WAPA presents budget to Finance Committee, projects $1,069 profit
Published: October 2, 2013
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ST. THOMAS - During testimony before the Senate Finance Committee on Tuesday, V.I. Water and Power Authority Executive Director Hugo Hodge Jr. said WAPA should be able to charge interest on past-due accounts at the same rate as banks and lending institutions.
Hodge was presenting WAPA's Fiscal Year 2014 operating budget to the Senate. Throughout October, the committee will hear testimony from semi-autonomous agencies and departments, which are not funded through the General Fund.
WAPA projects that it will take in $1,069 more than it will spend producing electricity and potable water for the territory during FY 2014, which for the utility is July 1, 2013, to June 20, 2014, according to Hodge's testimony.
According to the Post-Auditor's report, WAPA's projected FY 2014 operating expenses for the electric system is $333.1 million, supported by $342.6 million in projected sales. The FY 2014 operating expenses for the water system is $37 million, supported by $41 million in projected sales.
In FY 2013, WAPA's electric system incurred net losses of $4.5 million while the water system generated $4.6 million in revenue, Hodge testified.
As a partial remedy to WAPA's financial woes, Hodge said it should be allowed to charge interest rates on late accounts commensurate with what banks and lending institutions charge - about 4 percent - as opposed to the rates of 1.3 to 1.5 percent set by the Public Services Commission.
Hodge testified that WAPA's bottom line was hurt by the loss of HOVENSA as a fuel oil supplier. As a result of a contract with the new supplier, Trafigura AG, WAPA is paying for fuel at the market price, plus a premium instead of at a discount, as was the case with HOVENSA.
Hodge said WAPA has exercised a nine-month contract extension option with Trafigura AG, which currently charges a premium of $9.97 per barrel.
Fuel dominates WAPA's operating expenses, accounting for 70 percent of it, according to Hodge.
The Levelized Energy Adjustment Clause, a surcharge factored into customer's bills and adjusted quarterly by the V.I. Public Services Commission to reflect changes in WAPA's efficiency levels or changes in global oil prices, accounts for 70 percent of operating revenues.
However, the direct relationship between the LEAC and operating costs does not address WAPA's staggering debt, from loans, the issuance of bonds and from deferred fuel balances, which are the amounts incurred when the LEAC falls below what fuel oil actually costs during a quarter.
"These financial results on an accrual basis mask the unhealthy working cash condition of the authority," Hodge said. "On June 30, 2013, the deferred fuel balance was $51.7 million. Adding to that another $27.2 million in V.I. government accounts receivable to the electric system, produces a total of $78.9 million working cash shortfall that continues to impact negatively on infrastructure maintenance as well as service delivery."
Personnel costs are the second highest expense, accounting for $36.4 million, or 11 percent, of the FY 2013 operating budget, according to Hodge.
Sen. Clifford Graham pointed out that the Senate had passed, during a marathon legislative session that ended early Tuesday morning, a law authorizing WAPA to dip directly into gasoline tax revenues for capital projects and the issuance of new bonds.
Sen. Craig Barshinger pointed out that the Legislature also had passed a single payer bill for all government entities, designed to short-circuit the cycle of nonpayment by the government to the government-owned utility and alleviate the deferred maintenance which WAPA has attributed to the large-scale delinquencies.
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