The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition says it is withholding support for the Government’s proposed energy sector reforms due to “inherent risks” in the model for the ‘new BEC’.

K P Turnquest, the Free National Movement’s (FNM) deputy leader, told Tribune Business that the party first wanted to understand the “devil in the details” from the negotiations between the Government and PowerSecure before giving its endorsement.

The Christie administration and the Carolinas-based firm have yet to sign off on the latter’s five-year management contract for Bahamas Power & Light (BPL), the newly-formed Bahamas Electricity Corporation’s (BEC) subsidiary that will take over all utility operations.

Nor has the Cabinet issued a formal approval for PowerSecure’s BPL business plan, said to be around 280 pages long, which was presented to it in recent weeks.

Mr Turnquest voiced concern that the short-term nature of PowerSecure’s BPL management contract would encourage it to focus on short-term profit maximisation at the expense of long-term goals.

“The management company has a five-year contract,” Mr Turnquest told Tribune Business. “It is not in the interest of the management company to look at the long-term growth of BPL and BEC.

“Their interest will be to maximise profits over the five years of the management contract, as their fees will be based on performance over the five years.

“They will be encouraged to do things that are expedient in the short-term, potentially to the detriment of the long-term. The whole concept has some inherent risks,” the FNM deputy leader added.

“The Opposition is resolute in withholding support until we see the agreements, the devil in the details, in terms of the contract and oversight of how this management contract will work.”

Few details regarding the proposed BPL business plan and management contract have been made public yet. However, PowerSecure’s financial compensation will doubtless be performance linked and tied to targets such as reliability (fewer outages), reduced energy costs (phased reductions over time), and profitability.

Simon Townend, KPMG Corporate Finance (Bahamas) managing director, and a key advisor on the energy reform process, said recently that PowerSecure’s business plan for BPL was tied to the Government’s National Energy policy goal of 30 per cent renewable penetration by 2030.

System reliability and low-cost fuel sourcing were also identified as important benchmarks for BPL’s new operator, while other targets included fuel hedging strategies, the frequency of outages, customer satisfaction and debt collections.

Mr Turnquest, meanwhile, suggested that PowerSecure may not be the ‘best fit’ for BPL. He argued that it was a transmission and distribution (T&D) electricity specialist, when the majority of BEC’s current problems stemmed from its generation business.

“The thing that strikes me is the group brought in to oversee BPL is not known for generation,” he told Tribune Business. “They are a transmission and distribution company.

“While we may have some transmission and distribution problems, what we’ve been hearing for the last several years is that we have a generation problem.”

The suggestion that PowerSecure is not ‘a good fit’ to deal with BEC’s problems has been refuted several times by persons close to the Government reform process.

However, the company appears to be more of an ‘asset manager’ and operator of power plants, rather than one that would construct, finance and oversee its own facilities. It also is an equipment manufacturer that sells to power generation companies.

Tribune Business has previously reported that the root cause of the Bahamas’ energy crisis is BEC’s aged, inefficient and poorly maintained generation turbines. They are largely responsible for both relatively high power costs and the frequent outages suffered by Bahamians.

Judson Wilmott, a Bahamian engineer employed by oil services company, Haliburton, told last year’s Energy Security Forum that the biggest immediate impact to this nation’s energy costs would be delivered by replacing BEC’s aged, inefficient generation equipment.

He revealed that the amount of fuel required by BEC’s Blue Hills and Clifton Pier plants to generate electricity exceeded the industry average by 54.5 per cent and 16.5 per cent, respectively.

Thus, with an average heat rate of 9,708 BTUs (British Thermal Units) for its Nassau plants, BEC is essentially burning a fuel volume that is 34.8 per cent higher than electricity industry averages to generate the same amount of power.

The higher heat rate, Mr Wilmott explained, resulted from BEC’s inefficient generation turbines. And, with fuel being the main component of generation costs, which account for 85-90 per cent of a power utility’s total costs, the higher fuel quantities required by BEC are inevitably passed on in higher prices to BEC’s business and residential consumers.

“The thing that strikes me about the whole thing is that we’re going out overseas to get a private management company to run BEC,” Mr Turnquest told Tribune Business.

“I don’t know if the problems we have at BEC are a management problem. It’s more a structural problem with respect to [political] interference, and not treating the Corporation as an entity but a social control agency.’

Mr Turnquest indicated his latter comment referred to BEC’s role as a potential source of job-creating votes, plus the various reconnection programmes to assist thousands of customers who had been cut off for non-payment.

He also questioned why the Government appeared not to have approved plans by BEC’s Board to upgrade the Corporation’s generation plant and infrastructure, as alluded to be ex-executive chairman, Leslie Miller.

The FNM deputy said BEC management had also submitted proposals to upgrade capacity, and introduce utility-scale renewables into the energy mix, but appeared to have been frustrated.

“Are they the right partner,” Mr Turnquest queried of PowerSecure. “Or are they going to come in and do exactly what the local management have been suggesting for years?

“If these were viable plans, it raises the question as to why we’re bringing in this foreign company.”

The Electricity Bill acknowledges that BEC, and the energy sector in general, have not operated in a state where private sector principles are a key consideration.

The Bill says its job, which is to separate the industry’s operational responsibilities from the regulatory, will enable BPL to operate on a more commercial basis.