appropriated $6 million from the government’s miscellaneous fund to pay WAPA’s propane bill and resume shipments. This keeps customers’ rates the same for now but only buys WAPA two months to settle its propane agreement with Vitol.

Base Rate and Fuel Surcharge Issues

“The failure to receive reconsideration of this rate will mean the Authority will be unable to purchase sufficient fuel for its generating needs,” WAPA said in its petition to the PSC asking for reconsideration on the fuel surcharge and a base rate decision

“The Chamber supports these efforts but remains concerned that cash flow constraints and the high debt load put WAPA in a very fragile and untenable financial position that may jeopardize its ability to implement these critical improvements,” the St. Thomas-St. John Chamber of Commerce said in an editorial days after Vitol declared the utility in default and halted propane shipments. Senators also voiced similar concerns at the recent special hearing last week

Before WAPA defaulted on propane payments, the utility lost over $2 million in cash to an email scam that is being investigated by the FBI, suffered a data breach that compromised the credit cards and debit cards of an unknown number of customers and has largely fumbled with keeping up with payments to vendors and debtors. While senators, regulatory bodies and ratepayers criticize WAPA, Government House has assisted the utility company with lobbying efforts to adjust its rates to cover the cost of its propane deliveries. 

Of the 29 records subpoenaed by senators from WAPA for the October investigative hearing were documents related to its propane project, including updates on the email scam and the FBI’s progress conducting the investigation. Senators also asked for documents detailing officials that have access and clearance to make wire transfers. 

“Given the Virgin Islands Public Service Commission’s recent decision to not approve WAPA’s requested Base Rate increase, the Chamber felt compelled to share its perspective on the prudent path forward,” the editorial reads. “As an advocate of business interests in the Territory, the Chamber fully recognizes that high utility costs and unreliability of the electrical grid have adversely affected both the business community and all our residents.”

“But this problem was not created overnight, nor was it caused solely by the Hurricanes. Years of underinvestment, questionable decision making, and band-aide fixes have led us to where we are today. But looking retrospectively to place blame is not going to solve these problems, so instead, we offer this perspective on the path forward.”

Chamber Recommendations:

  1. The PSC’s decision to allow the decrease in the LEAC without a commensurate Base Rate increase needs to be immediately rectified. WAPA’s base rate increase must be approved immediately.  If not, the PSC’s inaction would further exasperate the cash flow constraints of the utility, force the shift to more costly fuel sources, which has now materialized, and likely lead to widespread power outages and further suffering by all of our citizens.
  2. The PSC inexplicably eliminated the $0.03 cent generator surcharge, which covers the leasing cost of the APR generator units on St. Thomas and the Agrekko generator units on St. Croix which are the most efficient units being used by WAPA today. It is estimated that these newer, more efficient, units provide s $.09 cents per KWHr savings to customers compared to the older units. By eliminating the generator surcharge and not approving the base rate increase, WAPA will no longer be able to use these leased units come 2020, thereby causing rates to increase further to customers.
  3. The current debt load at WAPA must be re-financed, and in order to do so, WAPA must have a Base Rate that generates enough cash flow to meet all operating and debt service obligations. Concurrently, the LEAC should be decreased to reflect the current costs of fuel.
  4. WAPA should be given nine months to refinance its high-cost debt. If it cannot accomplish this in that time period, the Government will need to intervene to take action to address the capital structure of the utility.
  5. The Governor should immediately disband the PSC or terminate the PSC board members’ service, and reconstitute the PSC with qualified municipal operating and financial utility executives.

The Byan administration, in coordination with officials at WAPA and senators, said they had originally agreed on a tentative $3 million one time payment to offset the utility’s delinquent debt with the propane distributor. As discussions continued, the figure was raised to $6 million and was recently appropriated by senators after the government’s fiscal budget for 2020 was tweaked.

WAPA said that as a result of the PSC’s previous inaction on rate adjustments, it would not be possible to meet its payment obligations to its LPG fuel supplier, Vitol and will be unable to purchase the lower cost propane fuel. Without the necessary propane used to diversify how electricity is generated at both of its power plants, WAPA would be forced to utilize the more expensive No. 2 fuel oil to power the territory. 

Senators met in special session Friday and voted on a $6 million short-term bailout for WAPA. That same day, the PSC met to approve an extension to the leased generator surcharge it originally planned to let expire. Two branches of government and the PSC, who exercise regulatory power over entities like WAPA and local telecommunications entities have each said they are searching for long-term solutions to stabilize the territory’s energy infrastructure.

Featured image courtesy of The Virgin Islands Source.