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HomeNewsArchivesCritical Report Prompts PSC to Freeze WAPA's Fuel-Cost Surcharge

Critical Report Prompts PSC to Freeze WAPA's Fuel-Cost Surcharge

June 22, 2007 — The Public Services Commission froze WAPA’s fuel-cost surcharge, the Levelized Energy Adjustment Clause (LEAC), at its current level for one additional month during the commission's monthly hearing Friday.
The decision to temporarily freeze the LEAC came after a lengthy, highly critical report on WAPA’s LEAC request. The report was created by Georgetown Consultants, a firm hired by the PSC to do an independent analysis of WAPA’s performance.
Currently the LEAC is set at 19.2759 cents per kilowatt hour. When the smoke had cleared, the consultants recommended increasing the LEAC to 21.2728 cents per kilowatt hour rather than WAPA’s proposed rate of 21.4693 cents. This difference would save ratepayers a less less than one dollar out of every $100 on their electric bills.
Aside from recommending a LEAC rate slightly less than WAPA’s request, the report contends WAPA’s fuel costs are affected not only by the price of fuel but also by WAPA’s actions, and recommends the PSC require much more detailed information from WAPA when it considers LEAC adjustments. Jamshed Madan and Larry Gawlik of Georgetown Consultants presented the report.
“To paint the LEAC cost solely as a function of the cost of fuel … this is not a correct portrayal of the factors controlled by WAPA,” Madan said “In reality, there are several factors that are very much within WAPA’s control that should be examined in detail before any LEAC factor is approved. And there must be continual monitoring between successive periods.”
The PSC needs regular and detailed reporting partly to catch situations early, Madan said.
"A delay in the reviews of actions can cause a significant economic penalty to ratepayers with not many good options to deal with them,” he said, elaborating by saying that punitive measures often only cause harm to WAPA and to ratepayers without actually fixing the problem at hand.
Among other factors, Madan cited line losses, inefficient generators and bad planning as contributors to WAPA’s fuel costs. Regarding line losses, Gawlik said site inspections had uncovered over 400 instances where meters had been bypassed. They were apparently bypassed by professionals, he said, predicting a total of at least 500 bypassed meters by the time the review was complete. Gawlik laid responsibility for this partly at WAPA’s feet for not inspecting often enough.
Madan gave other examples.
“Costs are impacted by WAPA management and board actions or inactions,” Madan said. “For example, the PSC gave approval of $10 million in bond funds in 2003 for a waste-heat recovery boiler. Those funds were partially reprogrammed by WAPA in 2003 with no explanation to or approval by the PSC, causing an unexplained delay. … We believe this delay will cost ratepayers in excess of $40 million.”
To arrive at that figure, the written report cites three years without fuel savings at a cost of $12 million a year, as well as increased construction costs.
“I object to using this sort of back-of-the-napkin calculation when addressing a matter like this affecting millions of dollars and tens of thousands of ratepayers,” said Nellon Bowry, interim executive director of WAPA. Any such calculation, he argued, should take into account the costs and savings associated with what WAPA redirected the funds toward.
“Ask the residents of St. John what the value of the cable providing them with electricity is worth,” Bowry added. “Should we have let them sit in the dark?”
Several commissioners said they understood that WAPA had a cash-flow problem. But they suggested the primary cause was not the $13 million in deferred fuel costs created by the LEAC, but the $22 million the V.I. government owes for unpaid electric and water bills.
“Shut them off if they are not paying,” Commissioner Donald G. Cole said. “If I don’t pay my bill, I get shut off. They can’t ride on the backs of the consumer.”
Commissioner Joseph B. Boschulte asked Bowry if he would object to freezing the LEAC for a month while WAPA looks over the consultants’ report.
“Yes I would be opposed,” Bowry said. “Because we have to buy the fuel at the price Hovensa sells it regardless. Part of the process in addressing the efficiency of the plant is cash. We need to have cash to purchase fuel right now at the cost Hovensa sells it.”
WAPA Chief Operating Officer Glenn Rothgeb gave an example.
“Unit 10 is out of service due to deferred maintenance,” he said. “This time it is coming down to taking money for maintenance and using it to buy fuel.”
“Should the consumer have to foot the bill for WAPA not doing what it needs to do?” Boschulte asked. “If you had that $22 million from the government, would we be having this discussion?”
Recovering the $22 million in unpaid government bills would help greatly, but meanwhile WAPA is falling further behind in fuel costs, Bowry responded.
“Hovensa gets paid, period," Bowry said. "The money has to come from somewhere."
“Have it come from the government, not the consumer,” Boschulte replied before moving to freeze the rate for a month. The PSC voted in favor of the motion without dissent.
Over the course of the meeting, several commissioners commented on the antagonistic relationship between WAPA, its governing board and the PSC. They discussed a joint meeting between the PSC and WAPA’s governing board aimed at ironing out differences and getting everyone on the same page.
“I think we need to sit down with the new WAPA board, and the sooner the better,” Commissioner Raymond Williams said. Plans were made to arrange such a joint meeting sometime in the near future.
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