THE ISSUE
In April 2019, WAPA proposed to the PSC an emergency $0.03/kWh rate increase for the Leased Generation Surcharge necessary for the payment of generation equipment leases and training for the operation of the new Wartsila units on St Croix and St Thomas.
Additionally, WAPA has proposed an increase in the LEAC for July 1, 2019 of approximately $.04/kWh and an increase in the base rate of approximately $.06/kWh, at which time the $.03 emergency increase would be terminated resulting in an overall $.10/kWh increase. According to Dissenting Opinion – Docket 676 PSC Order No 45-2019 of 25 April 2019 dated May 19, 2019 by PSC Commissioner & Chairman Emeritus Johann Clendenin, “At these rates WAPA again approaches a rate of 50 cents/kWh that is beyond punitive for the residents and businesses of the Virgin Islands and crushing for our economy.”
WAPA currently needs an influx of $43 million to negate the proposed rate increase but have been strained by the USVI Government’s inability to make timely and substantial payments of monies owed by their agencies, including the Territory’s hospitals.
BACKGROUND
Recently, The Chamber’s Executive Committee met with WAPA Executive Director and CEO, Larry Kupfer to discuss the proposed Public Services Commission (PSC) rate increase for the Temporary Hurricane Recovery Surcharge and Leased Generation Surcharge. In the meeting, Kupfer outlined the staggering, decade-long debt accrual that the Water and Power Authority faces. The Authority’s inability to pay down the debt has been further exacerbated by an 18% decrease in ratepayers since the 2017 Hurricanes, Irma and Maria, resulting in an overall decline in sales. Additionally, many companies using alternative energy sources have gone off the grid. However, he offered no further solutions to the shortfall other than the proposed rate increase.
In 2013 the people of the US Virgin Islands were promised that the Propane Conversion Project would result in a 30% reduction in electricity rates. At that time, the customer cost of electricity was at an all-time high at $.50-.53/kWh. An agreement was signed with VITOL in July 2013 for the propane conversion that was estimated at a total project cost of approximately $91 million and sold on a promise that the “All-in cost will result in approximately 30% reduction in fuel costs”. WAPA (2014, February) Switch to Propane for Power Generation
Instead, due to WAPA and Government mismanagement, the project cost upwards of $160 million and once again within less than 5 years of the conversion taking place, fuel costs are rising with proposed consumer electricity costs approaching $.50 again.
While USVI residents and businesses enjoyed an initial decrease, rates have continued to creep steadily upwards. As of April 2019, the customer cost of electricity was at $.38/kWh, the highest electricity rate in the United States. Choose Energy (2019, May 28) Electricty Rates by State With a proposed increase totaling $.10 this summer that rate is positioned to rise to $.48/kWh reflecting a 26% rate increase that approaches the record high rate of 2013.
In his dissenting opinion, Clendenin states “I believe the Commission has, and should, review and disqualify many of these alleged expenses precisely because they are not reasonably related to the cost of efficient operation and, in fact, are more the product of managerial discretion than prudence.” He further states that “The Commission continues to be constrained by disputed Legislation that does not permit it to act as other regulatory bodies do in the United States and serves to limit its authority to rate setting. This essentially permits WAPA and its Board to make capital investment, management and operational decisions having significant financial impact to consumers without any accountability of poor decision making to the public. The record is replete with WAPA Board and executive management poor unilateral decision-making resulting in consumer rates that are the highest in the nation for electric service that is at best poor.”
Preliminary estimates of GDP for the USVI showed that real GDP decreased 1.7% in 2017 after increasing 0.9% in 2016 USBEA (2019, December 17) U.S. Virgin Islands GDP Decreases in 2017
According to the 2016 USVI Kids Count 37% of children in the US Virgin Islands under the age of 18 live below the poverty threshold. Noted by the publication, the actual figure is likely higher given the cost of living in the Territory (based on food, housing and energy costs). The poverty rate is documented as among the highest in the nation. The USVI Bureau of Economic Research reported the unemployment rate in the Territory at 8.4% in 2018, more than twice the National average. U.S.V.I. Bureau of Labor Statistics (2019, March 25) Unemployment Rates – U.S. Virgin Islands
Continuing to penalize the people of the Virgin Islands for Government mismanagement is an undue hardship that many simply cannot afford and will have a negative impact on already financially stressed households and businesses across the Territory.
THE CHAMBER’S POSITION
The St Croix Chamber of Commerce is strongly against the WAPA rate increase and takes the position that the private sector can no longer be relied upon to bail out WAPA due to the Authority’s and the Government of the Virgin Islands’ mismanagement.
Given WAPA is a semi-autonomous government entity, the Government of the US Virgin Islands has the first responsibility to fill the $43 million gap to alleviate the hardship on the population whether by reallocating funds or through securing bonds.
Private sector businesses face the same 18% decrease in customer base as it reflects reductions in population and business. The burden of WAPA mismanagement over the years, and since the propane conversion, must not continually fall on the backs of residents or private sector businesses.
An increase in WAPA rates will only serve to force more consumers off the grid, reducing the rate payer base and further straining the Authority’s operating budget.
Additionally, with more than 37% of the children living below the National Poverty Threshold and an unemployment rate of 8.4% (2018) across the Territory, the proposed rate increases put an undue burden on an already economically challenged population.
“It seems the private sector must be the savior of WAPA once again, even if that calls for our own demise” states St Croix Chamber Chairman, Ryan Nelthropp.
In light of the austere measures WAPA has taken to swiftly shut off service to late paying residents and businesses, the Government of the Virgin Islands needs to pay in full and bring current their outstanding WAPA bills totaling an amount in excess of $50 million across Government agencies, including $23.2 million owed by Juan F. Luis Hospital and Schneider Regional Medical Center, before any additional tariffs are levied on private sector rate payers.
The St Croix Chamber of Commerce also recommends that WAPA devise a long-term strategy for profitability and sustainability, much like our neighboring Caribbean islands. As reported in a January 2019 article on New Energy Events, large-scale solar projects are in the works on Anguilla, The Bahamas, Turks & Caicos, Barbuda, and St. Vincent and the Grenadines. Jamaica has committed to 50% renewables, including solar and wind, by 2030. Forbes.com (2019, February 7) 6 Renewable Energy Entrepreneurs Lighting Up Jamaica
As WAPA themselves stated in their own Progress with Propane Fact Sheet, “As expenditures on electricity drop, many households will have more disposable income to partake in other economic activities. Much of this money will be spent on USVI goods and services—improving the local economic outlook.”
The people of the US Virgin Islands have a right to expect a just and reasonable utility rate. The Government has a duty to the people to figure out a way to pay for their own mismanagement of the semi-autonomous Government Agency, WAPA, without causing undue hardship to its citizens and the private sector.
