The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company says it undershot its regulator-approved rate of return by $5.26 million for the year to end-December 31, 2013, due to the weak economy and reduced sales.

Refuting previous reports that it exceeded its Grand Bahama Port Authority (GBPA)-backed ‘10 per cent return on base rate’ target by the same amount, a company spokesperson said the deferral of half this sum - some $2.631 million - into income starting in 2016 meant the utility monopoly had missed its 2013 target.

The spokesperson acknowledged that the wording contained in the 2013 annual report for ICD Utilities was “convoluted”, but said the regulatory rate structure agreed with the Port Authority allowed it to treat a below-9 per cent return on base rate as a “regulatory asset”.

Describing how the rate structure worked, the annual report for the BISX-listed entity that holds a 50 per cent equity stake in Grand Bahama Power Company, said: “As a component of its regulatory agreement with the GBPA, Grand Bahama Power Company has an Earnings Share Mechanism to allow for earnings above or below its approved 10 per cent return on rate base to be deferred to a regulatory asset or liability, at the rate of 50 per cent of amounts below a 9 per cent return on rate base, and 50 per cent of amounts above 11 per cent return on rate base, respectively.

“Grand Bahama Power Company recorded a regulatory asset of $2.631 million related to the Earnings Share Mechanism for the period of July 1, 2012, to December 31, 2013. Grand Bahama Power Company will amortise this deferral into income beginning in 2016.”

Grand Bahama Power Company’s revenues fell by 4.3 per cent year-over-year in 2013, dropping from $120.352 million to $115.169 million.

The utility’s almost-$29 million swing back into profitability, apart from not incurring the one-time $22.878 million writedown charge associated with its old generation assets, came from a 15.5 per cent decline in operating expenses.

These fell by more than $17.5 million, from $113.054 million in 2012 to $95.503 million last year.

Based on Grand Bahama Power Company’s 2013 figures, which show net income of $13.016 million and net income for ordinary shareholders (after a $1.24 million preference share dividend) at $11.766 million, had the utility hit its 10 per cent base return target, profits would either have totalled $18 million-plus or just over $17 million depending on the measurement.

This, too, may give Grand Bahama residents and businesses, who have frequently been protesting about what they allege are excessive power rates, further food for thought.

Sarah McDonald, Grand Bahama Power Company’s president and chief executive, lauded the regulatory agreement with the Port Authority in the annual report. She said: said: “Protocol allows the GBPA to set performance targets and customer service standards which Grand Bahama Power Company is measured against to ensure we have a constant read on our performance, and that we continue to sustain our price to customers as one of the lowest in the region.

“Since establishing this framework I am happy to report our payout cost – the quarterly penalty fees payable when Grand Bahama Power Company misses a performance target – has decreased from $1,200 to $150 in three quarters.”

Grand Bahama Power Company is continuing to pursue the importation of compressed natural gas (CNG) from Florida, a plan that is undergoing regulatory review, as it bids to further reduce power costs on Grand Bahama.

Ends