Public Services Commission: Proposed WAPA base rate increases exaggerated, unjustifiable
Published: September 16, 2013
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ST. THOMAS - The V.I. Water and Power Authority has made the case for increasing the base rate of both the water and electric sides of its operations, but the consultant group for the V.I. Public Services Commission has issued a report stating the proposed increases are grossly exaggerated and financially unjustifiable.
The Public Services Commission conducted public hearings on the matter last week that were sparsely attended.
The hearing examiner, attorney Kye Walker, said she would weigh public testimony as well as the Georgetown Consulting Group's report and WAPA's supporting documentation of the request to make a recommendation to the Public Services Commission by the end of this month.
It will then be up to the commission to vote on whether WAPA customers will see a 2.3 cents per kilowatt hour increase in electric rates, or about $10 to $20 per month for the average user based on a figure of 400 kilowatt hours monthly consumption, and a $1.20 per thousand gallon uptick in the price of water.
On the electric side, WAPA's request for a total of $24.3 million would make permanent an emergency interim increase of $8.6 million granted by the Public Services Commission in July 2012.
That increase already has been factored into customers' bills. It also would give WAPA another $15.7 million annually by tacking on another 2.3 cents per kilowatt hour.
The hike in water rates would result in about $2.3 million annually, according to WAPA's chief financial officer, Julio Rhymer.
Rhymer said the proposed increase in the cost of water already has been significantly offset by reductions in the water Levelized Energy Adjustment Clause. Likewise, by the time the proposed base rate increases would go into effect in November, WAPA anticipates decreasing the LEAC with respect to electric rates, he said.
Several current projects or power purchasing agreements - including the automated metering installation, an agreement with propane supplier Vitol and the shifting of water production to reverse osmosis plants - will reduce operational expenses and the cost of fuel within the next 18 months to three years, Rhymer said.
The LEAC sets rates according to what WAPA requires to purchase fuel, while the base rate reflects WAPA's operating budget.
The customer impact of raising the base rate will be negligible, Rhymer said, as reductions in the LEAC already have exceeded or will exceed the proposed heightened base rate charges on customer's bills.
However, Jim Madan, president of Georgetown Consulting Group, said this argument should be taken with extreme caution as WAPA has historically increased the LEAC during the last five years to unprecedented levels. The increases have made electric rates, at 53 cents per kilowatt hour, "the highest in the country," Madan said.
Particularly with respect to electricity, base rate increases, once approved, are certain to inflict higher prices on customers while the LEAC, being based in volatile fuel markets, can go up or down, he said.
It is misleading to assert that base rates will be offset by future LEAC reductions, as such is an assumption on WAPA's part, according to Madan.
On Friday, Sen. Nereida Rivera-O'Reilly withdrew a bill to place an 18-month moratorium on increases in the LEAC, saying that WAPA officials had informed her that without an identified source of funding for the measure, its intended relief to ratepayers is not feasible.
In its technical report, Georgetown severely undercuts WAPA's own estimate of how much it needs to increase base rates to make its financial operations whole.
"We are recommending a total increase of $12.25 million, including the $8.6 million interim increase," the Georgetown report states.
The report also urges the Public Services Commission to consider the "overall level of WAPA's rates" and to address shortfalls the utility has been cited for in other Georgetown reports in response to past LEAC rate increase requests.
The report cites WAPA's "less than adequate service," "the necessity for emergency measures" and "the frequent occurrence of promises and/or assurances to take certain actions without successful follow-through."
The Georgetown report also cites numerous examples of fiscal fallacies in WAPA's petition for the base rate increase, including that WAPA selectively submitted data sets while omitting others that did not support the exaggerated request; that WAPA borrowed $10 million from the electric side when the water side became financially insolvent and cannot justify passing this on to ratepayers; and that WAPA seeks more cash than it needs to hold in reserve for debt service coverage.
Madan said setting future rates to make up for past deficits that may have resulted from WAPA's internal mismanagement goes against the statutory intent of the entire rate-setting structure.
Further, according to the Georgetown report, WAPA received $16 million through an unorthodox raising of the LEAC by 2.3 cents per kilowatt hour for the leasing of a temporary combustion turbine for emergency maintenance purposes in 2012. This should have been a factor in a base rate increase, but, because WAPA had no outstanding base rate case, it was forced to bend the rules and use the LEAC for operational expenses.
61 percent increase
The report's writers point out that the new base rate case of $24.3 million, combined with the $16 million rate financing mechanism, would put WAPA's base rate increase closer to $40 million, or an insupportable percentage increase of almost 61 percent since 2009.
WAPA's financial burdens could have been mitigated by smaller base rate increases since 2009, but WAPA neglected to file for base rate increases when it should have between now and 2009, the report states.
"That WAPA has not filed for additional base rates should not necessarily be interpreted as a good thing," the report states. "WAPA itself has indicated that not requesting additional rate relief, until the RFM surcharge was implemented has resulted in inadequate cash flow, and created liquidity problems that have had several negative effects, including a reduction in the funding of critically required maintenance and prior deferred maintenance."
In a rebuttal, Hodge countered that by not seeking base rate increases the utility "sought to avoid 'rate shock' to its ratepayers" during the height of the recession.
Rhymer said the Public Services Commission historically has awarded WAPA with about half of the funding it has sought for maintenance and financial relief during the last few years, leading to ballooning problems with expensive repairs and chronic problems with debt and elevated interest rates.
- Contact Amanda Norris at 714-9104 or email firstname.lastname@example.org.