The most hated part of the Water and Power Authority’s customer bills, the charge that pays for the fuel it buys to generate electricity, is up for Public Services Commission review this month and WAPA wants it to remain unchanged for now.
But lots of Source readers are asking why it hasn’t gone down already, when V.I. electricity is expensive and worldwide oil and gasoline prices have dropped sharply since March.
The Public Services Commission meets Wednesday, June 3.
WAPA officials say there is a large deferred balance for fuel it had to buy when prices were higher than the fuel charge. But voices in the Public Services Commission, Legislature and homes and businesses across the territory have been calling for relief. At a May 3 Public Services Commission hearing, members and highly paid technical consultants at Georgetown Consulting complained WAPA did not provide enough information, including an accurate deferred cost number, to judge how to set the fuel charge.
Right now, the fuel charge is 16.4 cents per kilowatt-hour. WAPA wants to keep it at that level for the next six-month cycle. WAPA Executive Director Larry Kupfer said Monday he expects the Public Services Commission may instead propose a charge of around 14.5 to 15 cents, which would pay for current fuel prices, plus the Public Services Commission’s regulatory fee of around 0.75 cents. That amount would not pay off the deferred balance anytime soon, he said.
The Source asked Kupfer why the fuel charge should not drop and what the real deferred fuel bill is.
Kupfer said the exact amount changes all the time as bills are paid, but “every month our accounting department calculates what customers paid and what the actual fuel costs were. They do that every month and they keep a rolling calculation of what the deferred balance is.”
They compile the numbers on a monthly basis and the most recent figure is through March 31.
“It’s around $20 million and it changes every month. Right now, we are in a period where the [fuel charge] is higher than fuel costs,” so the balance is coming down, he said. “It was around $30 million so it has come down by around $10 million,” he said.
WAPA spokesman Jean Greaux Jr. later provided more exact figures asserting the balance was $31.47 million at the beginning of March, and WAPA billed $10.64 million more than it spent on fuel, cutting the balance due to $20.83 million. At that rate, the balance should be paid off in fewer than three months.
But, with rates still painfully high and the USVI facing rough economic conditions, should the fuel charge be cut a little, so WAPA’s fuel balance gets paid eventually, but not so quickly?
Kupfer asserted it is too soon to cut the fuel charge yet, because fuel rates may not stay low; WAPA mostly uses propane, which has not dropped as much as oil. And he said having a deferred balance at all really hurts WAPA and ultimately hurts its customers.
“They don’t like giving us a deferred fuel surplus. If we are owed money … they stretch it over a longer period of time,” Kupfer said. But WAPA is tapped out on credit. It cannot just borrow at a low interest rate. And it has to pay for the oil up front.
“We have to pay our vendors. We can’t say to them to come collect in July. It doesn’t work that way,” Kupfer said.
Asked how WAPA paid for the propane and oil it burned in the meanwhile, Kupfer said they had no option but to divert resources from anywhere possible.
“We have maintenance coming up on Unit 20 on St. Croix, yet there are no funds to fund that maintenance,” he said, by way of a real-world example of how waiting months for tens of millions of dollars in fuel costs hurts the utility.
“Historically, if you are in a period when actual fuel prices are higher” than the fuel charge is actually billing, “that money is coming from the base rate. Because there is no other money, no other place it is coming from,” he said.
The Public Services Commission has a long history of slow-walking rate increases when prices go up, starving WAPA, increasing its debt and forcing delays in critical maintenance.
Click the links to see reports documenting this happening over the past two decades.
WAPA Borrows to Pay What It Owed Hovensa
Deferred Fuel Costs Hurting WAPA Maintenance
Stagnant Rate Leave WAPA at Risk of Running Ouit of Fuel, Officials Say
PSC Board Approves Compromise LEAC Increases
PSC Board Approves LEAC Decrease
PSC denies LEAC Increase
Because WAPA succeeded in switching from running entirely on fuel oil to running mostly on propane, the drop in oil prices has not helped fuel costs that much.
At the beginning of the year, propane cost 40 percent less than fuel oil to generate the same amount of power. But now, propane is only 15 percent cheaper, Kupfer said.
After two decades or more during which the fuel costs were the worst and most oppressive part of the bill, the switch to propane has reversed that, helping to load WAPA up with expensive debt billed on the base rate, while cutting fuel costs sharply.
At the beginning of 2015, WAPA’s fuel charge was 28 cents per kilowatt-hour and the base rate was 9.16 cents per kilowatt-hour. Since then, the fuel charge has dropped almost in half, to 16.4 cents. But the base rate has almost tripled, to 25.8 cents for residential use after the first 250 kilowatt-hours. A lot of that is from very expensive, short-term debt with propane supplier VITOL. The cost for that project was $160 million – double initial estimates. Some blame WAPA for allowing that to happen. But it is unclear that WAPA had any other option. Decades of fiscal starvation had left it burdened with too much debt to finance at reasonable rates with long-term bonds and the territory was being crushed under the weight of skyrocketing oil prices. And if WAPA should have taken some different path, starving it now as punishment will not make the debt go away.
Homeowner rates now are about 40 cents per kilowatt-hour for the first 250 kilowatts and 43 cents for each kilowatt-hour above that. That’s very expensive. But it is also a full 10 cents, or 25 percent, less per kilowatt-hour than the 2014 peak.
Last year, Moody’s Financial Services, one of the three main companies that decide how creditworthy countries and companies are, downgraded WAPA’s bond rating. Moody’s said three things would lead it to upgrade WAPA’s credit: More “liquidity” or cash on hand; more reliable electric service; and “rate increases supporting improved cost recovery.” Not long after, WAPA faced a fiscal crisis and requested an increase in the base rate to avoid defaulting on a payment to VITOL.
At the time, both Kupfer and Gov. Albert Bryan Jr. argued that a higher base rate would help WAPA reassure the bond market and refinance the VITOL debt at lower rates, saving more money in the long run.
Unfortunately, it does not look like that will happen right away. Kupfer said that before the pandemic hit, WAPA had scheduled a tour to show potential investors around. But the tour had to be postponed due to the travel restrictions and uncertainty created by the pandemic. The hope was they would buy the propane storage infrastructure from VITOL. That itself was an interim plan, to get a longer lease and lower interest rates. But it would still be a capitalized lease with an investor. In the longer run, Kupfer said WAPA hopes to get a low interest loan from the U.S. Department of Agriculture’s Rural Utility Service and buy the facility.
“RUS wants to see a couple of years of stable financial conditions at the Authority before approving a loan, so this is an interim step,” Kupfer said.