March 22, 2007 — The V.I. Water and Power Authority is hedging its bets on the cost of oil. In an agreement described at the Public Services Commission meeting Thursday, WAPA will not pay more than $73.75 per gallon for a portion of its oil purchases.
However, if oil drops below $54 a gallon, WAPA will not reap the benefits of falling prices.
The plan covers the purchase of 30,000 gallons a month from April through June. However, WAPA uses about 200,000 gallons a month. Alberto Bruno-Vega, executive director of WAPA, said, "We are still 85 percent exposed."
According to the investment website, Investopedia, a hedge is defined as "making an investment to reduce the risk of adverse price movements in an asset."
Michael C. Coen, of Seslia Security, who explained the agreement said, "We are in the initial phase. If it runs efficiently, WAPA can enter into further agreements." Coen said the program could be expanded to cover the purchase of 1.8 million gallons a year, which would only leave WAPA 25 percent exposed.
What will be negotiated in future agreements are the base price and the cap price. Coen said those prices are determined by the price of oil at the time an agreement is signed.
Bruno-Vega commented, "I am comfortable with the plan," adding, "If oil goes to $100 a barrel."
CitiBank and Morgan Stanley each bid to manage WAPA's hedge fund, with Morgan Stanley winning.
If the cost of oil goes above the cap, WAPA will still pay the higher price, but will be reimbursed by Morgan Stanley. If the price drops below the base, WAPA will pay that lower price and then pay Morgan Stanley the difference. Coen noted that it was in WAPA's favor to keep the base and the cap both as low as possible.
After the meeting, WAPA spokesperson Cassandra Dunn said that WAPA has spent $130,000 in service, design, and consulting fees to set up the program.
In a governing board meeting last month, WAPA Chief Financial Officer Nellon Bowry said the authority would have to make more than one hedge fund transaction before customers begin to realize any cost savings.
Hedge funding has been a discussion point at PSC meetings for over a year. Another topic at Thursday's meeting WAPA's line loss has been a PSC topic for a number of years.
Shirley Cardin, manager of pricing and rates, gave an update on the Line-Loss Reduction Program. She said the meter-resealing program is almost complete and that meter management testing and recalibration of residential and commercial meters is also near completion.
She added that line loss for February was 1 percent above where it should be. Rupert Pelle, superintendent of water, said "St. Croix has major water-line problems with a 23 percent loss." He said he sees daily situations where accounts were never transferred from the Department of Public Works dating as far back as 1988.
He added that he has gone to places such as Anna's Hope to check on a leak and finds homes with no downspouts and no accounts with WAPA. There are meter boxes in the bush with no houses around, he added.
According to Pelle, presently five housing communities are refusing to pay their bills.
The bills have gotten extremely high because of leaks beyond the lines that are WAPA's responsibility. Housing Authority officials, however, reportedly feel since people did not use the water, no one should pay the bill. Bruno-Vega said, "WAPA will fight this even if we have to go to the federal government." In the Kennedy Public Housing community, an estimated 10 million gallons of water has been lost.
In response to commission members' concerns about "thievery," Bruno-Vega said at least 80 cases have been presented to the Attorney General's Office but that no prosecution has followed. To alleviate some of the loss, WAPA is using a semi-automatic meter system and are also evaluating automatic meter reading.
The positive note in the meeting was that the PSC was able to give final approval to the agreement between the V.I. Energy Office and WAPA concerning net metering. Under net metering, consumers with the ability to generate their own power, usually via wind or solar power, receive a retail credit for at least a portion of the electricity they generate.
Net metering was approved earlier this year. However, an application for residents to enter the program needed to be drawn up between the agency and the authority. The application is now ready and residents can pick it up at WAPA or at the Energy Office after April 1.
Bevan Smith, director of the Energy Office, said 10 sites have already been inspected and approved for the program. Smith said, "This is history in the Virgin Islands."
Sites will be inspected by the Energy Office before they are given approval to send their excess energy back to WAPA to earn credits.
Present during Thursday's meeting were commissioners Joseph Boschulte, Donald "Duck" Cole, M. Thomas Jackson, Alecia Wells, Raymond Williams and Sirri Hamad. Also in attendance was ex-board member Sen. Basil Ottley.
Gov. John deJongh came in during the last five minuets of the meeting. Dunn said this was the first time she could recall a governor coming to a Public Services Commission meeting.
Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.