Oct. 15, 2005 – Representatives from 15 companies that would like to supply power to the V.I. Water and Power Authority listened Friday to Alberto Bruno-Vega, WAPA executive director, outline the requirements to fulfill that contract.
The representatives had to be thinking about the millions of dollars that would come into their company over the next 15 to 20 years if it received the contract. They might also have been thinking it might be better to spend their money and come up with a system that would beat the Black Jack table at the Divi Casino.
The contract requirements are stringent – $150,000 in annual community contributions, job creation on St. Croix, performance bonds and, of course, supplying power at a lower price than WAPA can produce it. Those concerns aside, the alternative power producer on St. Croix must also deal with the politics of the Virgin Islands. The politics have taken potential energy providers on a roller coaster ride the last couple of years.
WAPA originally sent out requests for proposals from energy providers last summer. The Public Services Commission dragged WAPA to court for that effort. Then the V.I. Legislature got involved with a bill called the Emergency Jobs Creation and Economic Stimulus Act of 2005, telling WAPA to negotiate immediately with energy providers that met certain criteria. Gov. Charles W. Turnbull vetoed the original bill. It finally became law after much legislative maneuvering, including an override, and then some drastic amendments.
Such activity caused Frank P. Wilbourne, Antilles Energy Cooperative president, one of the companies vying for the contract, to say, "I wonder what ball park we are playing in today."
However, company representatives did get concrete, new information Friday. Potential energy providers and the PSC have been trying for over a year to get WAPA to reveal what is called its avoided costs.
Bruno-Vega said Friday that it was 10.5 cents. Avoided cost is — at its minimal level — the cost WAPA can avoid by not producing power. There are other more complicated factors that play into avoided cost, including what costs are avoided going forward.
"We'll be consuming more power in five years than today," said Boyd Sprehn, PSC counsel. "The costs are going to go up. That's where most power plants are buying from outside power producers, on a forward basis so they don't have to expand their capacity."
Bruno-Vega said the 10.5 cents was based on a cost of $60 per barrel of oil and also reflected the significant savings the authority expects once a new lost heat recovery boiler is brought on line.
Why then, Bruno-Vega was asked, was WAPA charging customers 24 cents per kilowatt-hour. He said that the avoided cost dealt solely with the cost of generating power and had nothing to do with WAPA's cost for administration or transmission of power.
The move to find a qualified co-generator of power is driven by the effort to get WAPA off its dependency on oil. A constant increase in oil prices has been passed onto consumers through raises in the Levelized Energy Adjustment Clause, or LEAC, charges on their WAPA bill. Residents and business owners have felt the economic pain. St. Croix laundromats have signs this month saying that because of rising power costs dryer time was going to be more expensive and washers will require another token.
Ferry companies recently were allowed to add a $1 surcharge to the ride between St. Thomas and St. John. Operators told the PSC it was that or they might have to stop providing service.
Peter Locke, owner of Chenay Beach Resort on St. Croix, said his power costs have gone up more than 100 percent. He said power at his 50-room resort used to cost $200 a day but now costs more than $500 a day.
"Getting a co-generator power supplier is one way to bring down rates, but it is a long-term strategy," said Daryl Miller, president of the Alliance to Protect Ratepayers. "We believe WAPA needs to work on some short-term solutions."
WAPA has an odd ally in its effort to kick the oil habit. Alex Moorhead, Hovensa vice president, which supplies oil to WAPA, wrote in an op-ed piece to the Source, "It is time for WAPA to analyze the economics of converting to coal or petroleum coke as the primary energy source for its water and power production. The switch to either of these alternative fossil fuels would require a significant investment in new equipment by WAPA, but it also would result in a substantial reduction in WAPA's annual cost of fuel."
Bruno-Vega presented different scenarios to potential contractors at the Friday meeting, but going completely to another fuel source was not one of them.
He is asking the future contractor to provide a maximum of 20 megawatts of power, although a couple of the certified potential providers have expressed the desire to provide much more.
One reason that Bruno-Vega gave for the limit on power co-generation was that WAPA had to run its generators at a certain capacity to generate enough steam to run its desalination process. This is also crucial to the avoided cost issue. There's a point at which it begins to cost the company more money not to generate power, he said.
However, Bruno-Vega said WAPA would not be averse to a combination of companies providing parts of the 20 megawatts. He also said that a company that could be up and running quickly would be considered as a short-term supplier. The contract, as it is advertised, is for 15 years plus a five-year option.
Moorhead's figures are dramatic.
"WAPA's largest single operating expense is the cost of its fuel oil," he wrote. "In 2004, WAPA paid Hovensa approximately $90 million for fuel oils, excluding the cost of delivery. If WAPA had instead purchased coal to produce the same amount of energy to produce power and water, WAPA would have paid approximately $24 million – $66 million less!."
After the meeting, Bruno-Vega agreed that Moorhead's figures were on the mark. He said that it would require a massive input of money to convert WAPA to a different source of energy and the public utility did not have the money. He did say that after the process was over on St. Croix, WAPA would begin a similar process on St. Thomas, but there it could accept up to 30 megawatts. If WAPA does get a supplier of 20 megawatts on St. Croix, and 30 megawatts on St. Thomas, the co-generators would be producing a little over a third of the power that WAPA currently sells in the Virgin Islands.
Doing the Bidding
Friday's meeting was not mandatory for contractors. Thirty-six companies have purchased bid packages since they were issued on Sept. 30. Bruno-Vega said he is optimistic that WAPA will get some good proposals.
The proposals are due on Nov. 30. They will be culled, evaluated and then presented to the Governing Board before Jan. 20. The submission of terms and conditions negotiated with one or possibly more of the candidates will be made to the PSC before Feb. 16. The PSC has 30 days to review and approve the terms and conditions before the agreement can be finalized.
The PSC also must certify the power provider before the process can be completed. Only four companies are currently certified as small power providers. A recent change in the legislation allows WAPA to negotiate with companies who are not PSC certified, but they cannot enter into an agreement with any company until it is certified.
WAPA anticipates that the power purchase agreement will be issued on or about March 16, 2006. The required in-service date is March 31, 2009.
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