Deferred Fuel Costs Hurting WAPA Maintenance

On the surface, V.I. Water and Power Authority finances are stabilizing, but deferred fuel costs and past-due utility bills still leave it chronically short on cash, Executive Director Hugo Hodge Jr. said during budget hearings Thursday.

While the authority does not receive any money from the General Fund for expenses, WAPA officials still come before the Senate each year to discuss their projected costs, revenues and plans.

Financial results "mask the unhealthy working cash condition of the Authority," Hodge told the Finance Committee. The cost of fuel purchased but not yet billed to customers stands at $57 million, he said.

Add to that another $20.3 million in past-due WAPA bills from government accounts, and WAPA has a $77.3 million working cash shortfall that limits spending on infrastructure maintenance and delivery of utilities, he said.

The cost of fuel is recouped through a fuel surcharge called the Levelized Energy Adjustment Clause, which is increased much slower than the price of fuel increases, stretching out the time between when WAPA purchases fuel and when it receives payment from customers who purchase the fuel.

On the bright side, government receivables are largely going down, despite rapidly tightening government budgets.

"Today, with the exception of streetlights and the Gov. Juan F. Luis Hospital, government accounts are for the most part current," Hodge said.

As of July 31, the central government owes WAPA $10.7 million, of which $7.9 million is past due.
Streetlights account for $2.9 million of that. Separately, the Gov. Juan F. Luis Hospital owes $7.5 million, he said.

For the electrical system, WAPA expects to sell 735,000 megawatts of electricity in Fiscal Year 2013, versus 750,000 MW in FY12. The authority anticipates $340.2 million in sales revenue and $3 million in other revenue for total operating revenues of $343.2 million.

Assuming fuel prices of $120-$130 per barrel, the cost of fuel is projected at $249.2 million for FY13 and is WAPA’s largest expense, representing 74 percent of the budget, Hodge said. Personnel expenses of $34.4 million are the next highest line item in the budget.

The water system anticipates operating revenues of $41.5 million and $37.4 million in expenses, producing a net income of $4.1 million.

To move away from its reliance on petroleum, WAPA has contracted with Toshiba, Sun Edison and Lanco Virgin Islands for solar power generation projects which total 18 MW, Hodge said.

The first solar array should be completed by the first quarter of FY13, with all the projects completed by the end of next year, he said. During sunlight hours, that is about 14 to 15 percent of the territory’s peak load demand and will help to reduce customer rates, he said.

WAPA has begun a feasibility study looking at converting its generators from oil to liquefied natural gas. Within the next two months, WAPA expects to finalize a request for qualifications to find companies qualified to develop storage and distribution facilities and procure liquefied natural gas or liquefied petroleum gas, both of which currently sell for much less than fuel oil.

Hovensa has agreed to continue providing fuel to WAPA through the end of the year, but at a gradually diminishing discount. The agreement provides that if WAPA is behind on payments to Hovensa, the discount will be removed, he said.

With Hovensa planning to cease supplying fuel, WAPA issued an invitation for bid for fuel oil in August and has received 12 responses, which are currently being evaluated, Hodge said.

No votes were taken at the information gathering budget hearing.

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