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HOVENSA Executive Answers deJongh's Proposal

Dear Source:
According to recent articles in your newspaper and another publication, John de Jongh, Jr. has proposed that the Government of the Virgin Islands go directly to Venezuela to negotiate for lower oil prices. HOVENSA certainly would not oppose any effort by the Government to do so. However, Mr. de Jongh's implication that one of the objectives of the Third Extension Agreement executed in 1998 by the Government, HOVENSA and its owners was to provide residents of the Virgin Islands with low priced gasoline and electric power is not consistent with the facts.
Gasoline is mentioned in the 1998 Agreement only with respect to HOVENSA agreeing to continue the practice, established voluntarily by HOVIC, of selling gasoline directly to the Department of Property and Procurement. Notwithstanding the fact that it was never an objective of the Agreement, the presence of the HOVENSA refinery on St. Croix has resulted in the retail price of gasoline on St. Croix being consistently lower than the average retail price of gasoline in the nation. Unfortunately, no government entity has undertaken the task of assessing whether the substantially higher prices on St. Thomas and St. John are warranted by the cost of wholesalers transporting the fuel from St. Croix to St. Thomas or St. John and of maintaining fuel storage facilities on those islands.
With respect to WAPA, in accordance with a provision in the original 1965 Agreement between the Government and HOVIC, as amended in 1981 and restated in 1998, first HOVIC and, since 1998, HOVENSA has sold fuel oils to WAPA at the landed cost of low sulfur crude oil without adding the cost of refining. In other words, WAPA buys fuel oil, primarily No. 2 fuel oil, at the cost of unrefined crude oil. No other utility in the nation is able to buy fuel oils at a price as low as WAPA pays for fuel oils.
The primary root cause of the high cost of electricity in the Virgin Islands compared to other jurisdictions in the U.S. is not the rising cost of crude oil – WAPA's charges for electricity was comparatively high before the cost of crude began to escalate. The cause of this problem is the fact that WAPA utilizes fuel oils as its source of energy for the production of electric power; only 1.6% of the nation's electric power is generated by burning fuel oils because of its high cost. Most of the electric power in the U.S. (50.6%) is generated by plants that use coal. The average price of coal is 1/5 the cost of the average price of fuel oils. (Source of data: July 2006 Edition of Electric Power Monthly published by the Energy Information Administration of the Department of Energy.)
Until WAPA changes the primary source of its energy either to coal or petroleum coke (which is even less expensive than coal), the cost of electric power in the Virgin Islands will continue to be much higher here than it is elsewhere in the nation. A significant capital investment will be needed for WAPA to build power generation plants that can use coal or coke as their source of energy, but the community will realize a reduction in the cost of power indefinitely into the future.
Alex A. Moorhead
St. Croix

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