Contract overruns are common but when the Water and Power Authority’s contract with Vitol to convert utility generating units to burn propane ballooned from $87 million to $150 million, many Virgin Islanders became concerned.
A recent report issued by Inspector General Steven Van Beverhoudt says the project cost even more — $50 million more.
In a Nov. 19 letter to WAPA Board Chairman Kyle Fleming, Beverhoudt wrote, “The project’s total cost has exceeded $200 million.” He listed as additional costs $10.2 million in other professional services, $31.6 million in operation and maintenance fees, $138,500 in accounting fees, and $2.2 million for a truck rack system.
The letter also said WAPA’s management did not follow WAPA’s established procedures for contracts and change orders.
In addition, the report concluded that WAPA’s contract negotiations lacked transparency and WAPA officials created a conflict of interest when it used a firm working for Vitol during negotiations.
As the report became public knowledge this week, Sen. Kenneth Gittens called for an investigation of those involved in what he called the “infamous Vitol contract.”
In a press release Tuesday, Gittens said, “This audit provides us with almost all we need to know about why our utility rates remain ridiculously high here in the Virgin Islands.” He added, “What it doesn’t tell us is how we can hold those involved accountable … Those responsible for this and WAPA’s other transgressions can’t simply be allowed to walk away.”
The propane project was initiated in September 2012 when the WAPA Governing Board approved its Energy Production Action Plan. The plan called for the utility to “convert base-load power production from fuel oil to liquefied natural gas and/or propane.”
At the time, the price of a barrel of oil was over $100 and the switch was supposed to cut WAPA’s costs and cut the rate Virgin Islanders were paying for electricity. In the following years, a cost of a barrel of oil dropped sometimes to less than $50 and now hovers around $70 a barrel.
The rate a resident is paying for electricity has barely dropped from the high in 2012. A Virgin Islander who uses 500 kilowatts of electricity in a month pays $200. The average cost for the same usage on the continent is $75.
In a signing ceremony with VITOL in July 2013, then Gov. John de Jongh Jr. described Vitol as one of the “strongest and most creditworthy companies in the United States.”
At the ceremony, then WAPA Executive Director Hugo Hodge Jr. said WAPA would only begin paying in 2014, once the propane is delivered. “We’ll pay monthly for operations, maintenance, and supply of fuel,” Hodge said. “But the capital, infrastructure, storage – all of that collectively is 30 percent less than the purchase of fuel oil right now – and at the end of the seven years of this agreement, Vitol will transfer title to WAPA for $1 and the facilities will be ours and we will decide whether we want to maintain it ourselves or contract with them to run it.”
Construction was scheduled to begin by the end of 2013, or early 2014, and WAPA expected to transition into using propane as its primary fuel source by late 2014 or early 2015.
However, the project immediately began to run into delays and the cost kept going up. Vitol had many reasons for delays and rising costs. They included unanticipated rock blasting on St. Thomas, adverse weather, higher demolition costs than anticipated on St. Croix, design revisions, underground obstacles, lack of local concrete, and the need for more boilers. The Inspector General’s report said WAPA did not monitor the cost increases with a “minimal reasonableness.”
Instead of asking for a rate decrease for 2015; WAPA asked the Public Services Commission for a rate increase and to factor into its LEAC the escalating costs of the project.
In November 2016 Vitol notified WAPA there had been substantive achievement at the Richmond Power Plant on St. Croix and in January 2016 substantive achievement at the Randolph Harley Plant on St. Thomas. These notifications triggered the need for WAPA to begin making $1.2 million monthly payments for the work on St. Croix and $1.4 million for the St. Thomas work. Hodge, when he was executive director at WAPA, advocated for the project by saying that it had no upfront costs.
WAPA almost immediately fell behind on its payments to Vitol, according to the report. Being in arrear in its payments, according to statements in the report, allow Vitol more leverage in further negotiations.
The report says that it found no notification or document saying the project was ever completed. The plan was originally for eight generating units to be converted to propane. Only three of those eight units can burn propane now. Three of the units were not deemed capable of being converted, another was damaged during conversion, and another was converted but failed to work after being converted. It became necessary for WAPA to rent generating units.
The report also includes a timeline chart that indicates WAPA officials were using a law firm during the request for proposals and review of proposals period that was also performing lobbying services for Vitol during that same period.
WAPA in its response to the report agreed to many of the recommendations.
However, this does not satisfy Gittens. In his press release, he says, “WAPA claims it has addressed many of the problems identified in this recent audit, but that is simply not good enough when the ratepayers are still suffering, and economic growth is stifled. We will have to pay for an independent investigation, but the cost is very low compared to the waste and fraud we are already aware of at WAPA. The Inspector General did a good job of breaking down what led to the cost overruns on this one contract, but we can’t stop there.”