The Tribune

By NEIL HARTNELL

Tribune Business Editor

The Grand Bahama Power Company (GBPC) has received regulatory approval to minimise the consumer impact of recovering a $4.7 million impairment charge by spreading it out over 25 years, with completing its new power plant set to account for 60.3 per cent of its parent's Caribbean capital investment in 2012.

Responding to Tribune Business's questions, Canadian power giant, Emera, which collectively owns 80.3 per cent of GBPC's equity, said the Grand Bahama Port Authority (GBPA) in July 2011 approved the electricity provider's plan to spread the $4.7 million recovery charge associated with the failure of its No.33 generation unit out over 25 years.

This, Emera said, would prevent Grand Bahama's hard-pressed businesses and residential consumers - already suffering from higher energy costs- being further burdened, adding that the 25-year amortisation plan would only increase rates by one-tenth per Kilowatt Hour (KwH).

And, projecting that GBPC's net income and earning performance would improve in 2012, the "second year in a three year turnaround plan", the Canadian energy giant said the Grand Bahama-based electricity supplier was expected to generate between one-quarter to just over one-third of net income from its Caribbean operations (also including St Lucia and Barbados" in the near term.

Central to the 2012 turnaround strategy is completion of GBPC's new West Sunrise power plant, and Emera's annual report disclosed that some $38 million - 60.3 per cent of its planned capital spending in the Caribbean for 2012 - will go into this project.

Some $41 million was invested in the West Sunrise plant in 2011, and to finance the project, Emera's financials revealed that in January 2012 it obtained a $56.2 million unsecured loan from Scotiabank (Bahamas).

Addressing the $4.7 million asset impairment charge and the accounting treatment applied to it, Emera said in response to Tribune Business's questions: "In July 2011, GBPC applied to the GBPA to recover the $4.7 million of costs incurred in late 2010 related to the failure of generating Unit No. 33 as per our regulatory agreement with the Port.

"This cost was approved, but because of the state of the Grand Bahama economy and the impact that the price of electricity was having on its customers, GBPC requested that the recovery of the impairment charge through rates be delayed until the commissioning of the new West Sunrise Plant, and subsequently amortized over a 25-year period to minimise the impact on customer rates. As a result of the 25-year amortisation period the approximate impact to customer rates will be $0.001/Kwh."

Looking ahead to 2012, Emera added: "2012 will be the second year in a three-year turnaround plan for GPBC, and therefore Emera does anticipate GBPC's earnings improving in 2012.

"Management will continue to review operating procedures to increase efficiencies, while providing a reliable energy supply to customers. The commissioning of the West Sunrise Plant will help to stabilise fuel costs for customers, and will eliminate the need for most of the rental units that were brought on island to stabilise the generation fleet, as it is significantly more efficient then the aged generation it is displacing."

As for GBPC's relative importance to Emera in terms of its Caribbean operations, the Canadian energy provider told Tribune Business: "GBPC is expected to contribute approximately 25 per cent to 35 per cent to Emera's Caribbean operations over the near term.

"GBPC represents a significant investment for Emera, and will continue to do so in the future. Emera is committed to improving system reliability and stabilising the cost of electricity for customers. The first step is in this process was to bring temporary rental generation on island to stabilise the generation fleet, and act as a bridge to the development of the West Sunrise Plant. In the longer term, Emera will continue to assist GBPC in evaluating opportunities with respect to alternative generation technologies and fuel supplies."

Emera's annual results for 2011 suggested that income from the Caribbean in 2012 was forecast to be higher, with "increased capital investments" in GBPC cited as one factor. GBPC was said to have total assets of $200 million, with 9,180 customers, 174 employees, peak demand of 64.1 Mega Watts (MW) and sales over a five-year period of 328.3 Giga Watts (GW).

As for the financing of the West Sunrise plant, Emera's results said: "On January 25, 2012, GBPC entered into an unsecured credit agreement with Scotiabank (Bahamas) in the amount of $56.2 million.

"The proceeds of the credit agreement will be used to finance the construction of a 52 MW power plant on Grand Bahama. The credit agreement bears interest at a rate of the three-month LIBOR plus 1.2 per cent, and is repayable in 40 equal, consecutive quarterly installments over a 10-year period. The payments commence at the earlier of six months after the completion of the construction of the power plant or January 31, 2013."

Emera also noted that GBPC had obtained a 12-month, $11 million revolving credit facility in October 2011, and added of the company's debt profile: "The weighted-average coupon rate on GBPC's outstanding long-term debt as at December 31, 2011, was 6.64 per cent (2010 - 6.61 per cent).

"Approximately 66 per cent of the debt matures over the next 10 years. The remaining issue matures in 2023. The market weighted average interest rate is 7 per cent as at December 31, 2011 (2010 - 5.86 per cent), based on the last rate of debt issuances."