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WAPA Pushes for Hike in Fuel Cost Surcharge

June 2, 2005 – One week after a hearing called to review the V.I. Water and Power Authority's use of the streetlight surcharge, the utility and the Public Services Commission returned to their ongoing battles Thursday.
This time, the topic of contention was the PSC's decision to prevent the authority from increasing the levelized energy adjustment clause (LEAC) surcharge in December. The LEAC is a mechanism that WAPA uses to recoup its fuel costs and is charged to its ratepayers as part of the regular monthly billing. WAPA wants the commission to reconsider its December decision.
Attorney George Eltman served as the hearing examiner while the PSC attorney and consultant and WAPA attorneys and officials presented their views on the matter. No PSC members were present at the hearing.
The LEAC was first introduced in August of 1981. Since that time, the PSC reviewed and adjusted the LEAC every six months, but in August of 2004, WAPA was given the authority to automatically adjust its LEAC on a month-to-month basis if needed. The LEAC changes whenever the price of oil is above or below the projected price for a given month by $1.75. However, the PSC still reserved the right to review and adjust the LEAC every six months, as done in the past.
The decision to grant WAPA the automatic LEAC was made after the utility received a negative watch rating on its bonds in July of 2004. At the time, WAPA's rating agencies expressed concerns about the high government accounts receivables and the failure of the company to recoup fuel prices in a reasonable time frame.
Armed with the correspondence from the rating agencies, WAPA pleaded with the PSC for the automatic LEAC, and the commission yielded to the request on a trial basis for a period ending October 2005. (See "WAPA Gets OK to Adjust Fuel Surcharge at Any Time")
Despite the change in policy, WAPA continues to be on a negative watch rating, according to Alberto Bruno-Vega, WAPA's executive director.
In arriving at the LEAC, WAPA uses the PSC estimates for the price of a barrel of oil for each month in a six-month period. The PSC provided the most recent forecasts for WAPA in January of this year for the period January to June. However, the actual price of oil has been for the most part $1.75 or more higher than the estimated prices, triggering the automatic LEAC and resulting in an increase in rates for ratepayers.
WAPA contends that the actual purchase prices and sale prices to ratepayers of the previous month should be used to determine the LEAC every month instead of the forecast figures estimated by the PSC. The utility does not agree with the calculation of the monthly adjustment provided to them by the PSC.
Glen Rothgeb, WAPA chief operating officer, told Eltman the utility was $3 million behind in recovering its underbilling to consumers because of the PSC's decision to not apply the LEAC increase in December and because of the current way the LEAC is calculated.
"WAPA is experiencing a continuous increase in under-recovery," Rothgeb said.
Jamshed K. Madan, PSC consultant, said the PSC prevented the utility from increasing the December LEAC because they found "numerous errors" in WAPA's calculations.
PSC legal counsel told Eltman the commission wanted his recommendations on whether the PSC should adopt the month-by-month forecast that WAPA seeks or whether the commission should keep the six-month estimates, and if so, what is the best way to adjust the LEAC when there's a sharp hike in the price of oil in the middle of a six-months period. The PSC is supposed to review the LEAC for the next six-month period in July.
Once the hearing is completed Friday, Eltman will present a report with recommendations to the PSC later this month.

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