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Energy Cost Continues to Rise

The closure of Hovensa continues to impact how Virgin Islanders are adjusting to life with higher energy costs. The 25 percent increase to the Levelized Energy Adjustment Clause also known as the LEAC will, undoubtedly, prompt residents to once again change how they live their day-to-day lives.

See Also: Affordable Utilities Now
The LEAC increase granted by the PSC is in response to the Water and Power Authority’s (WAPA)’s immediate need for cash to purchase oil to continue generating electricity throughout the territory. If PSC Commissioners had chosen not to grant the increase, residents throughout the territory would have experienced rolling black outs and possibly water rationing in the coming months.

According to the consultants hired by the PSC, the LEAC is estimated to increase the average 500 kilowatt hour ratepayer’s bill by an additional $38.35 by changing the hourly rate from 30.6 cents to 38.3 cents per kilowatt hour. The cost for potable water also was increased. That LEAC increase will amount to about a 34 percent change. It is estimated that an average household utilizing 2,400 gallons of water monthly will experience an increase amounting to about $6.84.

While the PSC listened intently to the details related to why the increase was needed, the bottom line was the price of oil. Each month, while WAPA is supplying electricity to ratepayers, it must also attempt to predict what the cost associated with purchasing the next month’s fuel supply. In recent months oil prices fluctuated so drastically that WAPA officials had difficulty accurately estimating how much money it would need to replenish the supply burnt during the present month.

In addition to this financial concern, WAPA is still having difficult collecting payments from certain government accounts. The combination of the overdue government payments and the under-estimation of fuel costs is what has put WAPA in the current financial crisis and thus, prompted the large increase in the LEAC. The PSC has authorized the increased LEAC to begin in October and continue through December of 2012, providing the PSC receives information that helps demonstrate WAPA’s cost calculations, also known as its rate financing mechanism, within 30 days. The LEAC will return to its present rate if WAPA fails to produce the documentation required by the PSC.

Looking forward, it is critical now more than ever, that WAPA develop methods to more accurately predict the true cost of fuel oil so that the estimated and actual costs more closely resemble the cash flow needed to make fuel purchases. The increase to the October through December LEAC are an example of where WAPA under-estimated the LEAC costs and are now needing to “recover expenses” for actual fuel prices.

WAPA received six responses to a Request for Proposals (RFP) for companies to propose the sale of fuel oil to the VI Government earlier this year. While these proposals are being evaluated, VI ratepayers must keep in mind that the unique price subsidy that the VI received from Hovensa will come to a close in December 2012. Beyond December the VI will be subjected to the same fuel costs as all other utilities throughout the US plus the additional cost of transportation to get the fuel supply to the territory. So, VI ratepayers may yet again find themselves adjusting their lifestyles to copy with the rising cost of energy.

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