Aug. 10, 2008 — Starting Friday, the V.I. Water and Power Authority will have to pay for fuel deliveries two days in advance, and will continue to accrue interest on the nearly $40 million it already owes to Hovensa until the debt is paid off in full, according to a letter from two of the refinery's top executives.
WAPA's governing board met over the weekend in an emergency executive session to discuss the letter, which was signed by Alex A. Moorhead, Hovensa vice-president of government affairs, and Michael J. Fennessy, vice president and chief executive officer. The board's chairman, Juanita Young, WAPA Executive Director Hugo Hodge Jr. and Chief Financial Officer Nellon Bowry are scheduled to take the issue up with the governor on Monday, according to a press release from the authority.
The letter was received by WAPA on Friday, and states that fuel will be delivered to the authority "only when full payment" for the delivery is made 48 hours in advance. The authority had been paying its fuel invoices as "soon as we get the revenue to cover it," while balancing payroll costs and debt service payments, Hodge said over the weekend.
"It's going to be very difficult, even if we get an influx of cash, because the way things are set up we're not able to recover our fuel costs through the LEAC (levelized energy adjustment clause)," Hodge explained. "In order to meet the current costs, it's either going to take an increase in the LEAC or subsidy to make up for the difference between what we're collecting and what we're actually paying for fuel costs."
WAPA officials have frequently explained that revenue garnered from the LEAC immediately passes through to Hovensa to pay for fuel. The problem, they've said, is that WAPA continuously pays out more per barrel of oil — which hit $129 per barrel last month and is expected to increase by about $10 per barrel this month — than it is able to recover through the current LEAC rate.
WAPA buys about 200,000 barrels per month. The authority recently filed a petition with the Public Services Commission for another increase in LEAC rates, which PSC board members said they would take action on in another 60 days (See "PSC Puts Off Vote on Another LEAC Increase.")
"As long as we continue to do the consumer a favor by denying an increase (in the LEAC), we're making it worse for everyone down the line," Hodge said. WAPA has already filed a petition with the PSC to re-instate the automatic LEAC, which is triggered when the cost of oil increases or decreases by $1.75. Officials have said smaller increases in the LEAC on a monthly basis would be more palatable for consumers than larger increases every six to eight months.
WAPA currently owes Hovensa approximately $39.8 million — nearly $12 million of which is past due. According to the new payment terms, any "past due balances" owed to the refinery will now "accrue interest at an annual rate equal to the prime lending rate quoted by Citibank, N.A." until both the outstanding payment and interest are paid off in full, the letter from Hovensa said.
"Just to pay off the interest, we have to cut more into the other sources of revenue we have coming in," Hodge said. "It's a very precarious situation for us to be in. Our financial team has been meeting all weekend to figure out a solution to this problem, and we'll also be meeting with the governor on Monday to see what we can do.
"It's unfortunate that we're right now 100 percent dependent on oil, and we're trying to do something about that now, but I think we all also have to work together to make sure this operation runs smoothly."
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