Aug. 7, 2006 – A new bill designed to stabilize electricity rates for local ratepayers will send the V.I. Water and Power Authority into bankruptcy, according to Alberto Bruno-Vega, WAPA's executive director. The bill, called the Public Utility Rate Stabilization Act incorporates many provisions included in last year's Jobs Creation Act, and also proposes that the utility freeze, for at least two years, any increases in the Levelized Energy Adjustment Clause (LEAC).
During Monday's Committee of the Whole hearing, other testifiers called the bill "unconstitutional" because it would infringe upon a contract WAPA made with its bondholders to pay off debt service requirements on two sets of Electric System Revenue Bonds issued in 1998 and 2003.
According to David Womak, representing Citigroup Global Markets Inc., WAPA's bond underwriters, a contract between the utility and its investors requires that WAPA maintain enough net revenues (whatever revenues are left over after WAPA pays its expenses) to pay 1.25 percent of the principal interest accrued on the bonds. To do this, WAPA must be able to "adjust from time to time as necessary…rates, fees, rentals and other charges," Womack explained.
WAPA Chief Financial Officer Nellon Bowry said that the debt service requirement for Fiscal Year 2006 totals $17.8 million.
WAPA representatives also detailed their concerns about specific provisions included in the bill, which call for 5 percent of corporate taxes paid annually by HOVENSA to be deposited into a Public Utility Rate Stabilization Fund, which would be administered by the Finance Department. While the fund is meant to help offset losses incurred by WAPA as a result of the freeze on LEAC increases, the utility would not be able to access the money unless a release was authorized by the Public Services Commission.
According to WAPA's bond attorney Patricia Goins, this provision of the bill does not require the Legislature to provide an initial appropriation for the fund. "Therefore, at the outset there would be no money available for WAPA to use," Goins said. "And there is also no assurance if, when, or how much such corporate taxes payable by HOVENSA would be."
Bruno-Vega said the fund would have "not one dollar in it" if the bill is signed into law. "Clearly, in drafting this bill, no consideration was given to the escalating prices of fuel," he said, adding that the price of No. 2 and No. 6 fuel oils have increased in price by $20.45 and $19.89 per barrel, respectively, over the past year.
"Thus, the estimated $5 million that would be appropriated into the fund by HOVENSA represents only about $2 per barrel out of the approximately $20 per barrel increase for 2006," he said. "WAPA would then have to absorb the remaining $18 per barrel without increasing the LEAC rate, representing a deficit of $43.2 million."
Bruno-Vega said this would cause "chaos" for the utility, which is already, he said, $42.6 million "in the red." He said WAPA's debt includes $30.2 million worth of un-recovered fuel costs and $12.4 outstanding receivables owed by government departments and agencies, along with $2.1 million for streetlight services owed by the District Streetlight Maintenance Fund.
Alecia Wells, chairwoman of the PSC, said that money deposited into the fund would not be enough to cover the WAPA's fuel bills, which is projected to top $175 million this year.
WAPA representatives also opposed another portion of the bill relating to the selection of a small power producer for St. Croix. While a version of this provision was included in last year's Jobs Creation Act, the new bill also mandates that the utility enter into an agreement with a small power producer at a cost of no more than 11 cents per kilowatt hour, among other things (See "Senate to Consider Bill to Stabilize Electricity Rates").
The bill also stipulates that the PSC, responsible for regulating WAPA's rates, select the small power producer if more than one company bids on the project. "This moves the PSC from being a regulating agency to actually making management-type decisions," said Daryl Lynch, WAPA's board chairman. "But who oversees its conduct during the selection process?" he asked. "How can the PSC regulate the company that it selects? Is this not a conflict?"
During the meeting, Wells said she is not opposed to this provision of the bill. Wells added that her statements do not reflect the opinions of the PSC, since its members have not yet had an opportunity to review the measure.
However, she also said that both WAPA and the PSC are working together to address the high rates paid by consumers – including the implementation of a fuel hedging program that sets an anticipated cap price and floor price for the cost of fuel (See "WAPA Board Approves Fuel Hedge Plan").
"In the short-run, reducing the LEAC should be our primary goal," Wells said. "And in the long-run, we should look at putting in place heat recovery boilers for St. Croix and St. Thomas. That will really help to reduce the costs consumers are paying."
Bruno-Vega said WAPA's immediate goal should be to comply with recommendations made in an energy assessment conducted by the U.S Department of the Interior and the Pacific Power Association. The assessment, which is federally funded, would identify and evaluate potential strategies or projects which could help WAPA reduce its dependence on fossil fuel over the next five years, increase energy conservation in the territory, and maximize the use of local energy resources such as wind, solar power and the ocean.
Senators' reactions to the statements made during the meeting were mixed, with some opposing the bill and others saying that it is a step toward reducing the territory's high fuel costs. However, at the end of almost eight hours of debate, no action was taken on the bill, despite an attempt made by Sen. Louis P. Hill to send it back to committee for further debate and amendments.
Hill was one of a few senators who opposed the measure, saying that it would give residents a "false sense of security." He suggested that WAPA instead look at creating a fund to help low or fixed income residents who can't afford to shoulder additional rate increases.
Most senators, however, were opposed to statements made by Lynch about WAPA's attempts to open dialogue with Venezuela's Ministry of Energy and Petroleum. HOVENSA is partly owned by the Venezuelan government's oil company, Petroleos de Venezuela S.A., while a Hess Corp. subsidiary owns the rest.
While Lynch said a team from WAPA, along with Acting Gov. Vargrave Richards, would be heading to the country to discuss possible methods of reducing fuel costs, senators said that the utility did not have clearance from the U.S. State Department to negotiate with a foreign company.
Lynch also said WAPA is in discussions with HOVENSA for the construction of a petroleum coke plant on St. Croix, among other things.
Present during Monday's meeting were Sens. Craig W. Barshinger, Roosevelt C. David, Liston Davis, Pedro "Pete" Encarnacion, Juan Figueroa-Serville, Hill, Neville James, Norman Jn Baptiste, Shawn-Michael Malone, Terrence Nelson, Ronald E. Russell and Usie R. Richards.
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