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PSC Approves Major Hike in Fuel Surcharge

Correction: An earlier version of this article misstated the increase in the LEAC. The PSC-approved LEAC increased by 33 percent. The typical residential customer using 500 kilowatt hours per month will see an increase in their bill of about 22.3 percent.
Nov. 30, 2007 — With the Water and Power Authority facing major cash-flow problems, the Public Services Commission (PSC) approved a 33-percent increase in the fuel-price surcharge on residents' electric bills.
The surcharge, the levelized energy-adjustment clause (LEAC), will rise from the current 19.2 cents per kilowatt hour up to 25.5 cents per kilowatt hour. The LEAC is only part of the electric bill. The average residential bill before the increase was $139 and now will be $170, an increase of 22.3 percent.
WAPA asked for a higher rate increase that would have recovered its oil expenses in seven months, WAPA spokeswoman Cassandra Dunn said after the meeting.
"But they decided on a 13-month recovery period instead of seven," she said.
The PSC normally addresses the LEAC twice a year, and sets it at a level expected to recoup fuel expenses over a number of months. High oil prices have hurt WAPA's cash flow more than usual because of the unusually high prices, and because for a time the PSC did not allow WAPA to raise the LEAC.
Also, earlier LEAC increases, while not enough to recoup the higher cost of fuel, resulted in millions of dollars in past-due bills from government agencies. The two sources of loss have strained WAPA's reserves for some time now. (See "Unpaid Bills Leaving WAPA Strapped for Cash, Officials Say.")
"It doesn't necessarily move us back from the brink," Dunn said. "But it does stop our situation from getting any worse. Money will still be tight. But (with) this and the possibility of receiving some money from the government, we are looking at a little better cash position."
The PSC also approved a full-scale fuel-price hedging program. After last year's high oil prices, WAPA entered into a trial oil-price hedging plan. Under the plan, a hedge fund agrees to pay the difference if oil prices rise above an agreed high-collar point. But if oil prices drop below the low-collar point, WAPA would pay the hedge fund the amount it saves.
A low-price benchmark and a high-price benchmark form a "collar" around the price of oil. WAPA sets the high benchmark and the hedge fund chooses the lower collar. There is no charge, and the hedge fund is betting prices will go below the lower collar, making the fund money.
That trial plan was limited in size to 360,000 barrels of oil. WAPA buys and burns about two million barrels of oil a year. With oil prices near $100 per barrel, and WAPA relying entirely on oil to generate electricity, anything to insulate WAPA and ratepayers from further price increases is a high priority.
WAPA proposed a plan to hedge 75 percent, or 1.8 million barrels, Dunn said. "They determined we should not hedge more than 50 percent of our inventory," she said. "So we will make that work."
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Correction: An earlier version of this article misstated the increase in the LEAC. The PSC-approved LEAC increased by 33 percent. The typical residential customer using 500 kilowatt hours per month will see an increase in their bill of about 22.3 percent.
Nov. 30, 2007 -- With the Water and Power Authority facing major cash-flow problems, the Public Services Commission (PSC) approved a 33-percent increase in the fuel-price surcharge on residents' electric bills.
The surcharge, the levelized energy-adjustment clause (LEAC), will rise from the current 19.2 cents per kilowatt hour up to 25.5 cents per kilowatt hour. The LEAC is only part of the electric bill. The average residential bill before the increase was $139 and now will be $170, an increase of 22.3 percent.
WAPA asked for a higher rate increase that would have recovered its oil expenses in seven months, WAPA spokeswoman Cassandra Dunn said after the meeting.
"But they decided on a 13-month recovery period instead of seven," she said.
The PSC normally addresses the LEAC twice a year, and sets it at a level expected to recoup fuel expenses over a number of months. High oil prices have hurt WAPA's cash flow more than usual because of the unusually high prices, and because for a time the PSC did not allow WAPA to raise the LEAC.
Also, earlier LEAC increases, while not enough to recoup the higher cost of fuel, resulted in millions of dollars in past-due bills from government agencies. The two sources of loss have strained WAPA's reserves for some time now. (See "Unpaid Bills Leaving WAPA Strapped for Cash, Officials Say.")
"It doesn't necessarily move us back from the brink," Dunn said. "But it does stop our situation from getting any worse. Money will still be tight. But (with) this and the possibility of receiving some money from the government, we are looking at a little better cash position."
The PSC also approved a full-scale fuel-price hedging program. After last year's high oil prices, WAPA entered into a trial oil-price hedging plan. Under the plan, a hedge fund agrees to pay the difference if oil prices rise above an agreed high-collar point. But if oil prices drop below the low-collar point, WAPA would pay the hedge fund the amount it saves.
A low-price benchmark and a high-price benchmark form a "collar" around the price of oil. WAPA sets the high benchmark and the hedge fund chooses the lower collar. There is no charge, and the hedge fund is betting prices will go below the lower collar, making the fund money.
That trial plan was limited in size to 360,000 barrels of oil. WAPA buys and burns about two million barrels of oil a year. With oil prices near $100 per barrel, and WAPA relying entirely on oil to generate electricity, anything to insulate WAPA and ratepayers from further price increases is a high priority.
WAPA proposed a plan to hedge 75 percent, or 1.8 million barrels, Dunn said. "They determined we should not hedge more than 50 percent of our inventory," she said. "So we will make that work."
Back Talk 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.