Motion To PSC: Reconsider Alpine Deal

A Motion for Reconsideration has been filed with the Virgin Islands Public Services Commission (PSC) that would halt progress on the Alpine Energy Group (AEG) deal until a thorough investigation of the impact on ratepayers is conducted.

The PSC will discuss the motion at its meeting at 5:30 p.m. on Monday, November 23, 2009, at their St. Thomas office at #1003 Estate Ross/Barbel Plaza, Suite #4.

The 75-page motion, filed on November 5 by Atty. Emily Sabo on behalf of a group of concerned citizens, asks the PSC to rescind the order it issued after hearings October 5-6 that gave permission for Alpine to enter into a waste-to-energy agreement with the Virgin Islands Water and Power Authority. The order gave AEG permission to move forward with its financing and permitting processes to build facilities on St. Thomas and St. Croix that would generate electricity through burning a combination of trash and petroleum coke.

The project, originally promoted as a way to decrease WAPA’s dependence on fuel oil and volatile fuel prices, has been under scrutiny since hearings were hurriedly scheduled last month, without the required legal notice period. Among other issues, the motion questions the shortened time frame between the meeting announcement and the order issuance that deprived residents of their lawful opportunity to review and question the documents related to the project and the impact it will have on ratepayers in the Territories.

The motion addresses three main areas:

1. The PSC’s violation of the notice period stipulated in the VI Code relating to such actions and WAPA’s failure to publish the anticipated rate changes 30 days prior to the PSC consideration;
2. The impact on ratepayers based on the provisions of the contract with Alpine as it relates to the costs that WAPA is required to bear, and;
3. The selection of petroleum coke as an element in the waste to energy process and its impact on the environment and health of the residents of the Virgin Islands.

The Hearings

The purpose of the October hearings was to give WAPA the authority to execute the Power Purchase Agreements (PPA’s) and the Interconnection Agreements (IA’s) that would define the cost structure between WAPA and Alpine and allow Alpine to connect to WAPA’s power grid. Confusion still exists as to the manner and timing of the PSC’s public notice on the hearings; however the motion contends that the 10 day calendar notice required for any action that results in a rate change was not met in this instance. Further, the motion states, the meeting and resulting order violated VI Code provisions requiring that change in rates be published to ratepayers prior to approval.

The motion also challenges the PSC’s authority to give WAPA “advanced” approval to set its electrical energy rates over the 20 year life of the Alpine contract as these costs will be passed back to ratepayers through the Levelized Energy Adjustment Clause (LEAC). 

WAPA also violated code provisions that require that any rate changes sought must be published 30 days prior to any PSC hearing and that WAPA submitted rates for approval that represent only a portion of the actual costs this project will generate and thereafter pass through to the ratepayers.

The Impact on Ratepayers

Based the approved PPA’s, WAPA takes on significant cost risk association with charges for the production of the electric energy, the cost of the petroleum coke fuel, interconnection costs, costs of site acquisition and preparation and dock facility costs, among others.

Numerous examples of the volatile nature of the cost structure for WAPA (through charges to the ratepayer) are outlined on page 16 of the motion and most are a result of the lack of flexibility afforded to WAPA in its financial obligations to Alpine. For example, WAPA is committed to paying a minimum rate for electricity which will more than double over the 20 year life of the agreement, even of the costs of producing energy decrease over the life of the contract; WAPA is committed to paying all the costs for the purchase and transport of the petroleum coke, including any increased taxes or disincentives attached to pet coke usage resulting from pending environmental legislation;  and ratepayers will be charged for any construction cost overruns and for upgrading WAPA’s current equipment to the Alpine facilities.

The biggest variable in the cost structure is the use of petroleum coke. Petroleum coke poses risks on a number of fronts and the structure of the PPA;s places those risks squarely on WAPA’s shoulders. First, the contract offers no protection against market fluctuations in the price of the pet coke product over the next 20 years. Furthermore, the agreements require that WAPA purchase all the petroleum coke from Hovensa at still to be determined rates. The identification of Hovensa as the sole provider takes away any incentive to provide competitive prices thereby making WAPA a “captive customer.”

The second significant risk is the environmental impact of the pet coke product and its by-product, Carbon Dioxide. Federal legislation is being considered that would tax and otherwise financially penalize the use of any products, such as petroleum coke, that result in an increase of Carbon Dioxide emissions into the atmosphere. Alpine’s financial risk to this type of legislation is capped at $250,000 per year. This leaves the remaining financial risk to WAPA in several areas including the costs of any modifications to the Alpine facility that would result in a change in the law regarding carbon dioxide emissions and the cost of any new taxes or penalties imposed by the law based on the emissions issue.

Why Petroleum Coke?

The third focus of the motion is the selection of petroleum coke over other renewable energy alternatives. The original Request For Proposal issued by WAPA for this project did not include submissions in which pet coke was a factor. In fact, under the VI Code, pet coke is not considered an ingredient in any renewable energy project. Alpine’s initial submission did not include pet coke as a factor, but was added at WAPA’s request, according to recent testimony by Alpine officials.

Aside from moving away from the provisions of the original RFP, the selection of Alpine and the use of pet coke are not aligned with Legislative Acts 7072 and 7075, which specifically address the definitions of renewable energy and requires that WAPA utilize clean energy alternatives in increasing amounts so that by the year 2025, 30% of the energy produced will come from alternative sources.

The motion outlines several examples of energy alternatives, including geothermal energy, wind energy and on-site generation. In all cases, the expectation is that unlike the options outlined in the Alpine agreement, which uses elements that are expected to increase in cost over time, alternative energy resources will continue to become more commonplace, and therefore will become less costly, as their use widens.

We will continue to follow this story as it develops.

Agenda for PSC Meeting 11.23.09

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