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PSC Approves 34-Percent Drop in LEAC Rates

Nov. 12, 2008 — This year's holiday season will be capped off at the beginning of next month with another decrease in levelized energy-adjustment clause (LEAC) rates, which was unanimously approved Wednesday by the Public Services Commission during a special meeting on St. Thomas.
Effective Dec. 1, residents will see a 34-percent drop in electric LEAC rates, from $0.322317 per kilowatt hour to $0.211661 per kilowatt hour, which will take the average consumer's bill down by $55.35, or 27.2 percent. The average commercial customer — those businesses using about 1,200 kilowatt hours — will see their bills drop by $143.91, or 25.5 percent, while the average large power customer will pay $4,428.24, or 28.3 percent, less.
The reduction reflects the continued drop in prices at the pumps, according to Hugo Hodge, V.I. Water and Power Authority executive director. Crude-oil prices peaked in July at $147 per barrel, and have since fallen by about 60 percent, capping Tuesday at nearly $60 per barrel, he explained.
"This is the lowest it's been since March 2007," Hodge said. Though WAPA's petition to the PSC to lower the rates called for a Jan. 1 implementation date, Hodge said the authority could afford to push it up a month earlier. The continued decline in oil prices, coupled with a new $40 million line of credit and the payment of $17 million outstanding from the government, has put the authority in a better financial position, he said.
On the water side, LEAC rates will fall from $13.72 per thousand gallons to $5.81 per thousand gallons — a drop of 58 percent, or $19.09 for the average residential customer using 2,400 gallons per month.
While WAPA officials also made their plea Wednesday for the reinstatement of the automatic LEAC — which is triggered when the price of oil increases or decreases by $1.75 — PSC members voted not to approve the petition. They did, however, decide to reevaluate LEAC rates every three months instead of the current six-month period.
The last LEAC decrease was made retroactive to the beginning of October. (See "Electric Bills Drop 18 Percent Immediately.")
Hedging
WAPA's fuel-hedging program has seen some success over the past 10 months, bringing in a net payout of about $1.7 million to date in calendar year 2008, according to Nellon Bowry, WAPA chief financial officer.
The hedging program, in the long run, seeks to reduce the volatility of the price of oil, which is subject to fluctuations in the fuel market. The program allows WAPA to set an anticipated cap and floor price for fuel — meaning that the utility will not have to pay more than a particular per-barrel price if rates increase.
If the price of oil dips below the set floor price, however, WAPA would have to cover the difference and pay penalties to its providers, which were initially Morgan Stanley and Citigroup when the program first started up in 2007.
But Morgan Stanley recently said it would do no more hedging transactions with the authority, Bowry told the PSC Wednesday.
"They wanted us to provide additional collateral to ensure that we have the ability to pay if the price of oil drops below the cap," he said. "We still feel that given recent developments with loans and the government paying off what they owed us, we are in a better financial position and see no reason now to put up more money."
While the authority continues to fill the slot left open by Morgan Stanley, WAPA officials asked the PSC Wednesday to let them move forward with one or more providers instead of two.
"We are aggressively seeking additional counter parties, but there has been little interest," Hodge said. "One bank has indicated they are interested in seeking our financials. They haven't said no, so we're pursuing it. But the market is really tough right now financially, and we're at a point right now that we'll get some of the best deals we've ever got. It's an opportune time for hedges, so we're asking to lower the amount of counter-parties to one or more because we would hate to delay while we go out there and search for someone else."
WAPA expects to hedge 85,000 barrels of oil over the next two months, along with 40,000 barrels per month during 2009.
Authority officials also discussed getting the steam-heat recovery generator on St. Croix online in February 2009, and beginning construction on alternative-energy facilities at the beginning of the new year.
Board members present during Wednesday's meeting were Joseph Boschulte, Donald "Ducks" Cole, Verne C. David, Sirri Hamad, M. Thomas Jackson and Alecia Wells.
Sen. Patrick Simeon Sprauve, an ex-officio member of the commission, was also present.
