Oct. 28, 2008 — The Senate Finance Committee held a bill Monday that would have taxpayers pay the hated levelized energy-adjustment clause (LEAC) fuel surcharge instead of ratepayers.
The original bill, introduced by Sen. Ronald E. Russell and supported by some members of the Senate minority caucus, would have taxpayers purchase all the Water and Power Authority's fuel from Hovensa for the next three months, covering 100 percent of the LEAC fuel portion of utility customers' bills. After three months, taxpayers would cover everything above $30 a barrel thereafter. It would enjoin WAPA from disconnecting anyone's power for the next three months, order WAPA to convert to 40 percent "renewable energy" by 2011 and mandate an independent audit of WAPA.
Russell later offered amendments limiting and changing the bill's scope to paying six months of LEAC and enjoining power cutoffs for three months.
The bill faces widespread opposition. It will not do what it claims and would be so expensive it would bankrupt both the government and WAPA, according to testimony from the governor's office, the Office of Management and Budget, Department of Finance, Bureau of Internal Revenue, Water and Power Authority, Public Services Commission and the Legislature's own post-auditor.
"The (bill) simply shifts the obligation to pay for electric-power generation and transmission from WAPA's broad customer base … to the government, and therefore the taxpayers of the Virgin Islands," testified Nathan E. Simmonds, senior policy advisor to Gov. John deJongh Jr.
With taxpayers footing the fuel bill instead of utility customers, the elderly on fixed incomes and the poor might see relief on their power bills, Simmonds said, but so would federal agencies and wealthy stateside companies, which pay few taxes under the Economic Development Commission (EDC) tax-incentive program.
"(T)he proposed benefits of this plan are illusory, as WAPA's ratepayers are also the government's taxpayers, and the proposal only shifts the obligation to pay from one pocket … to the other," he said. "(T)he proposed legislation is only forcing the government to make a decision on which educational, social and capital programs to cut in order to support the legislation's implementation."
Based on the current LEAC rate, Simmonds estimates paying the LEAC for three months would cost about $56 million. Six months of LEAC under the amended bill would be $112 million; less if oil prices continue to decline and more if they rise again.
"Clearly the government does not have the hundreds of millions of dollars of available cash that this proposal requires."
Hovensa Vice President Alex Moorhead and members of the Public Services Commission also testified against the bill, on the same grounds.
So long as the oil is purchased by someone, WAPA's finances would not be affected one way or the other by the bill, said Nellon Bowry, WAPA's chief financial officer. But he too said the amount of money involved would be difficult for the government to sustain.
"(T)he bill … does not appear to have taken into consideration the enormity of the financial obligation to which the … taxpayers will be obligated," Bowry said. "If there is not a reliable, sufficient and sustainable cash source to pay for the fuel, deliveries will be interrupted and power generation and water production correspondingly so."
Bowry outlined WAPA's progress toward power alternatives, saying negotiations with a trash-to-energy generator were in the final stages. He also said utility rates are beginning to come down, with one LEAC reduction of 18 percent implemented, another reduction request in the works, one efficiency-boosting waste heat-recovery boiler online and a second on its way by the end of the year.
The Legislature's analyses, conducted by its own Post Audit Division, made the same conclusion.
"The Post Audit Division does not recommend approval," said Post Auditor Francis Laurencin, "because the cost to the Virgin Islands government is unsustainable."
Supporting the bill were several business owners and residents who testified personally to the hardship, economic damage and business failures being caused by extremely high utility rates — a product of the territory's reliance on petroleum for power generation. Otis Pleasant, owner of Pleasant's, a Christiansted restaurant, testified he has been forced to close his doors as a direct result of high utility bills. Agatha Philips testified to the impact of utility bills on residents living on a fixed income. Several others made similar appeals, emphasizing the widespread hardship caused by extremely high utility rates.
Sen. Neville James said Trinidad and a number of other Caribbean nations are currently subsidizing utility bills for their residents, disputing the notion that there is nothing the government can do to assist.
Russell asked Finance, the Public Finance Authority and the Office of Management and Budget officials for the balances in their various accounts, arguing that balances of tens and hundreds of millions of dollars show the government has the money to spend. Simmonds testified the government is actually in the red rather than holding onto hundreds of millions of dollars in extra money. OMB Director Debra Gottlieb countered that the existence of funds in the bank is due to normal financial operations, in which money is deposited, checks are written and then the money drawn down in the account — not due to a surplus of money.
Sens. Terrence "Positive" Nelson and Liston Davis said they might be able to support some form of subsidy if it were limited and shown to be sustainable, but could not support the bill before them. Sen. James Weber III asked what more-limited measures might cost and what impact lower oil prices would have.
Russell offered amendments as described above, then moved that the bill be held in committee for further amendment.
Voting to keep the bill in committee were Davis, Nelson, Russell, Weber, Sens. Juan Figueroa-Serville and Neville James. Sen. Carlton "Ital" Dowe was absent.
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