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2012 Regulating:. Donald Ducks Cole Chairman of the VI-PSC 2012.

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Presentation on theme: "2012 Regulating:. Donald Ducks Cole Chairman of the VI-PSC 2012."— Presentation transcript:

1 2012 Regulating:

2 Donald Ducks Cole Chairman of the VI-PSC 2012

3 PSC actions under VI law must be prudentnot arbitrary or capriciousand result in just and reasonable rates; PSCs authority over WAPA is limited to setting rates. This seriously limits PSC actions and remedies VI Supreme Court recommended this be resolved by legislation. Recent legislation passed by the Legislature would have given the PSC authority to be more effective This proposed authority was line item vetoed. PSC must provide WAPA rates to fund prudent, sufficient and reasonable level of fuel to operate its electric and the water production facilities. The alternative of insufficient rates would threaten the availability of sufficient power & water for consumers. 2012

4 Fuel oil is WAPAs single largest expense (approximately 80 percent) for the electric and water divisions. Without fuel there would be no electricity or water production. (Similar to a car--without gasoline a car will not run). WAPA is 100 percent dependent on fuel oil for power production. Until recently WAPA had a very favorable contract to procure fuel oil from HOVENSA resulting in a relatively lower fuel cost. The favorable pricing is currently being phased out and what has been a very favorable contract will terminate on Dec. 31, 2012. Fuel oil pricing beginning in 2013 will be based on world market pricing-resulting in an increase in the cost paid by WAPA. 2012

5 World fuel oil prices are based upon supply and demand considerations and can be very volatile. For this reason the Virgin Islands, like many regulatory jurisdictions uses a LEAC type rate mechanism to pass through to consumers changes in the cost of fuel which can occur quickly and in some cases can be significant. Quarterly LEAC rate proceedings, rather than the time and expense of a full rate proceeding, are used to address the volatility of fuel oil prices and the timely recovery of these expenses. 2012

6 Consumers are impacted by WAPAs inability to collect government electric and water bills timely. Resulting in: The inability to perform preventative and required maintenance. Unavailable units, blackouts and poor fuel efficiency. Like a car, maintenance of WAPA generators is critical to their operations, performance and fuel efficiency. Street lights, public schools, and hospitals are chronic non- payers owing in excess of ten million dollars. WAPA executive management alleges they have been threatened with personal lawsuits if power is terminated for non-payment. Under current law the PSC has no authority over the timely payments other than to deny WAPA rates, resulting in even less maintenance, a greater number of blackouts, and greater inefficiencies. 2012

7 A failure to perform required maintenance is the root cause of WAPAs poor fuel efficiency and reoccurring generator outages, leading to: Protracted blackouts with which consumers are too familiar. The direct cost to all consumers resulting from a lack of funding by the Legislature to pay WAPA bills is enormous. Current estimates of the additional cost is over $50 million annually. The financial and economic impact and implications to the Virgin Islands economy is perhaps over $100 million annually. The operating situation has become so precarious that any maintenance to WAPA generating units is no longer possible. Taking a St. Thomas unit out of service for any maintenance now results in blackouts or rotating outages since the remaining generators cannot handle consumer demand. 2012

8 Working collaboratively the PSC authorized WAPA to collect in rates generation maintenance funds to lease an emergency generator. Funds are held in a special account for expenses authorized by the PSC. WAPA now has sufficient capacity to undertake deferred maintenance and the funds for doing so. Performance of the emergency unit is guaranteed by GE and the unit is more efficient than other available St. Thomas generators. The unit began operation in May, with no change in the LEAC rate inclusive of GE lease, operations, and maintenance cost. The emergency unit allows WAPA to overhaul key units and complete deferred maintenance of other units. When completed consumers will see fewer outages, efficient operations and lower LEAC rates. Funds are also provided for needed spare parts and inventory reducing the outage time associated with any break-downs. 2012

9 Completion of required overhauls and deferred maintenance completed LEAC rates are projected (in March 2013) to decrease annually by $50 millionbased on oil cost of $115/BBL. Special generation maintenance rate treatment is conditioned on WAPA retaining an independent advisor specializing in power generation performance. Future fuel savings will be adversely impacted by the loss of the Hovensa contract making increased efficiency even more valuable. If the government does not timely pay its utility bills the Virgin Islands will fall back into the prior quagmire. High LEAC costs! Rotating outages! Poor service! Consumer cost will rise unnecessarily if cash required for maintenance is not appropriated to pay government agency receivables. Successful implementation of a generation maintenance program and independent advisory oversight will result in savings for all consumers and additional investment in the local economy. 2012

10 Thermal distillation of sea water is expensive and inefficient. This method of water production can cost consumers $20 per 1000 gallons. The PSC recommended to WAPA in 2003 that it investigate the desalination of sea water by reverse osmosis (RO) water production. After years of pressure, WAPA initiated limited RO water production for St. Croix in 2011 and St. Thomas in 2012. St Thomas will be fully converted to RO production by the end of 2012 and St. Croix by mid-2013. The cost for RO production will be under $5 per 1000 gallons – almost one-fourth the old cost! Savings to water consumers will be significant. Electric consumers will see lower cost due to more efficient operation. The PSC is working diligently to bring these savings to fruition. 2012

11 Restricting PSC authority has resulted in higher consumer costs opportunities for consumer benefits have fallen through the cracks (i.e., consumers have been stuck with $50 million in additional cost). The lack of funding by the Legislature and timely payment of bills has been identified by WAPA as a major cause of the current state of disrepair, costing consumers $50 million annually. This situation must not reoccur. Challenges to the legality of the LEAC have been time consuming, expensive and have been dismissed by the courts as lacking merit. The PSC approach to obtaining emergency generation to complete unit overhauls, complete deferred maintenance, and procurement of spare parts and inventory will produce significant consumer benefits including lower costs, fewer rotating outages and better power quality and service. The PSC approach to implementing RO water production will produce significant savings on consumer water bills. 2012

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