June 9, 2008 — "To bring real relief to the people of this community, we have to talk big bucks," Sen. Alvin L. Williams said Monday, as senators pondered how to mitigate the impact skyrocketing oil prices are having on the V.I. Water and Power Authority and its customers.
Monday's emergency meeting of the Government Operations and Consumer Protection Committee was convened in response to the "many, many, many" concerns recently generated by residents about the escalating price of gas, food, WAPA bills and a petition by the utility for a 40-percent increase in Levelized Energy Adjustment Clause (LEAC) rates, according to Sen. Shawn-Michael Malone, committee chairman.
After about four hours of discussion, senators came to a couple of conclusions: first, that the agreement between the government and Hovensa has to be renegotiated to cut WAPA a better deal on the price it pays for oil, and second, that it's time for the government to start paying some of its outstanding utility bills so more money can start flowing into the utility's coffers.
About 80 percent of WAPA's budget is earmarked for fuel, according to Hugo Hodge Jr., the utility's executive director. As world oil prices have continued to spike, WAPA's fuel costs have dipped into the remaining 20 percent set aside for employee salaries, insurance costs and maintenance projects, leaving the authority with an "unprecedented cash-flow shortfall" approaching about $5.4 million a month, he said.
WAPA buys about 200,000 barrels of oil per month, or 2.4 million barrels a year for its operations. Over the past 10 months, WAPA has paid $167.5 million to Hovensa, and currently owes the refinery about $5.7 million, Hodge said.
While Sen. Ronald E. Russell suggested that Hovensa freeze the price per barrel of oil it sells to WAPA for two years to allow the authority to catch up on its maintenance and repair projects, a representative from the refinery pointed out that WAPA, under the current agreement between the two entities, saved about $36 million last year.
"They paid $170 million last year for fuel oil," said Hovensa Vice President Alex Moorhead. "If it were not for this agreement, and they had to buy at market price, their fuel bill would have been 20 percent higher. The rates are not high because of the price WAPA's paying, they're high because of the amount of fuel WAPA's burning. Hovensa has a net loss of all sales of fuel oil to WAPA — we're already selling them fuel oil below our production cost. It's not a complaint, just a statement of fact."
The only way the territory will see a significant reduction in the cost of electricity is if WAPA changes the type of fuel it uses, he said.
"Unfortunately, that is an expensive proposition," Moorhead said. "It's not possible to convert their existing equipment to burn something like pet coke, but one thing's for sure — the longer you put it off, the higher the cost is going to be, especially with the way construction costs are accelerating."
Upgrades to WAPA's existing plants, coupled with the installation and repair of waste-heat boilers in both districts, would also improve the authority's efficiency and cut down on costs, according to an evaluation conducted by Hovensa on WAPA's production systems and operations.
Other senators also suggested that Hovensa use the approximately $14 million it pays annually to the government in lieu of taxes to subsidize WAPA's fuel costs.
"That way we can cap the cost of fuel to WAPA at where it is today instead of bringing it up every time the price of oil increases," said Sen. Louis P. Hill. "If we keep the price of oil down on WAPA's end, then the entire territory benefits."
Other senators also suggested floating bonds to build WAPA some new power plants, and trimming the fiscal year 2009 budget by 10 percent to account for the global energy crisis.
Meanwhile, a move to reduce the government's energy costs by 20 percent within the next four years is in the works, according to Bevan Smith Jr., V.I. Energy Office director. Short- and long-term goals include retrofitting obsolete lighting and plumbing fixtures in government facilities and installing net-metered solar panels and small wind turbines, he said.
Tax incentives, loan guarantees and financing programs should also be offered so local residents can make the switch to solar panels, he added.
While fuel prices continue to increase, the government has kept a firm handle on its gas costs, said Property and Procurement Commissioner Lynn Millin Maduro. Plans are moving forward to bring self-contained fuel-storage tanks to government motor pools on all three islands, she added.
"Hopefully sometime soon, we will have a moratorium on the purchase of SUVs (sport utility vehicles)," Maduro said. "We did an analysis — we have enough of them if we have a disaster and need emergency vehicles, so there's no reason for us to continue buying SUVs."
Present during Monday's meeting were Sens. Liston Davis, Juan Figueroa-Serville, Hill, Norman Jn Baptiste, Malone, Terrence "Positive" Nelson, Basil Ottley Jr., Russell, Usie R. Richards and Williams.
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