Vitol, the V.I. Water and Power Authority’s propane supplier and creditor for WAPA’s conversion from oil to propane electricity generation, cut off the propane it supplies the utility at noon Saturday. This means WAPA must use more expensive fuel oil instead and cannot use its newest, most efficient generators.
The fuel surcharge was just lowered due to lower propane costs but will have to be sharply raised or WAPA will not be able to buy fuel oil to run generators. In July, the Source reported on the direness of WAPA’s financial condition, tracing how the utility reached this precipice.
WAPA petitioned for a base rate increase more than a year ago, for the purpose of creating a funding stream to allow it to refinance its debt to Vitol at much lower rates. The change would ultimately reduce electric bills, but the increase is very unpopular and the PSC has repeatedly delayed acting on it. Members have said an increase may be necessary but have used the rates as leverage to get more information and make WAPA meet a variety of conditions. Meanwhile, they have avoided the unpopular increase they say may be necessary.
In 2016, the bond rating agency Moody’s specifically cited PSC inaction on base rate increases as a reason for downgrading WAPA’s fiscal outlook.
On Dec. 12, the PSC unanimously approved a popular reduction in the fuel surcharge but declined to approve the unpopular increase in the base rate. It reduced the electricity fuel surcharge to 16.39 cents per kilowatt-hour, and the water LEAC to $5.03 per thousand gallons, starting the beginning of 2020.
“The PSC’s actions at last week’s meeting makes it impossible for WAPA to pay its obligations to Vitol, refinance the LPG project at longer terms and lower rates and complete other critical refinancings that will lower the cost of electrical service to our customers,” WAPA officials said in a statement announcing Vitol’s action.
Gov. Albert Bryan Jr. called an emergency meeting with the Legislature Saturday to discuss how to move forward. No solutions were proposed at the meeting but WAPA officials described the discussion as “productive” and another meeting is scheduled for Monday.
All V.I. senators and representatives of WAPA attended the meeting, which was video conferenced at the Bureau of Information Technology offices in both districts.
Vitol’s default notice came on the heels of another denial by the PSC for a base rate increase, which would allow WAPA to refinance $150 million in construction debt to Vitol at much lower rates. Those lower rates would mean lower rates for electricity customers. Instead, Vitol has cut off propane and WAPA must buy fuel oil.
WAPA officials have said the utility does not have revenues to pay the higher fuel costs and will not be able to sustain electrical generation without an immediate infusion of cash.
Following the two and a half-hour meeting, senators agreed they would consider meeting in special session next week to appropriate $3 million, or more, to meet the utility’s immediate shortfall to begin the resupply of propane gas, according to Government House.
“We do have a real crisis. A few hours ago, we switched over to diesel fuel, which puts us in a precarious situation,” Bryan said after the meeting. “The most immediate need right now is for relief” to WAPA, he said.
Bryan also asked senators to work with his administration to develop a long-term solution for addressing WAPA’s mounting debt, which includes supporting a base rate increase.
The central government has already been making payments to assist WAPA with its liquidity issues. And it has switched to a system where the central government directly pays WAPA for agency and hospital bills, ending the longstanding practice of both V.I. hospitals and some agencies of easing their own financial stress by just not paying utility bills.
Bryan said senators agreed to work with the administration on a long-term solution, which includes possibly developing legislation to ensure the funds generated from the base rate increase are used for its intended purpose. Senators are also asking that WAPA be fully transparent about how funds from previous rate increases to pay Vitol have been used, and work to improve its billing practices.
WAPA pledged to make a greater effort to resolve its billing discrepancies, which has created a lot of anxiety in the community.
“We agreed to work together to hold WAPA accountable to the people. Many questions have been posed that need to be answered,” Bryan said. “Our intent is to create a solution that is well thought out and holds WAPA accountable. Our goal, always, is to have a more reliable and affordable power grid.” He also asked for WAPA to begin implementing measures as a “show of good faith.”
At the meeting, Senate President Novelle Francis, Jr. reportedly requested that he and Bryan call Vitol to discuss the shutdown of propane deliveries.
“The territory has invested significantly in upgrading to Agrekko and Wartsila generators in its ongoing efforts to be more cost and energy efficient. It is counterproductive to return to using traditional fuel at this time, which would result in unreliable power generation and additional costs to the utility, which will then be passed on to the consumer as higher LEAC charges,” Francis said in a statement Saturday.
“It is unconscionable to expect Virgin Islanders to absorb what could be up to a 40 percent increase in LEAC,” Francis added.
Francis said WAPA’s continuing state of crisis underscores the existing concerns of accountability that exist at the utility.
“It is clear to my colleagues and myself that there are accountability issues that must be definitively addressed – to include billing and meter management. WAPA has us over the proverbial barrel, but it is not fair to ask the public to withstand a rate increase if there are no assurances that the funds will be used for the intended purpose,” he said.
“Progress was made,” WAPA spokesman Jean Greaux Jr. said Saturday evening, adding “it was a good opportunity for a robust discussion between the two branches of government and WAPA.”
“We want to get the base rate necessary to refinance the debt with Vitol and get the propane flowing again,” Greaux said.
Vitol has been paying close attention to the discussions as well, according to Greaux.
The territory has a long history of ultimately costing ratepayers more as a result of trying to save them money and avoid unpopular decisions by starving WAPA in the short run.
Click the links to see reports documenting this pattern repeating again and again over the past two decades:
V.I. OWES WAPA $30 MILLION
WAPA Budget Shortfall is $40 Million; Government Debt to WAPA, $41.2 Million
GOVERNMENT’S WAPA BILL TOTALS $22.6M
V.I. Debt Blamed for WAPA’s Inability to Pay Hovensa
WAPA Borrows to Pay What It Owed Hovensa
Deferred Fuel Costs Hurting WAPA Maintenance
Stagnant Rate Leave WAPA at Risk of Running Out of Fuel, Officials Say
PSC Board Approves Compromise LEAC Increases
PSC Board Approves LEAC Decrease
PSC denies LEAC Increase