PSC Denies LEAC Increase

In a surprise move Tuesday, members of the Virgin Islands Public Services Commission voted to deny an increase in the electrical LEAC (levelized energy adjustment clause) that was requested by the Water and Power Authority.

The PSC has sole authority to set the LEAC, which accounts for approximately 80 percent of Virgin Islanders’ electricity bills. Every three months the PSC raises or lowers the charge in response to recommendations made by WAPA and the Georgetown Consulting Group, a firm retained by the PSC.

Representatives of Georgetown said at the meeting that they agreed with WAPA that the LEAC needed to be raised, and recommended the PSC institute a slight increase, raising the charge on electricity to $.414905 per kilowatt-hour. That would translate to a $1.04 increase in the monthly bill of an average residential customer.

It is exceptionally rare for the PSC to go against the recommendations of their consultants, especially regarding an increase in the LEAC, because failure to do so could result in WAPA not having enough cash to pay for shipments of oil to fuel their power plants.

The refusal represents a sharp escalation in an ongoing disagreement between the PSC and WAPA concerning the sharing of information between the authority and Georgetown.

Since last year, consultants working for Georgetown have complained to the PSC about the level of detail being provided to them by WAPA in their LEAC filings, especially as it concerns the rate financing mechanism.

The RFM is a small charge that was added to the LEAC to help fund improvements in WAPA’s efficiency. Years of deferred maintenance have led to WAPA’s power plants performing below optimum levels, which, in turn, causes them to burn more fuel. Money raised through the charge was to be used on equipment repairs and for the temporary lease of a more efficient mobile generator on St. Thomas.

Georgetown estimates that $16 million has been raised through the charge, but that the efficiency improvements promised by WAPA when the charge was approved have not been realized. They are requesting more detailed information on how those funds are being utilized.

The PSC has become increasingly assertive in its attempts to force WAPA to comply with Georgetown’s requests. During their September 2012 meeting, they added a caveat to the LEAC increase mandating WAPA to become current on missed reports to Georgetown concerning the RFM within a month or the LEAC would have reverted to its previous level.

In their December meeting, the PSC added a list of specific filing requirements recommended by Georgetown to their motion to increase the LEAC. WAPA subsequently objected to that motion, claiming the PSC was overstepping its legal authority and that the order was illegal.

Early in the meeting Tuesday, it appeared that the two sides might come to some type of reconciliation. While maintaining that he believed WAPA had provided sufficient information to Georgetown, Hugo Hodge Jr., executive director of WAPA, announced that he was withdrawing his formal objection to the increased filing requirements passed in December.

The move was applauded by Tanisha Bailey-Roka, an attorney for the PSC, who said that if WAPA had continued the fight, the case could have easily wound up in court.

The PSC appointed attorney Kye Walker as hearing examiner on this issue, giving her the task of mediating between WAPA and Georgetown concerning the filing requirements and to determine if WAPA’s filings have been sufficient or lacking.

Walker was also appointed hearing examiner for the issue of WAPA’s annual increase of base rates for electric and water services, a related but separate issue.

Hodge said part of his reasoning for dropping his appeal was that fighting the decision was too costly and that expense was being passed on to ratepayers.

The PSC is funded by assessments paid by the entities it regulates. So anytime the PSC commissions a study or report on WAPA, WAPA is charged a fee.

Hodge said that, since January, WAPA has been assessed over $450,000 in fees relating to the increased filing standards debate.

“Our job is to provide the lowest possible cost, the most reliable energy to the consumer,” he said. “I don’t see going back and forth with the consultants that serve your commission as a way to achieve that.”

Hodge said that rather than fight over filing requirements, he would concentrate on diversifying WAPA’s fuel sources, a goal he says could lower the LEAC 30 percent by the summer of 2014.

Jamshed Madan, a consultant with Georgetown, dismissed Hodge’s complaints that the cost of regulation was too high, arguing that of every $100 WAPA collects, only 5-10 cents is spent on PSC fees.

He said increased transparency was essential for finding ways to lower the LEAC, and that Georgetown’s relationship with WAPA need not be contentious. He said his firm was only interested in discovering why WAPA’s power plants were not seeing the efficiency improvements the RFM program was designed to provide.

“From what we can see, the efficiency from the day it started to today, has been flat or has become slightly more inefficient,” he said. “So we’ve spent $16 million and we’re asking the question, for which we do not have the response yet: ‘Why is this happening?’”

Madan said he especially wanted to know what was happening with the installation of a heat recovery boiler on St. Thomas. He said it was far more efficient than the equipment WAPA is currently using and estimated that, once operational, it could lower the LEAC by 7 percent.

Hodge later said the boiler was operational, but was only being used to produce water. A 30-year-old turbine at the facility would need to be replaced before the boiler could be utilized for producing electricity.

Madan said that in their LEAC filings, Georgetown wanted a “narrative” from WAPA about what is being done to improve efficiency.

“What projects are they doing? What relief can be expected? When can it be expected?” he said.

He said that in the last filing, the narrative had been completely omitted and that when Georgetown subsequently asked specific questions on various efficiency projects, they received one-sentence answers, which he described as unacceptable.

After the presentations, commissioner member Sirri Hamad submitted a motion that the PSC deem WAPA’s current LEAC filing incomplete and postpone any change to the LEAC until their next meeting.

Voting in favor of the motion were Hamad, commission members M. Thomas Jackson, Elsie V. Thomas-Trotman and Joseph San Martin. Verne C. David was absent.

Following the vote, WAPA spokesperson Cassandra Dunn said it was not immediately clear what the ruling would mean for WAPA and that the authority would immediately begin studying the matter.

Ironically, the move may end up costing some customers more than if the LEAC increased had been approved. Bundled with the electric LEAC increase was a recommendation to decrease the water LEAC to $11.62 per thousand gallons. So while the average residential customer will pay $1.04 less for electricity next month, they will wind up paying $7.22 more for water than they would otherwise.

It was unclear after the meeting whether the PSC would wait a full three months till its next scheduled meeting to revisit the LEAC increase or if they would hold a special meeting as soon as Georgetown deems WAPA to be in full compliance.

In other business, the PSC certified Tibbar Energy as a qualifying facility in the Virgin Islands, a crucial step for the biomass energy company to sell electricity to WAPA.

Tonya Tomyn, president of Tibbar, said that her company was very close to finalizing an agreement with WAPA and that one could be signed as early as April, an assessment Hodge later confirmed.

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