WAPA Approves Petition To Request Yet Another Base Rate Hike From PSC; Approval Denial Could Result In Blackouts, Utility Warns

ST. CROIX – The first order of business discussed at the Virgin Islands Water and Power Authority governing board meeting held at the authority’s Sunny Isle offices on Monday, was a measure to secure another meeting with the Public Services Commission (P.S.C.) to request yet another electric base rate increase. According to the board, the rate increase is required for WAPA to generate approximately $55 million in revenue for Fiscal Year 2020. If the request were to be rejected by the P.S.C., the territory would face blackouts, according to Noel Loftus, a member of the WAPA board.

“If we don’t get the rates, then we are going dark. There is no doubt in my mind,” Mr. Loftus said.

The new request lays bare the financial instability at WAPA. In 2017, WAPA requested a base rate increase, which it said was needed to stabilize its financial position. In 2018, the utility requested an increase again, by 4 cents, with the authority citing lower electricity sales and higher fuel costs. And earlier this month, WAPA was granted what the P.S.C. deemed a temporary utility rate increase of six months, bringing the total kilowatt per hour rate to a staggering 41.36 cents —  far higher than any rate being paid in every U.S. state.

Monday’s request, this time seeking a whopping 6 cents — which the board approved — comes two weeks after the P.S.C. approved the 3.1-cent hike. If Monday’s request is approved by the P.S.C., the rate would climb to 47.36 cents per kilowatt hour, an unheard-of rate that would send residents’ electric bills skyrocketing.

For a customer averaging monthly consumption of 400 kilowatt hours per month, the base rate increase will average $38.45 per month while a customer utilizing 250 kilowatt hours or less per month will see an increase of $23.69 per month, WAPA said. Customers using $400 kilowatt hours per month pay roughly $95.65 per month. These customers’ bills would climb to $134.45 if the 6 cents hike is approved by the P.S.C. When the 3.1 cents rate hike that was approved by the P.S.C. takes effect, a WAPA electric customer currently paying $95.65 will see monthly bills of $142.35.

WAPA maintains that the 3.1-cent and the 6 cents increases will be temporary, six months and 12-18 months respectively.

The board approved the request to authorize the petition to the P.S.C. to file an electric base rate case enough to generate the $55 million in additional annual revenue. The request for 6 cents increase cites that the additional funding is needed to offset continued revenue losses resulting from Hurricanes Irma and Maria. The increased costs are associated with rented and purchased generating units to meet customer demand for electrical service while avoiding rotating power interruptions, and funding approximately $14 million in capital expenditures. In fiscal years 2018 and 2019, the authority received approximately $94 million in Community Disaster Loans to help sustain operations, however this source of funding is no longer available, said the board, according to a release issued yesterday.

WAPA has seen a 17 percent decline in sales since the storms, which has since leveled off, but has not been recovered. It has lost 1,370 accounts since the 2017 storms. A couple of reasons mentioned were users who are now offline and customers who have relocated as a result of the storms. 

The new base rate increase of 6 cents would be effective July 1, 2019 and would be for a 12-18-month period. Lawrence J. Kupfer, Executive Director / CEO explained, “Over the next 12-18 months as we add yet more efficient new generators complete with battery storage, as we add some 15 megawatts of solar renewables to the grid, also with battery storage, our customers will begin to see a reduction in the LEAC and base rates. The LEAC represents the costs of fuel WAPA purchases to generate electricity. We will be burning more of the lower-cost propane, adding more renewables and using less No. 2 oil to meet customer demand for service.”

According to Mr. Kupfer, WAPA continues to experience an operating deficit as its rates, set by the P.S.C. before the 2017 hurricanes, simply do not provide the level of funding needed for WAPA to meet its post-hurricane operational costs. However, the base rate was increased in 2018 to 4 cents and again earlier this month. Now the board seeks to schedule another meeting with the P.S.C. to secure the 6 cents base rate increase and states that WAPA has maintained tight control over its expenses and expects a $30 million reduction in 2019 expenses, a figure lower than originally budgeted.

