It’s alternative energy or bust, according to a recently released federal audit report on WAPA’s energy costs, which stated point-blank that V.I. residents will keep being hit with the highest electric bills in the nation until the local utility cuts its dependence on fossil fuel.
"Unless the Virgin Islands moves to quickly develop all possible alternative energies and recognizes that updating and maintaining WAPA’s power plants is of the highest priority, power consumers will continue to endure unnecessarily high energy bills," the brief nine-page report said.
Last January, the Interior Department’s Office of the Inspector General received a petition signed by 700 residents claiming that the authority had imposed "unbearable" rate increases on the local population, and demanding that an audit be conducted into how the authority recovers its cost of fuel and oversees its contracting services and credit cards, among other things.
Spikes in world oil prices had WAPA’s fuel costs jumping from $58.5 million to $209.9 million between 2002 and 2008, which was recovered by the authority through increases in Levelized Energy Adjustment Clause (LEAC) rates. The report said the LEAC currently accounts for 70 percent of a consumer’s utility bill, but at one point had accounted for as much as 80 percent, which had sent the local community into an uproar.
While the auditors’ credit card and contract reviews didn’t turn up much of anything, auditors zoned in on a couple key energy issues that WAPA officials have been touting for years — namely, getting the authority off oil and making sure the government pays its bills, so more money can be available for maintaining WAPA’s existing power plants.
The report said V.I. consumers are at the top of the pyramid in terms of high electric costs, since WAPA is 100-percent dependent on oil, which WAPA Executive Director Hugo Hodge Jr. said Tuesday is indicative of most Caribbean regions. The electric systems are smaller in the islands and are better suited to oil, he explained.
But the high costs could have been "curtailed" if WAPA had diversified its power plants, particularly in 2004, when the "rate approached double digits," the report said.
While WAPA has recently been moving on some long-term solutions — such as the deal with Alpine Energy Group for waste-to-energy facilities in the territory — there still needs to be a short-term fix, and that means improving the reliability of WAPA’s existing power plants, according to the report.
"WAPA currently uses 2.4 million barrels of oil every year to generate power because of the inefficiency of its power plants. A net increase in power production efficiency of just 10 percent could result in LEAC savings to power consumers of $18 million per year (based on the October 2009 per-barrel price of $75)," the report said.
Many of the existing generating units are between 26 and 40 years old, with maintenance problems that would cost millions of dollars to fix.
Auditors suggested that WAPA could step up its operations by using a method called economic dispatch, where the utility’s most efficient generating units could be used to produce electricity needed during off-peak hours, while the less efficient units would basically be used as a backup.
Hodge said Tuesday this system only works when all of the utility’s units are available, which is not always the case.
"The goal for us is to get to that point, but right now, we’re in the position of having to balance efficiency with reliability of service," he said.
Meanwhile, WAPA is short on cash, and without funds coming in, any money budgeted for maintenance is shifted to other areas, the report said.
"Industry standards require that proper maintenance be planned, scheduled, coordinated and supported with appropriate resources to enhance plant performance and improve the reliability of any power plant. WAPA has been unable to meet this standard. In fact, WAPA many times lacks the funds to follow factory maintenance timelines on individual generating units."
About 80 percent of WAPA’s budget goes toward fuel, leaving 20 percent for personnel, maintenance and other operational expenses. That small chunk of funding has been reduced over the years to pay for fuel, leaving only about $3.9 million for maintenance in fiscal year 2009 — not enough to cover repairs for even one unit, the report said.
Meanwhile, the outstanding utility bill racked up by the government alone is currently $15 million — a bill that auditors say has created a "domino effect over the years," in terms of WAPA’s energy production and efficiency.
"Without a positive cash flow, WAPA has little hope of improving or maintaining the efficiency of its plants," the report said. "The government’s failure to pay its utility bills has created a domino effect that falls squarely on the shoulders of V.I. power consumers. WAPA is unable to adequately maintain its generating units; units become more inefficient and require much more fuel to produce power, and LEAC rate increases."
To bump up cash flow, WAPA had intended to have the long-discussed heat recovery steam generator (HRSG) on St. Croix up and running by the end of last year, but delays have since held the project up. The audit report quoted Georgetown Consulting Group — advisors to the Public Services Commission on WAPA-related matters — as saying the HRSG could have saved the authority and consumers tens of millions of dollars if it was implemented on time.
Auditors recommended that the governor work with WAPA on the following objectives: get the HRSG installed on St. Croix, secure funding for the authority, seek out alternative energy solutions, maintain and repair its generating units, and come up with a bill-paying policy to make sure all delinquent bills are paid as soon as possible.
