The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Bahama Power Company’s (GBPC) majority shareholder yesterday confirmed it had been given regulatory approval to recover $18.3 million tied up in retired generation units, although it emphasised this would not lead to an increase in customer tariffs.

Responding to Tribune Business’s questions, Canadian utility giant, Emera, said that it would have been unable to invest $80 million in constructing the new West Sunrise Plant if the Grand Bahama Port Authority (GBPA) had stopped it recovering the remaining value of those units.

Emera’s 2012 fourth quarter results statement said the $18.3 million recovery was part of the new GBPC tariff structure agreed with the GBPA on July 1, 2012.

Buried in that document, tt was stated: “Effective July 1, 2012, the GBPA approved the recovery of $18.3 million related to retired generation assets in future rates.

“The fair value of these assets was less than the carrying value at the time Emera acquired a controlling interest in GBPC. Therefore, $4.6 million was recognised through income in 2012 fourth quarter, and recorded as a regulatory asset.

“GBPC is expected to amortise this deferral into income beginning in 2016.”

Questioned by Tribune Business as to what all this meant, Emera responded: “When Emera acquired GBPC, an assessment of the generation fleet was conducted. It was determined that the steam plants and the combustion turbines were inefficient and unreliable.”

As a result, GBPC brought in temporary generation capacity to stabilise power supply on Grand Bahama and “bridge the period” until the West Sunrise Plant became fully operational.

Emera, which holds a collective 80.4 per cent stake in GBPC, added: “The decision was made, given the high cost to run the steam plant and combustion turbines, that they would be retired.

“The cost of these assets on GBPC accounts were approximately $18.3 million. To allow for the construction of the West Sunrise Plant, GBPC received approval to recover the remaining un-depreciated cost of these retired steam generation units in future rates.

“This type of approval is common in North American utilities, and allows utilities to reinvest in newer, more efficient assets before the legacy assets have been completely recovered in rates,” it said.

“The decision to spend $80 million on a new plant could only be done if we were allowed to recover the remaining book value of those assets, and that investment was required to improve reliability and efficiency of the generation for customers. GBPC is not anticipating an increase in rates as a result of the amortisation of this deferral.”

Elsewhere, Emera confirmed that GBPC’s capital investments would return to more normal levels in 2013, hitting between $7-$9 million. This represents a fraction of the utility’s expected $54 million outlay across the Caribbean.

Construction of the West Sunrise plant accounted for $45 million of Emera’s $60 million in capital investments across the Caribbean in 2012. It also confirmed that a new company, Emera Utility Services Bahama, operates the new power plant.

Explaining the $6.2 million in maintenance services, and $8.7 million in property, plant and equipment, that GBPC purchased from Emera in 2012, the latter added: “These costs are related to the construction and operation of the West Sunrise Plant.

“The operating costs are expected to be at similar levels for 2013, as Emera Utility Services Bahama operates the facility. These costs are not an increase to operational costs, and have been factored into our rate application.”

When it came to alternative energy options for Grand Bahama, Emera said compressed natural gas (CNG) “at this time appears to be the most promising option”. It pledged to explore ways to bring this to the island in 2013.

“The West Sunrise Plant was a key component of Emera’s three-year turnaround plan for GBPC,” the Canadian utility added.

“GBPC is currently two years into the plan, and the performance of GBPC has improved significantly in terms of system reliability, system efficiency and profitability of the company.

“Ensuring that GBPC remains profitable is key to the development of the island, as GBPC needs to be able to attract capital to finance reinvestments in the utility. The efficiency of the West Sunrise Plant allowed the utility to invest approximately $77 million in the plant with no increase in all in rates for customers.”