HOVENSA SETS NEW PAYMENT TERMS FOR WAPA’S FUEL PURCHASES

The Virgin Islands Water and Power Authority’s Governing Board met in executive session in an emergency meeting on Saturday to discuss a letter received from HOVENSA on Friday outlining new payment terms under which the refinery will sell fuel oil to the utility. In the letter dated August 8, 2008, HOVENSA informed WAPA’s Executive Director, Hugo V Hodge, Jr., that commencing August 15, fuel will be released for delivery only when full payment is made 48 hours in advance. HOVENSA also informed Hodge that past due balances will accrue interest at the prime lending rate. The letter which was signed by Alex A. Moorhead, Vice President of Government Affairs, Community Relations and Secretary of HOVENSA, LLC and Michael J. Fennessy, Vice President and Chief Financial Officer, was copied to Virgin Islands Governor John P. DeJongh, Jr.

At close of business Thursday, WAPA owed HOVENSA $39.8 million of which $11.9 million was past due. WAPA has been having difficulty paying HOVENSA for the spiraling increases in the cost of fuel because it has not been able to recoup those costs from customers through the LEAC (Levelized Energy Adjustment Clause) factor. The LEAC is a charge to the customer, based on energy consumption, to pay HOVENSA for the fuel that is needed to produce electricity and water. Any increases in the LEAC must be approved by the Public Services Commission (PSC).

Historically, LEAC factors approved by the PSC have not kept pace with the rising costs of fuel. As recently as Wednesday, the PSC suspended for 60 days, a decision on WAPA’s latest petition for an increase in the current LEAC which is based on $121 per barrel. The surcharge had been approved by the PSC in June effective for bills rendered July 1 but last month fuel costs had already increased and WAPA was charged $129 per barrel by HOVENSA. Delivery for the month of August is at $139 per barrel. WAPA averages delivery of 200,000 barrels per month

This further exacerbates WAPA’s high total of under recovered fuel costs from its customers which was at $34.5 million at the end of June. .The under recovery which has been adding up since 2002 has increased exponentially over the years because the PSC has prevented WAPA from collecting full fuel costs on a timely basis.

As for overdue payments to HOVENSA, according to Moorhead’s letter, commencing August 15, “any past due balances owed by WAPA shall accrue interest at an annual rate equal to the prime lending rate quoted by Citibank, N.A. at the principal offices of the bank in New York City until all overdue invoices and all accrued interest is paid in full to HOVENSA.”

The Board agreed that chairperson, Juanita Young, Chief Financial Officer Nellon Bowry and Hodge will meet with the Governor on Monday to further discuss this recent development.