Public Services Commission officials distanced the agency from the Virgin Islands Water and Power Authority’s actions Thursday, telling lawmakers that the commission has little authority over WAPA’s unpopular contracts, and limited courses of action over the rate increases the commission is charged with regulating.
“WAPA operated under the philosophy that whatever they spend, the PSC have to give it to them. When we pushed back at the PSC, they took us to court and the court said all you can do is set the rates, so you either give them the rates or face the consequences,” said Donald Cole, executive director of the Public Services Commission.
“No other utility in the nation operates the way we do here with a utility like that,” said Cole, who was defending the commission’s Fiscal Year 2020 budget, along with his team, at the Earle B. Ottley Legislative Building on St. Thomas.
Among the WAPA transactions that went under scrutiny on Tuesday was its controversial contract with VITOL, which Sen. Kurt Vialet (D-STX) called “the dumbest deal we have entered into.” The company was contracted by WAPA under former Chief Executive Officer Hugo Hodge Jr. to convert WAPA’s generators to burn propane, a roughly $87 million project that jumped to $160 million in 2016 following actions by WAPA’s governing board. With the 12 percent interest rate factored in, WAPA will owe VITOL more than $300 million in 10 years.
“As a result of the infrastructure cost overruns, the conversion to propane is not likely to provide significant immediate rate savings,” Cole said.
Lawmakers were not happy with the commission’s report, with much of the ire directed at WAPA.
“What it tells me is anyone is allowed to rip the Government of the Virgin Islands off,” Vialet said, calling the territory a silent jurisdiction that does nothing about a company ridden with allegations of overcharging.
“All of that that is coming up is to bail WAPA out of the bad decisions that were made because now they want to put in rates,” Vialet said.
According to Cole, the commission has only authorized WAPA to recover, or collect from ratepayers, the $87 million in the original contract. A WAPA petition before the Public Services Commission board is asking for authorization to collect more to cover the VITOL cost overruns, something the board has not yet acted on. According to Cole, his office has been getting correspondences from ratepayers asking to deny the authority’s petition for another rate increase.
Lawmakers also criticized WAPA’s history of purchasing generating units and failing to follow through on plans for utilizing them. Generating Unit 22 on St. Thomas, for example, was brought before the commission as an emergency request in 1998, according to PSC Legal Counsel Boyd Sprehn, costing the authority somewhere in the ballpark of $22 million. Sprehn said the unit was never utilized effectively and was abandoned long before the end of its anticipated lifespan.
Sen. Janelle Sarauw (I-STT) asked about consequences for WAPA. Sprehn characterized the commission’s dilemma as having to choose between the lesser of two evils.
“We don’t have that authority because we’re limited to rate setting, so when WAPA takes imprudent actions, the commission has to choose between letting WAPA collect the imprudently spent money from the ratepayers or causing WAPA to be short of cash,” Sprehn said.
Cole said electricity remains the single biggest hurdle to economic development in the territory, with ratepayers paying $3,272 per person annually, the highest rate in the United States. Rates have continued to climb in the past several years, Cole said, with more requests from WAPA to bring rates to new all-time highs. While the conversion from fossil fuel to propane is expected to bring substantial long-term savings, St. Thomas is still not using propane completely, with PSC officials remaining uncertain when WAPA will fully utilize propane across the territory.
“If costs are not substantially reduced and reliability improved for electricity, economic development will be difficult, if not impossible, to encourage or sustain, and in fact WAPA’s survival will be questionable,” Cole warned.
Sen. Donna Frett-Gregory (D-STT) also inquired about a letter that Gov. Albert Bryan recently received from the federal government, demanding action on emergency services dollars that were reprogrammed by the 31st Legislature. The emergency services surcharge was meant to fund the territory’s Public Safety Answering Point System, as well as build and maintain a mobile 911 system. Act 7981, however, distributed the proceeds between the Virgin Islands Territorial Emergency Management System, the Emergency Medical Services that was then under the Department of Health, and the Virgin Islands Fire Services.
Frett-Gregory said it’s a “grave, grave concern” that could cost the territory up to$1 billion in withheld federal funding for local telecommunications projects if the Virgin Islands government fails to rectify the situation. According to Cole, Bryan and the Legislature will need to communicate on repealing relevant sections of the law.
For Fiscal Year 2020, the commission is requesting $1.8 million for operating costs, which is roughly the same as the previous fiscal year’s budget. That amount comes directly from assessments paid by the utilities the commission regulates, not the General Fund.
Office of the Lieutenant Governor
Claudette Farrington, director of business and financial management at the Office of the Lieutenant Governor also presented the office’s budget at the Finance Committee Hearing on Thursday. The office manages major revenue-generating entities, including the Division of Real Property Tax, the Division of Banking, Insurance and Financial Regulation, the Division of Recorder of Deeds and the Division of Corporations and Trademarks.
The Lieutenant Governor’s Office is asking for $8.67 million for Fiscal Year 2020. Of that amount, roughly $5.3 million would go toward personnel while $2.17 million would go to fringe benefits. Another $1.17 million would fund professional services for contracts serving the office’s various divisions, including Corporations and Trademarks and Tax Assessor.
The office is also slated to receive $9.7 million in local funding.
According to Farrington, the Office of the Lieutenant Governor aims to further maximize its substantial revenue collection operation through its various divisions. For the current fiscal year, the office’s total collections are projected to break $100 million, with the same number expected for the upcoming fiscal year. Automating its divisions and upgrading its technological infrastructure will help in achieving this goal, according to Farrington.
Present at Tuesday’s Finance Committee hearing were Sens. Marvin Blyden (D-STT), Oakland Benta (D-STX), Dwayne Degraff (D-STT), Donna Frett-Gregory (D-STT) Sarauw and Vialet. Non-committee members Sen. Allison Degazon (D-STX), Novelle Francis (D-STX) and Kenneth Gittens (D-STX) were also present.