EARL DEVEAUX

Published On:Monday, March 15, 2010

By NEIL HARTNELL

Tribune Business Editor

National energy savings of between $90-$175 million per annum can be realised if a series of recommendations to enhance the Bahamas Electricity Corporation's (BEC) operational efficiency are implemented, the minister of the environment revealing that a "major utility company" from Canada is being engaged to help achieve this.

Earl Deveaux told Tribune Business that the Government aimed to implement its short-term goals for BEC within "the next six to nine months", acknowledging that the 100 per cent state-owned power supplier was in "dire financial straits".

The targets include the Government, rather than BEC and, by extension, its business and residential consumers, paying for the provision of street lighting and lighting in other public places, including parks - something estimated to cost between $12-$15 million per year.

This, Dr Deveaux explained, will feed into a wider tariff-rebalancing exercise at BEC, with the Corporation seeking to segment its 96,000-strong customer base by user type and consumption rate.

A "system-wide review" of BEC's electricity losses will also take place, Dr Deveaux telling Tribune Business that just a 1 per cent reduction in the amount of power lost before reaching the end-user could improve the Corporation's bottom line by $3 million.

"If we look at the demand for power in New Providence and the Family Islands over the next 10 years, it's going to require [an investment by BEC] of $300 million-$500 million," Dr Deveaux said. "We're spending right now, according to the financial statements, just over $400 million in energy savings.

"To achieve a modest amount of savings in areas I have indicated should be able to free up anywhere between $90-$175 million, which would be available for use elsewhere, including investments in new generating plants. That speaks to households, businesses and BEC working towards energy savings.

"That's the kind of future and opportunity we have. You can imagine what kind of flexibility that gives us potentially, given that money is tight."

The minister explained that the recommendations had largely arisen from technical and operational reviews of BEC by Fichtner, the German consultants hired using financing provided by the Inter-American Development Bank (IDB). The review had also analysed the renewable energy work done by BEC to date.

"Arising out of it, those studies were able to identify certain weaknesses in thee Corporation, and the areas we need to address," Dr Deveaux told Tribune Business. These included, he said, systems usage, a tariff review, manpower alignment, "better management" of BEC's fleet and inventory, and "creating a more efficient energy mix between gas turbines and HFC diesel".

"We have been involved in discussions with a major utility company from Canada, and have got authorization to work with them to implement some of the technical recommendations," the minister confirmed. He declined to identify the Canadian utility involved, saying its involvement was "awaiting final approval", which was likely to be forthcoming "within a week".

Tribune Business had asked whether the utility involved was Emera, the firm that owns 25 per cent of Grand Bahama Power Company following its $41 million acquisition of Lady Henrietta St George's 50 per cent ICD Utilities stake. Emera has long-stated its interest in being involved in any BEC privatization.

"It is our hope that arising out of these things we get the following," Dr Deveaux told Tribune Business. "We have a rebalancing of the tariff for BEC, which means a transparent allocation to the public sector of the things BEC pays for - street lights, public parks and public places."

The provision costs for these services were currently funded from BEC's general revenues, and Dr Deveaux said these were $12-$15 million per annum based upon the "first estimate" he had seen.

"We'd like these things to be paid for directly," he added, "and have the state pay for them. Right now, they're paid for by every consumer in their light bill. We think the consumer should pay for what they consume, and direct taxation pay for [these things]. BEC has a way to accurately measure the cost of them.

"BEC also needs to have a system-wide review of its losses. One per cent of system losses in the case of BEC amounts to $3 million. Any improvement made to that results in an improved bottom line."

System losses, known as technical losses, refer to the amount of electricity/power lost between BEC's generation plants and the end-user. Electricity is frequently lost along power and transmission lines, and the minister said these would need to be reviewed, along with connectivity and generation.

"I think we can achieve great savings in that regard," Dr Deveaux said. "This permits us to look at the composition of the tariff to offer various schedules, to achieve different social and economic goals."

This will allow BEC to segment its customer base, and potentially offer different rates based on usage efficiency and consumption. For instance, industrial and business enterprises will have a much higher burn rate than an old age pensioner living alone.

Dr Deveaux said a "more equitable distribution of charges" would be achieved by distributing BEC's tariff schedule among low, medium and high rate burn users.

"With household rates, the primary thing we are seeking to achieve is a separation between the electricity rate and consumption, and the cost of fuel," the minister said. "Right now, the tariff co-mingles the rate and the surcharge with a multiplier. We'd like each bill to show what the fuel charge is and what the electricity charge is, so people would know whether they're paying for a lower or higher fuel bill."

This, Dr Deveaux explained, would also enable Bahamian households and businesses to see the direct impact from the implementation of energy-saving measures, such as the use of solar water heaters. They cannot see this currently because of the co-mingling with the fuel surcharge.

"We can't do anything about fuel costs in the short-run, but facilitating a secure energy mix and getting best prices from the source of fuel," Dr Deveaux said, would enable BEC to lower electricity costs to the consumer.

"That comes from a combination of options," he added. "Hedging, fuel blends and generating mixes. That could achieve significant savings for the Corporation. This is all going to pan out in the next 60 days."

Longer term, Dr Deveaux said the Government's strategy for BEC included "more strategic decisions on where to locate generating plants" and the type of plants being built, allowing for the use of renewable energies.

The Government was also exploring technology that would allow BEC to use a variety of fuels. "It results in the ability of utilities to take advantage of whatever they have in abundance," Dr Deveaux explained. "It makes great sense for New Providence. We are definitely looking at it, and accommodating renewables such as solar and wind."

After losing $21.225 million in 2007 and $16.015 million in 2008, BEC's losses for the fiscal year ended on September 30, 2009, Tribune Business understands, have again breached the $20 million mark.

The cash-strapped Corporation, which has more than $100 million in accounts receivables and some $199 million in accounts payables, also needed the Government to guarantee a $211 million refinancing of a previous syndicated loan. This indicates that BEC may well soon be added to the Corporations needing annual taxpayer support, a major problem at a time when the public finances are already stretched.

Phenton Neymour, minister of state for the environment, used the Mid-Term Budget debate to blame BEC's current woes on the basic tariff rate reduction initiated by the former PLP government in 2003.

The current tariff rate, Mr Neymour argued, is lower than the one that was in place some 15 years ago. The implication, he added, was that while BEC's revenues are lower, its costs and capital demands have increased substantially over that period of time.