When a question concerning the probability of the P.S.C. approving the base rate increase request was introduced on the floor, the board explained that if the P.S.C. does not approve the request, the territory would experience the consequences.

Mr. Groner, reiterated that the consequences of not getting this rate increase would be catastrophic, not only for WAPA, but for the community as well. He believes that if WAPA can accomplish what it needs to in a year, the base rate increase will be reduced. “The increase is not permanent. Solar projects are in the works to help lower the rate. The increase is only a temporary bridge, and the overall intention is to work on lowering the rates. Within a year, we can recoup 70 percent,” Mr. Groner said. Mr. Kupfer shared that WAPA has been in talks with Governor Albert Bryan since he was governor-elect concerning the need to work together to identify a revenue source that would go alongside the government’s own financial support to the utility.

By the end of 2020, with seven smaller capacity units online on LPG (liquified petroleum gas), approximately 100 percent of the demand for service in the St. Thomas-St. John district will be met by solar and propane, he added. The additional capacity provided by WAPA-owned generating units will afford the opportunity for the utility to reduce the number of units it is currently renting from APR Energy and allow decommissioning some of the older, less efficient, less reliable units now on-line at both power plants, according to the release.

The release states, “Kupfer also said Monday that in addition to the new, more efficient generation and the additional renewables, WAPA is pursuing financing to execute an outright purchase of the LPG facilities on both St. Thomas and St. Croix. Financing at a lower interest rate over a longer term will not only represent significant savings to WAPA but make these facilities eligible for repair and restoration by the federal government in the event of adverse impact by a natural disaster. Presently, WAPA pays operating and maintenance costs to VITOL of approximately $40 million annually.”

Even so, WAPA is not guaranteeing that all its promises will be met on time. The company had promised residents 30 percent electricity reduction once it switched from oil to propane. But the project, which was two years late, has not led to the promised reduction. Instead, the electricity rate has steadily climbed.

The board also unanimously approved: 

• Additional funding in the amount of $800,000 to Arcadis, along with an extension to the existing contract from November 30, 2019 to December 31, 2020 to provide professional and technical services to WAPA 
• The executive director’s authorization to approve a change in pricing proposal from a one month extension lease to a $400 per fired hour and extend the contract for an additional 25 months from December 1, 2018 to December 31, 2020.
• An extension for Sulzer Turbo Services major inspection and repairs for Unit #23 from March 31, 2019 to September 30, 2019 with no additional cost to all the self-sequencing valve to be repaired and the final performance testing to be completed.
• An extension of contract with ABB, Inc. to January 31, 2020 to replace switchgear that was damaged at the East End Substation as a result of Hurricane Irma. 
• Amendment for 183-day extension to change Order #5 for SC-24-17 Pressure management IIB, Orange Grove 24 inch water line installation and PRV stations. The new contract ends September 30, 2019.
• Authorization to addendum to contract with American Wire Group for additional consignment materials and expedited freight for urgent delivery at a cost of $32,893,734.68.
• Executive director’s authorization to purchased property insurance premium coverage for one year, April 31, 2019 to April 31, 2020, from March/Wortham Insurance, LLC in the amount of $2,000,000.
• Recommendation of WAPA’s asset impairment project to reduce lost and damaged assets.
• Amendment of governance policy to allow the executive director to, in the aftermath of a State of Emergency, as declared by the Governor of the Virgin Islands, which affects WAPA’s operations, to approve purchase order, contracts, and addendums for emergency related equipment, materials and services, subject to WAPA’s established compliance procedures being satisfied 60 days from the governor’s authorization.

Board members in attendance included Chairwoman Elizabeth Armstrong, Vice Chairman Hubert Turnbull, Secretary Juanita Young, Directors Kyle Fleming, Cheryl Boynes Jackson and Gerald T. Groner Esq., and Noel Loftus.