The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company was yesterday said to be “clawing our way” back to targeted net income after producing a 25 percent profits increase to $10m for the 2022 full-year.

Dave McGregor, Caribbean chief operating officer for Emera, GB Power’s 100 percent owner, told Tribune Business that the electricity provider’s $2m increase upon the prior year’s $8m bottom line was still below shareholder expectations although energy load demand was slowly increasing as the island’s economy revived post-COVID and Hurricane Dorian.

Disclosing that the utility’s customer base at the 2022 year-end was just “a few hundred short” of August 2019’s pre-Dorian numbers, whereas the difference in prior years had been several thousand, he added that the company was “holding the line” on operating expenses ahead of imminently advancing its long-planned renewable energy roll-out.

Emera’s just-released financials also revealed that GB Power took a $54m one-off goodwill impairment charge in 2024, but this did not impact the operational performance or bottom line. Attributing the move to the higher interest rate environment, as developed country central banks hiked capital (borrowing) costs to depress inflation, Mr McGregor explained: “It’s not a commentary on GB Power’s performance.”

Explaining what is an accounting treatment or practice, he added that goodwill defines the amount paid by a company to acquire another firm that exceeds the value of the latter’s tangible assets at the time of purchase. “We regularly test goodwill balances on various investments to ensure the carrying value is supported,” Mr McGregor explained.

“For GB Power, this test considers the forecasted cash flow of the business and the ‘discount rate’. This discount rate is influenced by a variety of economic factors including business risk. While forecasted cash flows are improving at GB Power, the discount rate was negatively impacted by various factors resulting in a write-down of the goodwill balance. This is a standard accounting exercise and is not indicative of Emera’s long-term view of the value of GB Power.”

Turning to the utility’s improved profitability in 2022, Mr McGregor told Tribune Business: “We’re clawing our way back slowly. We’re still below shareholder expectations but are getting there. We’re continuing to hold the line on operating costs, and a lot of Dorian costs are behind us. Load is continuing to recover.

“We saw good growth in the industrial sector on Grand Bahama. It’s difficult to pin down, but we welcomed the new Pharmachem factory facility coming online and the load picked up a little bit. The commercial load is picking up a bit, the residential load is flat. We were within a few hundred customers of our pre-Dorian customer base last year, whereas before we’d been a couple thousand short, so customers are gradually returning. They’re back, which is great news.

“Our plant is now back in full operation, so reliability is relatively good. We’re on a good recovery track I believe. The economy is, I wouldn’t say rebounding, but is clawing its way back.” Mr McGregor also voiced optimism that GB Power’s monthly fuel charge will go no higher than 13-13.5 cents per kilowatt hour this year even if oil prices spike back to the levels of $110-$120 per barrel, which occurred when Russia invaded Ukraine one year ago.

Some 80 percent of GB Power’s fuel needs for 2023 are hedged, with the price or cost locked-in already, meaning that the 20 percent balance has to be purchased on the open market at prevailing spot prices. “We’ve held our fuel charge stable for six years. We committed to five, but delivered on six at 10 cents per KWh,” Mr McGregor said. “We’ve got some great hedging structures in place until 2026.”

Utilities do not typically hedge all their fuel needs in advance in case of sudden movements in global oil prices that could leave them exposed to a financial loss. Mr McGregor said GB Power’s hedged fuel volumes for 2023 were acquired at a price of around $51 per barrel, compared to the $77.44 and $83.89 per barrel prevailing last night on the West Texas Intermediate and Brent Crude indices, respectively.

He added that GB Power’s projections show its fuel charge will “vary between 10 cents and 13 cents over the course of the year”. Recalling that the last monthly fuel charges were in the 11.8-11.9 cents per KWh range, Mr McGregor said: “It’s [global oil prices] kind of steady at the minute. We’re not anticipating a big change, even if the price of oil goes up to $110 to $120 a barrel.

“The maximum pass through would be in the 13 cents range, maybe 13.5 cents at maximum. The industrial companies in particular appreciate this because of the long-term planning for their business; they know their fuel costs.... Over the next couple of weeks, we will be announcing some independent power producer (IPP) solar projects which will help to keep the lid on our electricity costs.

“We will double down on the roll-out of solar, build our own project, work with IPPs and get off that oil so that solar becomes a financial hedge. We’re locking in solar at a good rate for 20 years, and will get off that oil and save the country some foreign exchange payments.”

GB Power’s new rate structure, approved by the Grand Bahama Port Authority (GBPA) as its regulator in 2022, allows for the utility’s annual revenues to increase by $3.5.. The new rates include a regulatory ROE (return on equity) of 12.84 per cent,” Emera’s annual results said. “GB Power is regulated by the GBPA. Rates are set to recover prudently incurred costs of providing electricity service to customers plus an appropriate return on rate base.

“Effective November 1, 2022, GB Power’s fuel pass through charge was increased due to an increase in global oil prices impacting the unhedged fuel cost. In 2023, the fuel pass through charge will be adjusted monthly, in-line with actual fuel costs.

“With $338m of assets and approximately 19,000 customers, GB Power owns 98 Mega Watts (MW) of oil-fired generation, approximately 90 kilometres of transmission facilities and 670 kilometres of distribution facilities. GB Power’s approved regulatory return on rate base for 2023 is 8.32 per cent (2022 – 8.23 per cent).”