The Public Services Commission has approved a temporary 3-cent increase in the Levelized Energy Adjustment Clause rate attached to energy bills issued by the Water and Power Authority.
As reported earlier this month by the Consortium, WAPA says it is unable to continue absorbing rising fuel costs. On Tuesday, the utility presented its case for a 3-cent LEAC hike before members of the PSC.
WAPA CEO Karl Knight laid out the stark reality of the past ten months, noting that the price of ultra-low-sulphur diesel had more than doubled since January, moving from $1.99 per gallon to $4.57 as of last Monday. Other fuel products have also risen sharply in price, Mr. Knight noted; propane moved from 58.5 cents to almost 92 cents per gallon.
Mr. Knight told commissioners that WAPA had made enormous strides in reducing operational expenses, in service of the “unofficial policy” of shielding consumers from the effect of rising prices in wholesale fuel markets. Fuel transportation costs for both propane and diesel have been cut by significant amounts – over 17% for propane and over 46% for diesel. The utility has also commissioned solar generation at 11 cents per kilowatt hour, far less than the cost of producing energy using traditional fuels. “These strategies were effective in offsetting our rising fuel costs up until the last few months,” Mr. Knight said. “We were operating on the narrowest of margins, but we remained viable.”
Sustained upward pressure on fuel prices, however, have rendered WAPA unable to continue keeping afloat by cutting costs. “Further expenditure reductions in the current fiscal year will have adverse effects on the business operations of WAPA,” Mr. Knight told commissioners. “This includes a return to the days of deferred maintenance, continued delinquency on our critical vendor payments, and the inability to provide adequate materials, supplies, and equipment to our employees for the performance of their work,” he said.
WAPA’s struggle to cushion consumers from the impact of rising fuel costs caused by the current Middle East conflict was exacerbated by the major equipment failures experienced by the utility earlier this year. According to Mr. Knight, the mechanical failure of Unit 15 in February “has required the authority to utilize a significantly larger amount of fuel in the Harley plant than previously forecasted.” Trouble with Unit 27 in the Richmond power plant has also resulted in increased diesel use by WAPA. “These units are both contracted for repairs, but [are] still weeks away from resuming normal operations,” Mr. Knight said. Additionally, the most recent Wartsila generators brought in by WAPA are still unable to run on LPG as was initially expected. “That remains a contentious matter between the vendor and the Authority, with repairs likely to carry over into early next year at best.”
The newest generators purchased by WAPA will run on LPG, however”those are still several months away from being fully available for dispatch,” Mr. Knight noted. He also expressed some hope that “the outcome of the national midterm elections may also move the commodities market in a positive direction.” None of these mitigating factors are expected to materialize soon enough, however. Mr. Knight estimated that in the time between July 1, 2025 and September 1, 2026, WAPA has spent approximately $21 million in fuel costs that they have not passed on to the consumer.
Even the request three-cent increase in the electricity LEAC will not be enough to make WAPA whole, Mr. Knight noted. “The Authority will continue to absorb an additional four and a half cents through the end of this quarter,” he estimated. However, WAPA believes that three cents would be enough to “curb the losses and limit the growth in the deferred fuel balance without imposing an economic shock on our customers,” Mr. Knight concluded.
PSC Consultant Julius Wright confirmed that WAPA’s three-cent emergency request “appears to be well below their calculated fuel cost,” according to his agency’s estimations. He also agreed that it currently costs WAPA more than 25 cents per kilowatt hour to produce electricity.
David Hughes, PSC Chair, accepted that WAPA would need an increased LEAC – at least temporarily – to avoid falling further and further into the red. “Not really interested in it becoming a permanent part of LEAC,” he emphasized. However, he signalled willingness to review LEAC rates every filing period to compare against current fuel pricing.
“I don’t actually welcome a change in rates here, but I don’t think there’s any argument against the macroeconomics that have been presented that you have no control over,” Mr. Hughes concluded, expressing hope that the increased LEAC “is of a limited duration.”
A vote to allow WAPA to charge 25.2246 cents per kilowatt hour until the end of the year passed over the objection of PSC member Clement Magras, who argued that a similar fuel surcharge increase for the ferry boat companies had been denied earlier in the agenda. Non-voting ex-officio member Senator Carla Joseph also opposed the LEAC increase on the grounds that WAPA has thus far failed to present audited financial statements to support their request.
Ultimately, however, the LEAC increase was approved, along with a waiver of the customary 30-day notice. From now until December 31, therefore, electricity consumers in the Virgin Islands will have to pay more, as the territory – and the rest of the world – grapples with the ramifications of the current fuel pricing environment.
