The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light’s (BPL) “hands are going to be tied” for a further 12-18 months until its $600 million legacy debts are refinanced, a former BEC executive chairman warned yesterday.

Michael Moss, who held the post until May 2012, told Tribune Business that the Government could have prevented New Providence’s current outage crisis, and lowered electricity bills even further, had it followed through on the generation expansion plans left in place by the Board he headed.

And he questioned the effectiveness of the BPL management agreement with PowerSecure, given that it had already failed to take “the first step” following the Government’s rejection of its proposed base rate increase.

“I would think BPL’s hands are going to be tied for at least another 12-18 months,” Mr Moss told Tribune Business. “They will not be granted a rate increase until after the election.”

He, like many observers, suggested that a ‘base rate’ increase was needed not only to stabilise BPL’s finances and operations, but also to give potential investors and lenders confidence the energy monopoly will be able to pay its debts.

“They need a rate increase for any investor or lender to be confident they’ll be able to repay the debt people may buy into,” Mr Moss added.

He also questioned whether a ‘management agreement’ was the best approach to solving BPL’s woes, suggesting that potential weaknesses in the model had already been exposed.

“To me, going the route of a management agreement is the wrong way,” Mr Moss said. “You either sell the thing or you keep it.

“I don’t know how effective that will be in operating a utility system, particularly when we see the first step in the process, the need for a rate increase, knocked down. What kind of model is that? That’s just a model of frustration for whoever is in there.”

Rather than privatise state-owned entities outright, the Christie administration has sought for the Government to retain 100 per cent ownership, while introducing private sector management to operate them.

It is especially attracted to the ‘NAD model’ at Lynden Pindling International Airport (LPIA), where NAD was created to operate the facility, overseen by Canadian-based Vantage Airport Group under a 10-year agreement.

The Government is supposed to refinance BEC’s legacy bank and bond debt, plus take care of its pension, severance and environmental liabilities, via the placement of a $600 million Rate Reduction Bond (RRB).

This is unlikely to occur until late 2016 at earliest and, until it does, BPL’s ability to borrow and raise financing to overhaul its generation and transmission and distribution infrastructure will be severely constrained.

Deputy Prime Minster, Philip Davis, who has ministerial responsibility for BPL, said it planned to borrow $100 million, but added that this would only occur in the 2017-2018 fiscal year - more than 12 months from now.

V Alfred Gray, minister of agriculture and fisheries, confirmed last week that the Government had “put the brakes on” a proposed BPL rate increase, feeling it was “not the right time” for such a move.

The Government’s action was likely due to the impact on businesses and households, and subsequent voter fall-out, that such an increase in utility costs might produce. However, with oil prices still relatively low, some observers have argued that now is the ‘best’ time for a base rate rise.

Mr Moss, meanwhile, said that by failing to follow through on the plans left by his Board in 2012 to add 54 Mega Watts (MW) of generation capacity, the Christie administration had inadvertently facilitated BPL’s present generation woes.

“The impact has been three-fold,” he explained. “The need to continue to pay for rental generation, which BPL at the end of the day has no interest in, that’s just money that would have gone out the door.”

Mr Davis announced on Wednesday that BPL was set to hire another 80 MW of rental generation capacity to combat the current outages, which represents a further drain on the utility’s cash flow.

Mr Moss added, though, that Bahamian households and businesses would have enjoyed even lower electricity bills had the former Board’s generation plan been acted on.

That called for the installation of a 24 MW gas turbine, plus a 12 MW steam turbine, which would have run off steam heated by the former turbine’s exhaust. The final part of the plan called for the installation of an 18 MW slow speed diesel generator.

“Consumers have had to pay a higher bill for electricity, as the fuel component is higher because of the failure to put in a slow speed diesel generator at Clifton Pier, and the failure to have converted the gas turbine put in at Blue Hills to a combined cycle model of operation,” Mr Moss told Tribune Business.

“With the heat recovered from the gas turbine, you can produce a 50 per cent increase in power [12 MW from 24 MW] without burning one iota more of fuel.”

Only the 24 MW gas turbine has been installed to-date, but had the current administration followed through with its plan, Mr Moss said: “The number of outages to customers would have been reduced.

“It would have been much, much easier. Consumers would not have been subject to the frequent power outages they were last year, incremental generation would have been online, and consumers would be enjoying a lower rate of electricity. Opportunity cost lost.”

Mr Moss, in an e-mail to Tribune Business, expressed optimism that the eventual removal of BEC’s legacy debt would enable BPL to go much further than the plans left by his Board.

Besides the 12 MW steam turbine and heat recovery steam generator(HRSG),Mr Moss suggested that it would have the capital to install another 24 MW gas turbine and HRSG.

This, he added, would ensure steam from both 24 MW gas turbines to feed a 24 MW steam turbine.

“The cost for the new 24 MW gas turbine, the two HRSGs, plus the 24 MW steam turbine generator plant, is estimated to be $48 million,” Mr Moss said.

“The STAG plant, with a heat rate of approximately 8,000 Btu/kWh, has a thermal efficiency similar to a diesel plant. The challenge for the STAG plant presently installed at BEC, and the one that’s proposed, arises because the STAG plant burns diesel fuel, which costs almost 50 per cent more than the heavy fuel oil burned in the Clifton Pier diesel plant.”

Mr Moss suggested that this be addressed by changing BPL’s fuel mix, and putting in place infrastructure that allows gas turbines to do what they are designed for - burn gas.

“Two steam and gas (STAG) plants, burning gas, will provide BEC with in excess of 100 MW of reliable, low cost, base load generation,” he added.

“A cost:benefit analysis should be carried out to determine whether, with gas available at Blue Hills, retrofitting the simple cycle gas turbine units to also burn gas, further driving down fuel costs, might be advisable.

“Based on studies I have been privileged to be exposed to, it should be possible for gas to be made available to BEC at a cost about 20 per cent less than the cost of heavy fuel oil/Bunker ‘C’. Diesel oil costs about 50 per cent more than Bunker ‘C’. The cost to BEC of gas will therefore be about 60 per cent less than the cost of diesel oil.”

STAG plants burning gas, Mr Moss said, would attract lower capital, operating and maintenance costs, while also passing on lower fuel costs to BPL consumers.

Calling for the 18 MW slow speed diesel turbine to still be installed at Clifton Pier, at a cost of $24 million, Mr Moss said: “When overhauled and suitably maintained, together with the simple cycle gas turbine plant at Blue Hills, it will yield an adequate quantum of low cost, reliable generation plant for BEC to meet the needs of its customers at a capital cost of less than $100 million.

“It is to be noted that BEC’s woes are not entirely the result of generation challenges. A goodly number are due to transmission and distribution issues. Yet BEC remains the only utility that I am aware of that doesn’t perform work on its energised conductors (live line work), but rather subjects its customers to numerous planned outages to perform the most routine maintenance work to its lines.”