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Nov. 12, 2008 -- This year's holiday season will be capped off at the beginning of next month with another decrease in levelized energy-adjustment clause (LEAC) rates, which was unanimously approved Wednesday by the Public Services Commission during a special meeting on St. Thomas.
Effective Dec. 1, residents will see a 34-percent drop in electric LEAC rates, from $0.322317 per kilowatt hour to $0.211661 per kilowatt hour, which will take the average consumer's bill down by $55.35, or 27.2 percent. The average commercial customer -- those businesses using about 1,200 kilowatt hours -- will see their bills drop by $143.91, or 25.5 percent, while the average large power customer will pay $4,428.24, or 28.3 percent, less.
The reduction reflects the continued drop in prices at the pumps, according to Hugo Hodge, V.I. Water and Power Authority executive director. Crude-oil prices peaked in July at $147 per barrel, and have since fallen by about 60 percent, capping Tuesday at nearly $60 per barrel, he explained.
"This is the lowest it's been since March 2007," Hodge said. Though WAPA's petition to the PSC to lower the rates called for a Jan. 1 implementation date, Hodge said the authority could afford to push it up a month earlier. The continued decline in oil prices, coupled with a new $40 million line of credit and the payment of $17 million outstanding from the government, has put the authority in a better financial position, he said.
On the water side, LEAC rates will fall from $13.72 per thousand gallons to $5.81 per thousand gallons -- a drop of 58 percent, or $19.09 for the average residential customer using 2,400 gallons per month.
While WAPA officials also made their plea Wednesday for the reinstatement of the automatic LEAC -- which is triggered when the price of oil increases or decreases by $1.75 -- PSC members voted not to approve the petition. They did, however, decide to reevaluate LEAC rates every three months instead of the current six-month period.
The last LEAC decrease was made retroactive to the beginning of October. (See "Electric Bills Drop 18 Percent Immediately.")
Hedging
WAPA's fuel-hedging program has seen some success over the past 10 months, bringing in a net payout of about $1.7 million to date in calendar year 2008, according to Nellon Bowry, WAPA chief financial officer.
The hedging program, in the long run, seeks to reduce the volatility of the price of oil, which is subject to fluctuations in the fuel market. The program allows WAPA to set an anticipated cap and floor price for fuel -- meaning that the utility will not have to pay more than a particular per-barrel price if rates increase.
If the price of oil dips below the set floor price, however, WAPA would have to cover the difference and pay penalties to its providers, which were initially Morgan Stanley and Citigroup when the program first started up in 2007.
But Morgan Stanley recently said it would do no more hedging transactions with the authority, Bowry told the PSC Wednesday.
"They wanted us to provide additional collateral to ensure that we have the ability to pay if the price of oil drops below the cap," he said. "We still feel that given recent developments with loans and the government paying off what they owed us, we are in a better financial position and see no reason now to put up more money."
While the authority continues to fill the slot left open by Morgan Stanley, WAPA officials asked the PSC Wednesday to let them move forward with one or more providers instead of two.
"We are aggressively seeking additional counter parties, but there has been little interest," Hodge said. "One bank has indicated they are interested in seeking our financials. They haven't said no, so we're pursuing it. But the market is really tough right now financially, and we're at a point right now that we'll get some of the best deals we've ever got. It's an opportune time for hedges, so we're asking to lower the amount of counter-parties to one or more because we would hate to delay while we go out there and search for someone else."
WAPA expects to hedge 85,000 barrels of oil over the next two months, along with 40,000 barrels per month during 2009.
Authority officials also discussed getting the steam-heat recovery generator on St. Croix online in February 2009, and beginning construction on alternative-energy facilities at the beginning of the new year.
Board members present during Wednesday's meeting were Joseph Boschulte, Donald "Ducks" Cole, Verne C. David, Sirri Hamad, M. Thomas Jackson and Alecia Wells.
Sen. Patrick Simeon Sprauve, an ex-officio member of the commission, was also present.
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.