Ex-BEC chairman: Tariff cut return will 'spell disaster'


Tribune Business Editor

THE Bahamas Electricity Corporation's (BEC) former executive chairman believes it is "vitally important" for the new government and Board to pick up where he and their predecessors left off, warning that a return to the tariff-cutting policies of 2002-2007 would "spell disaster".

Expressing disquiet over the three "very unusual" New Providence-wide power outages that had occurred since he stepped down from office on May 4, 2012, Michael Moss told Tribune Business that the cut to BEC's basic tariff rate, implemented by the first Christie administration in 2004, appeared to have been motivated by "pure politics".

Reiterating his long-held assessment that the tariff cut was the source of all BEC's financial woes over the past six-seven years, Mr Moss said he had been unable to uncover any "business rationale" to support it, and urged the new Christie administration not to go down the same route as its predecessor.

Pointing to the work done by himself and the immediate past Board to restore BEC to financial stability, Mr Moss told Tribune Business: "I believe it is vitally important that they continue on that kind of track.

"If they choose to go the route they have gone before, it would spell disaster." His warning comes against the backdrop of the Government's pledge to at least put together a plan to reduce electricity costs during its first 100 days in office.

Mr Moss effectively said the first Christie administration, and then-Board, put the 'cart before the horse' when it came to the 2004 tariff cut, only engaging a consultant to assess the economic/business impact "after the fact', not before.

The eventual study, completed by PA Consulting in 2006, showed why the tariff cut should never have been implemented, the former executive chairman said.

"The tariff was cut, and the same year it was cut, it was obvious that this $7 million negative cash flow [at BEC] had arisen," Mr Moss told Tribune Business.

Suggesting that someone had "buried their heads in the sand", he added that the negative ramifications were "immediately obvious to anyone taking an in-depth look at the accounts for the following year."

As a result, he suggested that the 2004 tariff rate cut decision had been motivated by "pure politics" and the need to score points with the Bahamian electorate, as there was "no business rationale at all" for it.

While the fuel surcharge, the largest component of any BEC bill, is merely a 'cost recovery' to recoup the sums spent on fuel purchases by the Corporation, it is the basic tariff where it derives all its cash flow and profits from. Cutting it automatically reduced the key latter two variables.

During Mr Moss's tenure, the former Ingraham administration approved a 5 per cent increase in the basic tariff rate, although a report done on BEC by the German consultants, Fichtner, is understood to have recommended a greater rise. The former government was unwilling to go that far, though, due to the potential drag on the Bahamian economy.

In a statement sent to Tribune Business, Mr Moss added: "The minor rate increase introduced in 2009 improved BEC's financial position sufficiently to provide adequate cash flow to enable the Corporation to not only execute overdue major overhauls, but also to allow BEC to begin to restore its creditworthiness with its major suppliers.

"BEC's cash-strapped position, that saw it losing its creditworthiness with suppliers and its ability to execute major contracts without a Government guarantee, was brought about by the illogical, ill-conceived, ill-advised rate reduction introduced in 2004 that wrecked the Corporation's financial and operational well-being."

When contacted by this newspaper, Mr Moss said it would take several years for the actions taken by the former government and Board to bear fruit.

BEC made a $201,000 net profit for the year to end-September 30, 2010, a major turnaround when set against the previous year's $26.424 million net loss, and losses of $21.225 million and $19.654 million for 2007 and 2008, respectively.

While BEC had been on target to deliver increased profits for 2011, this was derailed by Hurricane Irene and associated repairs. Mr Moss said the previous Board had "applied to the Government to allow for recovery", but this did not happen, squashing the prospect of two consecutive years of profitability.

"Taking an organisation that, at its worst, had a loss of some $30 million-plus, that had sustained losses for six consecutive years, to cause such an organisation to be restored to profitability speaks volumes for itself. There is no need to say more than that," said Mr Moss, when asked about his major achievement at BEC.

"Although it was a minor profit, coming from a year-before loss of $30 million has to be quite a considerable achievement."

And he added: "Greater attention was being given to receivables, prudence was being exercised in expenditure. Quite a few measures had been taken to ensure the business remained on a satisfactory, stable footing."

Mr Moss also disagreed with his replacement-in-waiting as BEC chairman, Leslie Miller, on the merits of Hugo Chavez's Petro Caribe as a solution to the Corporation's issues.

"I do not support Petro Caribe, and Leslie Miller was unable to convince his prior Cabinet colleagues to support Petro Caribe," Mr Moss added.

As for the generation possibilities stemming from liquefied natural gas (LNG) and compressed natural gas (CNG), Mr Moss said the former Board had been "exploring the possibilities" of the latter. LNG, though, was currently an uneconomical solution due to the gas conversion costs, although micro systems to perform this task offered hope.

As for the Ocean Thermal Energy Corporation (OTEC) projects, for which BEC has signed a Memorandum of Understanding (MoU) for, Mr Moss said that while the technology was proven it had yet to be deployed on a utility scale.

As a result, more details regarding the OTEC proposal needed to be finalised, and it remained a "work in progress".

While the rental of an additional 40 Mega Watts (MW) of generation capacity was designed to prevent summer load shedding by BEC, Mr Moss drew a distinction between this and the recent island-wide outages, which were a different phenomenon.

Describing these as "some very unusual outages", Mr Moss said the first - caused when a truck working on the Airport Gateway project hit a transmission line pole two days after he stepped down - and the second, when a worker's ladder hit a power line, should not have morphed into island-wide blackouts.

In the second, while BEC said a relay that should have cleared the fault failed, Mr Moss told Tribune Business there should have been enough redundancy and protection in the Corporation's system to still clear the problem. And, when it came to last Monday's power failure, the former chairman said no explanation "at all" was given.

"To the best of my recollection, from the time I assumed chairmanship of BEC up until the time I last departed BEC's premises on May 4, there were no island-wide blackouts that affected New Providence, not even during the major hurricane that impacted the island during 2011. These occurrences are a very recent phenomenon and ought therefore to be addressed with the utmost urgency," Mr Moss said.

"The three island-wide blackouts that have occurred....... are unprecedented in recent times, and ought not be confused with load shedding. This is a most recent occurrence deserving of a thorough investigation by BEC and implementation of appropriate measures to avoid a repeat."


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