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WAPA Gets OK to Adjust Fuel Surcharge at Any Time

Aug. 9, 2004 – Water and Power Authority customers will more than likely see monthly increases in their electric bills in the coming year with authorization from the Public Services Commission on Monday for WAPA to adjust its monthly fuel-cost surcharge automatically.
The surcharge, based on what is called the levelized energy adjustment clause, or LEAC, currently is assessed per kilowatt-hour. Until now WAPA has had to go to the PSC every six months seeking adjustments in the rate to reflect changes in the market price of oil that WAPA pays.
The order approved by the PSC at a special meeting on Monday allows WAPA to adjust the surcharge without going to the commission for approval once the world market price of a barrel of oil rises or drops by $1.75 from the $36.71 per barrel price that the PSC used to set the current surcharge in May. (See "PSC Approves WAPA Fuel Surcharge Increase".)
Although WAPA will now be able to adjust its surcharge month to month, the utility still must appear before the PSC every six months for a review of its LEAC surcharge.
Alberto Bruno-Vega, WAPA's chief executive officer, said, the price of oil on Monday was a little more than $40 a barrel. Because of this, he said, a rate increase of 6 percent would take effect on consumers' bills effective Sept. 1.
"This increase would translate into roughly $5 being added to the average residential consumer bill," Glenn Rothgeb, WAPA's chief operating officer, told the commission.
However, by the close of the day Monday, oil prices had set a new record of $44.84 per barrel for light crude for September delivery on the New York Mercantile Exchange. The price soared after officials in Iraq announced the shutdown of operations in key southern oilfields for security reasons.
WAPA, which is dependent on oil for the production of electricity and water, has been unable to recover its fuel costs because of escalating oil prices, creating a cash flow problem for the authority. "Right now WAPA is $17 million in the hole," Bruno-Vega said.
Recently, Fitch Ratings — a bond-rating company — put the utility's electric division on a Rating Watch Negative, stating that the rating "reflects the adverse effect on WAPA of sharply higher oil prices, greater difficulty in recovering fuel expenses on a current basis and a continuing poor record of collections from certain government agencies." (See "Bond-rating Firm Puts WAPA on 'Watch Negative'".) The utility is owed more than $15 million by the V.I. government.
The commission voted 3-2 to approve the order allowing an automatic surcharge adjustment for 14 months — until October 30, 2005 — provided that WAPA aggressively look at alternative sources of fuel and energy. Jerris Browne, Verne David and Alecia Wells voted for the motion; the PSC chair, Valencio Jackson, and Alric Simmonds voted against it. Desmond Maynard was absent at the time of the vote.
In giving their approval, the PSC members reiterated that WAPA needs to find ways to reduce its line losses and other inefficiencies. PSC technical consultant Jamshed Madan has said that line losses have cost WAPA consumers $3 million in the last 12 years.
"This is a compromise," Bruno-Vega said after the vote was taken. He said the authority would have preferred a monthly adjustment of the surcharge.
PSC legal counsel Boyd Sprehn said the action was taken to address WAPA's urgent need to correct its deteriorating cash position and the potential for a fuel shortage and to protect the interests of creditors and ratepayers.
"Today's commission action is intended to address these needs and to undertake steps to reduce the Virgin Islands' future vulnerability to price shocks from its dependence on oil," Sprehn said.
Present at the meeting were: Browne, David, Jackson, Maynard, Simmonds and Wells. Yvette Canegata-Jones was not present; nor were the two non-voting PSC members, Sens. Shawn-Michael Malone and Luther Renee.

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