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WAPA TO SEEK HIGHER ENERGY ADJUSTMENT CHARGE

Jan. 16, 2003 – If the Water and Power Authority has its way, customers will probably find their electric bills going up in February, but their water bills will be coming down.
Alberto Bruno Vega, WAPA executive director, said on Thursday that WAPA will petition the Public Services Commission on Friday for an emergency increase in its levelized energy adjustment charge, or LEAC. The WAPA board approved the action Thursday.
The reason for the fuel surcharge request, according to Bruno Vega, is that "the turmoil in Venezuela and the uncertainties associated with the impending war with Iraq have a direct implication on the fuel oil available and on fuel oil prices."
The LEAC was established as a means for the utility to increase its revenues on an as-needed basis in order to pay fuel costs higher than those covered in WAPA's base rate. The surcharge is recalculated every six months based on the price of oil. WAPA submits its proposed fuel charges to the PSC for review before implementation each January and July.
Since last July, Bruno said, "our fuel prices have significantly increased over our projections," and as a result "WAPA has underbilled the customers by $4.5 million for the true cost of fuel." He pointed out that the authority has been paying Hovensa, its oil supplier, the higher "true price" since July while billing customers at a lower rate.
To the average residential consumer using 500 kilowatts of electricity a month, Bruno said, the 8.2 percent increase in the LEAC being sought would translate into an increase to $84 from $78 per month.
Meanwhile, Bruno said, WAPA's potable water charges have decreased because previous overbillings have resulted in a rebate now of $1.20 for every 1,000 gallons. That works out to a reduction of $4.08 per month for a typical residential customer using 3,400 gallons per month.
Production outlook for Hovensa uncertain
The Hovensa refinery on St. Croix is a joint venture of Amerada Hess and Venezuela's national oil company, Petroleos de Venezuela.. The company has curtailed crude oil shipments because of a general strike in opposition to President Hugo Chavez that began in early December.
On Dec. 11, because the strike had cut off its supply of Venezuelan crude, Hovensa announced a substantial reduction its daily output of petroleum products through the end of December. On Jan. 3, the refinery increased is per-gallon charges to St. Croix retailers by 5.5 and 6 cents for regular and premium gasoline, respectively and by 10 cents for diesel fuel.
On Monday, Hovensa spokesman Alexander A. Moorhead declined to comment to the Source on whether the refinery was planning any layoffs or major operational changes because of the ongoing situation in Venezuela.
A report in Thursday's V.I. Daily News quoted a spokesman for one of the refinery's contractors, Turner St. Croix Maintenance Inc., as saying that contractors will likely be asked to cut costs and that layoffs of contract workers are possible. According to the newspaper, Moorhead declined to comment on reports that Hovensa already has ordered its contractors to begin cutting back.
Moody's Investors Service said on Wednesday that it would review Hovensa's credit rating in light of the Venezuela strike having resulted in a "virtual cessation" of crude oil deliveries to the refinery. The South American nation is not the refinery's only supplier, but it is by far the most cost-effective one.
Higher surcharge sought for past, future cost increases
WAPA is submitting its emergency petition to the PSC on Friday, Bruno said, because "we not only need to recoup our $4.5 million, we need to increase the price for our projections … The uncertainty due to political upheaval in Venezuela and the uncertainty throughout the world make this necessary."
Saudi Arabia has intervened in the world crisis, Bruno said, "by making a statement that they would like to stabilize oil at between $23 and $28 a barrel so there would be no action. But if it goes above that range, they would increase their production in order to lower fuel oil prices."
The WAPA executive director added: "That is, in essence, accomplished. But our projections still call for $30 a barrel."
He explained that WAPA's projections are based on fuel market conditions. "The upheaval in the oil market has been so great that we have not been able to keep up," he said. "Two weeks ago, prices topped $32 per barrel."
Bruno pointed out that most mainland power companies have an energy adjustment charge and adjust their prices each month according to the fluctuating market. "WAPA is more susceptible to these fluctuations," he said, "because in general in the states, other options are available — such as natural gas or a hydroelectric system."
The territory implemented the levelized system in order to make small adjustments in fuel rates every six months, "making it easier on the consumer," he said.
"We were hoping oil prices would come down, Bruno said, but "they have gotten worse, intolerably worse."
In normal circumstances, he said, "whatever we overbill or underbill the customer we spread over a 12-month period … But even with that 12-month period, we still need the 8.2 percent increase. We need urgent action effective in February. Otherwise, the situation will get worse."
A date has yet to be set for the next PSC meeting, a spokesman said Thursday afternoon, but it will likely be in the last week of January.

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