The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s deputy leader yesterday said an increase to Bahamas Power & Light’s (BPL) base rate was probably “justified” on a commercial basis to arrest average annual losses of $20-$30 million.

K P Turnquest told Tribune Business that such a rise was likely the only option currently available to the renamed BEC to stem heavy financial bleeding, which continues to undermine operational quality and reliability.

Yet he admitted he would be “shocked” if the Government approved any kind of energy rate increase, given the potential political fall-out from hard-pressed Bahamian businesses and households with an election less than 12 months away.

Mr Turnquest said the ‘base rate’ increase request, which he understood was prepared by BPL and its US-based manager, PowerSecure, was likely intended to give the energy monopoly much-needed cash flow to finance the upgrading of its aged infrastructure.

There have been reports that the proposal was not approved, and even rejected by the Christie Cabinet, given the additional financial burden it would impose on the private sector and Bahamian households.

However, acknowledging BPL’s likely need for such an increase, Mr Turnquest told this newspaper: “You have aging equipment, and maintenance backed up for years because of a lack of money.

“All of these things have a cost. To move forward and be able to repair this equipment, you have to bring that rate to a commercially viable level.

“The place was running at a deficit. It’s not because of overtime like Mr Leslie Miller would like you to think.”

The ‘base rate’ is the portion of the electricity bill that covers BPL’s operating expenses and overheads, such as labour and debt servicing costs.

It is also supposed to generate the energy monopoly’s profits and cash flow, which would allow it to reinvest in upgrading its engines, equipment and infrastructure, and is separate from the ‘fuel charge’ - the portion that covers BPL’s fuel costs, and is effectively a consumer ‘pass through’.

But the consistent $20-$30 million annual losses sustained by BPL and its BEC predecessor since 2007-2008 suggest that the ‘base rate’ or tariff is currently set too low to cover the company’s cost base.

Mr Turnquest said the Government would have known about the need for a ‘base rate’ increase since PowerSecure submitted its business plan, and was now likely to trying to either delay or avoid such a move with an election imminent.

“I suspect that a rate increase is justifiable,” the FNM’s deputy leader told Tribune Business. “The fact of the matter is that we have a relatively efficient power operation in Grand Bahama, and if I’m not mistaken BEC’s rates are below ours.

“That is almost impossible because GB Power’s staff is less, it uses the same fuel source, and the equipment is more modern.”

He added of BPL: “The current rate cannot sustain it. Unless somebody is willing to support that through subsidies, the only option is to bring the rate to a recoverable level.

“Then modify the equipment, change the fuel sources and do other financial things to help bring the cost of energy down.”

While BPL’s low income customers and efficient consumers, using less than 200 kilowatts per hour (KWh) per month, were to be spared a tariff rise, management was purportedly examining a “modest” increase for those using 400 KWh or more to finance investment in equipment and staff.

There were suggestions that an increase of 10-12 per cent was being sought, but Mr Turnquest again suggested that the alternatives were equally unpalatable - such as making BPL staff redundant to reduce costs.

“In the absence of anybody being willing to take that bullet, you have to compensate,” he added, arguing that BPL’s rate increase proposal was no surprise given the financial conditions inherited by PowerSecure.

Nevertheless, the timing of the ‘base rate’ proposal - coming within three-and-a-half months of the management contract signing, and in a general election cycle - raises numerous questions.

Tribune Business revealed last year that investment banks and finance houses were being invited to bid on raising a $75 million facility, likely a bond issue, to provide BPL and its new manager with short-term working capital.

This has yet to happen, and suggests that plans for BPL’s initial financing may have changed, forcing it to go the ‘base rate’ increase route.

That $75 million facility was also supposed to be replaced by the proposed $650 million Rate Reduction Bond (RRB), which is designed to refinance the debt, environmental, pension, severance and other legacy liabilities left by BEC.

This bond placement, too, has yet to occur, meaning that BPL and PowerSecure effectively have their hands tied financially. Without the RRB refinancing, there is no balance sheet room or capital available for investing.

Tribune Business understands that the Government is now taking steps to initiate both the international and Bahamian placement, having found the work required much more involved than previously thought.

Mr Turnquest yesterday queried whether the ‘base rate’ rise was being “dictated” by the financial markets to make the RRB more attractive to potential investors.

Several financial sources, speaking to Tribune Business on condition of anonymity, previously said the Government’s plan to offer Bahamas-based investors an interest coupon close to Prime was insufficient to compensate investors for the risk they were taking.

They justified this position by pointing to BEC’s legacy losses, the absence of a published business plan, and no track record to suggest that BPL and PowerSecure would be able to solve their woes.

Mr Turnquest also queried whether the ‘base rate’ proposal was an attempt to “beat” the Utilities Regulation and Competition Authority (URCA) take over of energy sector regulation.

The episode also raises questions over how much decision-making authority and autonomy PowerSecure and BPL management have, given the seeming ‘political veto’ over key decisions.

A financial analyst, who closely watches BEC/BPL, also suggested that a ‘base rate’ increase was justified.

The alternative, they suggested was for BPL to continue losing $20-$30 million per year, and for consumers to continue suffering from an unreliable, poor quality supply.

“If there’s a time to increase the base rate, it’s probably now,” the source, speaking on condition of anonymity, suggested, “as you have very low fuel prices.”

They added that consumers would be making a short-term sacrifice for long-term gain, as BPL and PowerSecure would already be working to alter the fuel mix and lower that cost component of every bill.

And, with operational efficiencies improving, the source said the base rate would also ultimately decrease, too.

“For BPL to be a viable operating entity, there has to be a base rate that covers costs and allows it to make a profit and enables it to reinvest,” the source said.

“I can understand where they’re coming from. You can’t continue to make losses on the operating side.”