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Statement in Response to Public Comments about Base Rate Petition

(Tuesday, September 17, 2013)

The Virgin Islands Water and Power Authority filed for an adjustment in the water and electric base rates with the Public Services Commission in November 2012. The base rate is the portion of the customer’s bill that covers infrastructure costs to operate and maintain the power plants and the transmission and distribution facilities. It also covers salaries and other business expenses. Currently it represents about 30% of our budget while 70% pays for fuel oil. The last base rate review by the Public Services Commission was conducted in 2009.
While the Authority understands the impact any rate increase will have on customers, we can assure you that we have implemented measures and will continue to put systems in place to increase our efficiencies and to lower fuel and operational costs. Projects such as the heat recovery steam generator (HRSG) installed in the St. Croix plant in 2010 saves the Authority and its customers between $15 million and $30 million annually in fuel costs at today’s fuel prices. It is our plan once we can put funding in place to procure another HRSG for the St. Thomas plant. The intended conversion to propane gas will reduce fuel costs by 30% which will be a further benefit to all customers by fall 2014. The power purchase agreements for 18 MW of solar energy projects signed last year with three solar companies are anticipated to be all operational by the spring of 2014 resulting in an additional 15% savings.

As a result of Act 7360, a fund has been established with the proceeds from the gasoline tax yielding between $5 million to $6 million annually which will assist in funding new and essential energy and power generating units and/or heat recovery steam generators to further enhance efficiency and reduce costs. Another capital project that is underway is the AMI/AMR (Advanced Metering Infrastructure/Automated Meter Reading) project which will be the ground work for establishing a smart grid to help customers regulate their own energy use, facilitate the utility’s quicker responses to emergencies, and will also streamline the meter reading process for cost savings and increased accuracy. This essential project will cost between $8 and 10 million.

We recently dedicated a seawater reverse osmosis (SWRO) facility at St. Thomas’ Harley plant which has already reduced fuel expenses by eliminating water production by a thermal process. The St. Croix SWRO plant will be on line and dedicated next month further reducing fuel costs. We have a number of other essential and forward looking capital and efficiency projects on the table.

The requested electric base rate increase filed with the Public Services Commission (PSC) is for about 2.5 cents/kWh, but includes funding for additional capital and efficiency projects like those mentioned above. The implementation of such projects will produce greater savings than the requested increase through efficiency improvements. Additionally, the funding will produce improved reliability. The base rate is by law reviewed at least every 5 years. If this funding is not approved, the system will deteriorate and the costs will exponentially increase due to lost efficiency, and subsequently reliability will deteriorate as well. The additional effect will be the inability to access capital markets. In the recent downgrade of WAPA’s subordinate bonds by Moody's, the analysis stated that unfavorable results in the base rate case that leave the Authority without adequate funding to invest in the system will result in a further downgrade.

While we can agree with the representatives of Georgetown Consultants, the PSC’s analysts, about the direction of a number of areas of our operations, their services also represent a costly part of our operational costs and must be paid for through the base rate (e.g., the average LEAC review costs our customers $110,000 every three months). We believe they do not always look at the big picture when considering rates that will benefit our customers, and when making recommendations to the PSC members. For this base rate review, they have recommended $12M and we requested $18M based on our need. The data is there to support the need. Georgetown also recommends rates that are put into surcharges allowing for quarterly or annual review which again requires WAPA and its customers to foot the bill of their analyses. They have even stated in their testimony during the base rate hearings that we should have come for relief earlier while we explain that we live in the community, see and feel the pain, and do not rush to rate relief without exploring every option.

One sticking point in the base rate reviews is the consultants’ notion that the repayment of $10 million dollars by the water system to the electric system should be disallowed. Loans should be repaid, and to not do so places the Authority in a precarious financial position. If rates are not provided to support the repayment and the water system cannot repay the debt, this will negatively impact the Authority in the eyes of lenders and financial institutions who will perceive that the water system does not pay its bills.
Please do not interpret these insights as our disdain of regulation or the regulatory process. They are not intended as such, but again, the Moody’s downgrade did recognize the negative impact that the expensive and recurring requirements of the regulators have on the Authority’s customers. The base cases are now in the hands of a hearing examiner, who in turn will make recommendations to the PSC commissioners. What Georgetown has done, responding in the manner they have in a local newspaper on September 16, is an attempt to compromise and influence the process. Not to mention, in our opinion, bring harm to WAPA and the territory since all rating agencies monitor the paper every day

It is also important to note that it is the PSC commissioners, not their consultants, nor the Authority, who ultimately set the rates. This begs the question of why during periods of rate review the consultants find it necessary to make conflicting and negative public remarks about the Authority, its operations and its requests. It is our experience that often these pronouncements belie the factual information that they have in their possession and which they present to the commissioners for their final decisions on rate adjustments.

The Authority will continue to work earnestly on behalf of our customers to increase reliability and efficiency and to reduce costs.