WAPA Board Dealing with Tough Money Issues Due to Rising Oil Prices

With one major issue after another challenging the financial viability of the Virgin Islands Water and Power Authority, Hugo V. Hodge, Jr., Executive Director told the Governing Board members on Thursday that “we have our hands full” as he recounted mounting problems all related to the utility’s dwindling resources and the ever increasing cost of fuel. Board members and executive staff searched diligently throughout the meeting for ways to keep the Authority afloat while it continues to pay more for fuel monthly than the Public Services Commission (PSC) allows the utility to recoup through the customer fuel adjustment surcharge known as the LEAC (Levelized Energy Adjustment Clause). By month’s end, WAPA will have paid $30 million more to HOVENSA than it has been able to collect over the last several years, Hodge reported.

The Board quickly got down to business at its monthly meeting by authorizing the Executive Director to draw down an amount not to exceed $18 million from the electric system working capital lines of credit with Banco Popular de Puerto Rico and First Bank V.I. WAPA will use $12 million to pay off its existing lines of credit and use the $6 million remaining to address the shortfall in its payments to HOVENSA. Noting that the $10 million currently due to HOVENSA is in excess of the remaining funds, Board members were forced to look at some worst case scenarios for further cuts in operating expenses in order to meet excessive fuel costs.

HOVENSA’s May billing for fuel which is due payable in June at $24.8 million is more than WAPA’s projected revenues of $24.4 million for the same period. In addition to the fuel bill, WAPA must also meet other operating expenses including personnel costs, debt service, insurance, vendor payments etc. Fuel cost for July are expected to be $129 per barrel with more increases anticipated in the coming months, while the PSC has approved WAPA to collect the LEAC at only $121 per barrel through December. Each month of under collection of the LEAC puts WAPA further in jeopardy by millions of dollars.

Board members noted that WAPA’s rating service, Standard & Poor’s, revised its outlook from stable to negative last week on WAPA’s senior and subordinate bonds debt heavily influenced by the effect that the increasing price of fuel is having on WAPA’s operations. Additionally S & P was concerned about the PSC’s reluctance to allow fuel costs to be recovered from customers on a timely basis. Hodge said that automatic fuel adjustment mechanisms are being implemented by utilities throughout the nation and the Caribbean to address the energy crisis and the need to recoup fuel costs on a timely basis. Several Board members, clearly exasperated with WAPA’s continuing efforts to get much needed relief through the PSC, questioned some costly PSC requirements recently imposed on WAPA including the expenditure of an extra $30,000 for a special reconciliation report about the LEAC to be conducted by external auditors Ernst and Young. This assessment is in addition to the annual external audit which thoroughly examines the LEAC and also in addition to the costly and continuous analyses of the LEAC executed by the PSC’s own consultants.

The Board approved the following:

• authorized management to extend the contract with Ernst & Young for an additional year to perform an independent audit of WAPA’s financial statements for fiscal year 2008 at a cost of $255,000
• resolution to extend the electric and water system budgets at the 2008 budget levels until July 31, 2008 to allow the Executive Director to trim an additional $6 million or more
• authorized the Executive Director to petition the Public Services Commission to reestablish an automatic LEAC mechanism that allows for more timely recovery of fuel costs
• authorized the Executive Director to negotiate and execute a one year extension of the HOVENSA contract from July 1, 2008 to June 30, 2009 for the supply of #’s 2 and 6 fuel oil for the Authority’s generating facilities
• authorized the Executive Director to enter in contracts with Comprehensive Security Services to provide security services for St. Thomas and St. John from July 1, 2008 to June 30, 2009 at a cost of $609,475 with an option to extend for one year and to extend the present contract with Intel Security Services to provide security services for the island of St Croix for the period from July 1, 2008 to August 30, 2008 not to exceed a cost of $70,000 while the Executive Director negotiates a contract suitable to the Authority.
• approved the purchase of approximately 19,000 feet of 15kV cables and associated hardware from Electric Supply of Tampa, Inc. for the federally funded Long Bay/Center Line Road underground project at a cost of $359,144.
• approved funding in the amount of $241,131 to the V.I. Department of Planning and Natural Resources for payment of the 2007 Title V Emission Fees for the St. Thomas and St. Croix power plant facilities
• authorized the Executive Director to negotiate and purchase two acres of land at Beeston Hill, St. Croix, pending the rezoning of the land from R1 to R3, for the installation of a 10 million gallon water storage tank at a cost not to exceed $200,000.