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WAPA Appeals to PSC, Senate for Help Cutting Costs

June 6, 2008 — With fuel prices topping $125 per barrel, the V.I. Water and Power Authority is again looking for ways to cut costs — including petitioning the Public Services Commission to reinstate the automatic levelized energy-adjustment clause (LEAC) and asking the Senate to appropriate $9 million to cover half of the government's outstanding utility bills.
The automatic LEAC, which is triggered when the price per barrel of fuel increases or decreases by at least $1.75, was discontinued about three years ago. Since then, the PSC has been considering WAPA's petitions for LEAC increases on a six-month basis — a system that has ultimately bumped the authority's under-recovered fuel costs up to about $24 million, according to Hugo Hodge Jr., WAPA's executive director.
"With this six-month lag, everything the authority has in its coffers is at risk — including money for maintenance, projects that would increase our efficiency and payroll expenses," Hodge said Friday during a press conference on St. Thomas. "And it is impossible for us to improve on our efficiency if the resources we have are basically just being used to purchase oil."
Consumers would more likely be able to deal with a smaller five-to-six percent LEAC increase every month than have to budget for a "staggering" 40-percent increase twice a year, he added. While the automatic LEAC was in place, WAPA's under-recovered fuel costs dropped down to about $7 million, but that figure has since jumped to more than $20 million since it was discontinued, Hodge explained.
On Tuesday WAPA plans to petition the PSC for another LEAC increase, which would, if approved, go into effect at the beginning of next month. WAPA has requested an increase in the electric system LEAC of $0.136059 per kilowatt hour (kWh) from the present level of $0.254733 to $0.390792 per kWh. This would result in residential electric rates in excess of $0.46 per kWh.
WAPA is also seeking an increase in the water system LEAC of $7.32 per 1,000 gallons from the current $7.58 per 1,000 gallons to $14.90. The requested increase would raise the cost to a resident to $29.80 per 1,000 gallons.
Meanwhile, WAPA's cash-flow deficit fluctuates between $6 million and $12 million each day, Hodge said. In addition to the under-recovered fuel costs, outstanding government receivables totaling about $18 million are forcing the authority to shift bond proceeds already earmarked for certain projects toward more critical repairs — such as getting the steam-heat recovery boiler on St. Thomas up and running.
About $2.6 million in proceeds slated for repairs to one of the authority's storage tanks will be put toward fixing the boiler, which should save the authority — and ultimately its consumers — $1.6 million a month once it comes online, Hodge said.
Most recently, sporadic power outages struck St. Thomas after three of the authority's major power generators went down. While the situation has since improved, one of the units is still down and some of the authority's smaller generators are scheduled to be taken out of service for repairs during the summer months, officials said Friday.
Still, cutting off power to various government agencies is not the way to solve the problem, Hodge said. Out of the $18 million owed to the authority, the territory's two hospitals constitute about $7 million in outstanding utility bills. WAPA's inability to collect the funds needed to operate and maintain the local street-lighting system takes up another $6.2 million of the debt, he added.
"Out of the three, which one could we possibly shut off?" Hodge asked during Friday's press conference.
To cut back on expenses, consumers are being asked to conserve as much power as possible, which officials hope will allow the authority to shut down at least one generating unit in its plants on any given day.
Though the picture may seem dire now, the reduction in energy costs, coupled with several other short- and long-term initiatives planned by the authority, should reduce the territory's dependence on fossil fuel by 30 percent over the next two to three years, Hodge said.
The search for a small power provider — or a combination of providers — is expected to wrap up by the end of the month, with the installation of St. Croix's heat-recovery boiler following at the end of the year. WAPA's fuel-hedging program — currently at a standstill due to ever-increasing fuel prices — is expected to yield savings that will benefit the authority until the end of 2009. Meanwhile, discussions with the Puerto Rico Electric Power Authority on the installation of an underwater cable to the territory are already in the works, Hodge said.
"The crisis for us is just about fuel," he added. "But with all these things in place, I think there's relief in sight. I see light at the end of the tunnel — I just hope it's not a train."
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