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WAPA Prepares to Negotiate Final Terms with Top Bidders

(Friday, April 19, 2013)

WAPA Prepares to Negotiate Final Terms with Top Bidders
for Conversion to Propane Gas Supply

Virgin Islands Water and Power Authority Governing Board members gave an enthusiastic green light today for Executive Director Hugo V. Hodge, Jr. to enter into final negotiations with the top two companies bidding to supply the utility with liquefied petroleum gas (LPG /propane). The Authority currently uses fuel oil to produce water and power but plans to convert to propane, a less expensive and cleaner energy source, by summer 2014. Hodge named two internationally respected industry leaders as the top bidders--Vitol, Inc., one of the world’s largest independent energy trading companies and Trafigura AG, a frontrunner in the global commodities market, and also the Authority’s current fuel oil supplier. Propane gas has been determined to be the best short term goal to meet the urgent need to significantly reduce customer utility rates in the territory, Hodge said, estimating that customers could see approximately a 30% reduction in their energy costs.

The Authority issued a Request for Qualification and Interest (RFQ) for the supply of liquefied petroleum gas (propane) in September 2012 seeking bidders to supply propane gas at competitive prices and to develop and construct the infrastructure necessary to use LPG at its power generating facilities. According to Chief Operating Officer Gregory L. Rhymer, WAPA received five responses to the RFQ solicitation by the early November deadline. Rhymer chaired an evaluation committee of key Authority management personnel, who were assisted by technical consultants Purvin & Gertz (IHS) and the Galway Group, and the Authority’s outside legal counsel, Venable LLP. In the initial process, the committee assigned weighted scores in four major areas which included the project timeline and project permitting process (35%), general qualifications and proposed solution (30%), financial capacity and financing plan (20%), and single point of accountability (15%). After thorough commercial, economic and technical review of each bidder’s credentials the evaluators shortlisted Trafigura AG, Vitol Group, and Geo/Gas Polaris.

The companies were notified of their status in March and on April 4 presented their final proposals and terms to (a) deliver a bundled solution to import, transfer, store, vaporize and deliver LPG to St. Thomas’ Randolph E. Harley Power Plant and St. Croix’s Estate Richmond Power Plant; (b) supply the Authority with the LPG volumes necessary to meet its fuel need; and to (c) execute the physical conversion of eight of the Authority’s power generating units in order to enable these units to burn fuel oil, LPG and liquefied natural gas (LNG). The conversion to a tri-fuel generation will allow the utility to utilize the most economical fuel source at any given time based on market prices. Final negotiations for the LPG supply will commence on April 29.

 

The Authority also issued an RFQ last September for a supplier of LNG, planned as the long term solution for the utility’s base generation needs. Eight bids are currently under evaluation and results will be announced by summer, said Rhymer.

The Authority has submitted a briefing package to the U.S. Environmental Protection Agency addressing the air emission aspects of the conversion from fuel oil to the more environmentally friendly propane gas, and ultimately to LNG for the operation of WAPA’s facilities. EPA is currently reviewing that analysis, which is intended to demonstrate that the lengthy federal new source review and prevention of significant deterioration requirements should not be applicable to this project. Hodge said that WAPA appreciates the support expressed by Governor John P. DeJongh in a recent letter to the EPA backing WAPA’s position and reiterating the need to bring relief as soon as possible to the Authority’s customers.

The Authority anticipates having a final contract with the selected company by June. Governing Board Chairman Gerald Groner said that the Authority will undertake a community outreach initiative to educate the public about the advantages of propane gas as a clean and safe energy source. He said that it is critical that the public support this conversion to the cheaper fuel source by “taking this golden opportunity” to become familiar with the use of propane to generate power by asking questions and engaging in public activities planned to facilitate such discussions. It is anticipated that the Public Services Commission, which is responsible for setting rates, will also have a public meeting on this matter, Hodge said.

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