Time is Running Out to Face WAPA’s Realities
Debt to the tune of $160 million, including substantial cost overruns on the VITOL propane conversion project, long-term non-payment of bills by government agencies, former ratepayers going solar, an aging, ailing generating system, the challenges of getting a new system up and running, and a 16 percent downturn in sales, could leave U.S. Virgin Islanders in the dark in the foreseeable future.
“We are in a serous financial condition,” WAPA Executive Director Lawrence Kupfer said Monday in an interview with the Source. “If VITOL cuts us off, and we can’t pay Glencore Ltd. [the company the Water and Power Authority purchases number two oil from] our arrears by the end of the year, we are looking at rolling blackouts,” at the very least.
Along with the VITOL debt, WAPA also owes Glencore $9 million.
“They have extended us credit in the past,” but Kupfer said that’s not going to happen in the future. And WAPA will likely be cut off entirely if it can’t pony up the $9 million by the end of the year. That means no reserves of oil to run the old, but less complicated generators, when the propane isn’t available or that system fails. No backup, in other words.
There could be light at the end of the tunnel, however. But it involves a base rate increase that has the public and elected and appointed officials back to furious WAPA bashing.
Rhetoric notwithstanding, the buck and consequences will land squarely on the people of the U.S. Virgin Islands, who own the public utility.
The authority has a plan that will see costs per kilowatt hour drop 6 cents below current rates within a year and a half if they can secure the rate increase they have petitioned the Public Services Commission for now. Current projections see at least another 4 cents down by the end of 2021.
It’s math not magic
First, the rate increase will be offset as the LEAC – Levalized Energy Adjustment Clause – decreases due to the lower cost of propane. The LEAC is a passthrough. At about $0.1926 a kilowatt hour now, it is strictly a fuel charge. If fuel goes up, the LEAC goes up. If the cost of fuel goes down, the LEAC goes down.
Second, the current agreement with VITOL, the company that has supplied propane to the authority and built the infrastructure to support it, also financed the project on a 10-year basis at a rate of 14 percent on the loan. Kupfer said there are investors standing by who will refinance at 6 percent over 20 years as a bridge to eventually securing a loan from the U.S. Department of Agriculture at 2 or 3 percent over an even longer time period – 25 years or more, according to Kupfer.
The would-be investors who routinely bankroll utilities need a predictable, immutable cash flow on which to base the investment, hence the rate increase. Kupfer said at least one of the potential companies is already invested in Limetree Bay Refining, the company that recently bought the old Hovensa plant on St. Croix.
The future looks bright
But there’s more light at the end of the tunnel, according to Kupfer. With VITOL paid off and payments dramatically reduced due to lower interest and longer term loans, WAPA can start to build its own infrastructure to support renewable energy. And it can be done totally with grants from HUD and FEMA.
The privately owned solar farms on St. Croix and St. Thomas are expensive and not covered by FEMA when they are damaged or wiped out due to storms, as was the farm on St. Thomas during the 2017 hurricanes.
Kupfer said the authority pays 17 cents per kilowatt hour to private solar energy providers. With its own infrastructure, the cost will be about 2 to 3 cents – and covered by FEMA
You can see where this is going
There’s more. If all goes according to WAPA’s so-called Transformation Plan, Waste to Energy will be back on the table as early as 2022.
The authority is on hold for a proposal to bring shredded tires to the territory for use in waste generation, but Kupfer said that particular project does not look promising.
Importing tires may not be the most efficient solution to waste to energy, but Kupfer is clear, the territory needs to make something work in that area that makes sense and is efficient.
“Without waste to energy, all these islands are going to become one big landfill.” Kupfer said.
The truth of the matter
Comparing WAPA to mainland utility rates are a favorite conversation on talk shows, social media and at cocktail parties.
But comparing WAPA to say, Idaho or some other place, is apples and oranges, Kupfer said, for many reasons.
“The states are still using coal,” for one thing, he said. But something that is even more askew with the comparison is that in a warm climate such as the V.I., residents often use air-conditioners year-round. And those run off electricity.
In other places, folks are heating their homes in the winter, not always with electricity but often with other means, like oil or natural gas.
“Until you figure what they are paying for gas or oil in the wintertime into the equation, you cannot accurately compare WAPA’s rates to other places.”
Kupfer was quick to dispel another myth that circulates. The recent and recurring power outages have many causes but few are due to human errors.
The complexity of the new propane system, coupled with the aging oil and gas generators, is what caused all of the outages over the last several months, he said, saying again that propane generation systems have a lot more moving parts and therefore are much more complicated than the far more simple oil-fueled generators.
As for the approximately $71 million in VITOL overruns, Kupfer said the urgency of getting the rates down after Hovensa closed and WAPA’s oil bill went up 40 percent caused WAPA to go ahead with the deal without detailed engineering plans that could have caused a two to three year delay. So, in the end, the construction and the plant was a lot more costly than anticipated.
For one example, leveling the hill behind WAPA where the tanks are stored on St. Thomas was expected to be a simple excavation, But it became much larger when it was discovered the hill was granite, not dirt, and required extensive blasting with explosives.
Then, the Coast Guard required that WAPA install what turned out to be a $7 million mooring system for the offshore propane storage ship. Docks had to be built – overruns, overran the original $87 million dollar estimate to build the propane system.
On the upside
Thanks to a $22 million Medicaid reimbursement to the public hospitals on St. Thomas and St. Croix, WAPA was paid for those and other government arrears.
“Now, it’s just Waste Management Authority that still owes $2.9 million,” Kupfer said, noting that Office of Management and Budget has been paying down as well on the $30 million in arrears.
Further, the propane conversion is 50 percent complete on St. Croix and two-thirds done on St. Thomas.
A new “roof top” plan for people converting to solar is also in the works. It will be something like the net metering, where ratepayers would feed excess solar power to the grid for credit on their bills. That still goes on but topped out a few years ago so that no new customers can take advantage. In the new plan, instead of WAPA paying the retail kilowatt hour rate back to homeowners for use of their excess power as it is contracted to do now and in perpetuity, WAPA will pay the LEAC rate to cover the cost of fuel but not the base rate cost of providing service. A fixed charge to residents and companies who want to convert to solar is also being seriously considered as is done in most other communities.
Kupfer said it is unfair for those residents who don’t own their homes and who will never have the means to install solar or other renewable energy to have to foot the bill for those more fortunate.
Also within the transformation plan, thanks to a $625 million grant, 90 percent from FEMA with the other 10 percent coming from HUD, 50 percent of customers will have underground power, composite poles will be installed on all four islands, substations will be upgraded, generation will be upgraded to more efficient engines run primarily on propane and, as stated earlier, much progress can be made toward WAPA ownership and use of renewable energy.
Kupfer has concerns about people who already live on the edge of the economic cliff. Without any federal or local assistance program to help them, he realizes this increase is going to be harder for them to bear. But it will be short-lived and, according to the projections, will mean about $15 a month increase on 500 kilowatt hours of usage for a year or so, but will reflect a far greater decrease – by nearly twice – by the end of 2020.
Another factor that has come into play relative to WAPA’s financial woes is the number of hotels and grocery stores – high energy users – that have not come back on line after the hurricanes of 2017. As they do, that will also decrease the current burden on the average resident.
All of these factors lead to one important conclusion: While few power outages are due to human error, failing to bite the bullet for 12 to 18 months and pay what must be paid will lead to rolling blackouts. And that will be human error.