By NEIL HARTNELL
Tribune Business Editor
Bahamas Power & Light’s (BPL) former manager targeted more than $100 million in fuel savings as key to reducing electricity rates by 50 per cent come 2020.
PowerSecure’s BPL ‘business plan’, tabled in the House of Assembly yesterday, identified numerous areas of cost savings that, if extracted, could provide the energy cost reduction long sought by Bahamian businesses and households.
Besides fuel costs, the plan revealed that Bahamians were being billed for “as much as $14 million annually” for energy they do not consume, as a result of losses and pilferage from BPL’s system.
These losses were said to be twice the energy industry average, with BPL’s aged, inefficient and poorly maintained generation assets costing the country millions of dollars each year in unnecessary fuel costs.
PowerSecure also suggested that BPL was over-staffed by about 30 per cent, and recommended that it slash the workforce by nearly 300 persons in a staggered downsizing to save $13 million per year.
Pointing out that BPL’s bad debt provisions were increasing by around $11 million per year, PowerSecure said this together with an 85 per cent customer delinquency rate indicated a high level of dissatisfaction by Bahamians with the energy monopoly’s service and performance.
While PowerSecure will have produced its BPL ‘business plan’ in 2015-2016, the contents are just as relevant today because so little has changed. The US utility operator identified fuel as the most significant savings source open to BPL, due to its ‘high heat’ or burn rate and inefficient management of generation assets.
BPL’s aged generation turbines have to burn considerably more oil than the energy industry average to generate electricity, while the inability of Clifton Pier to meet New Providence’s base load demand - due to old, poorly maintained equipment - has forced BPL to rely more on the Blue Hills plant and its more expensive fuel.
“Following a downturn in the economy and several other factors, BEC has not been able to maintain and invest in needed upgrades,” the BPL ‘business plan’ said. “As a result, Blue Hills has been used to supplement generation instead of just providing for peak demand as originally intended.
“This is significant because, at current fuel prices, a kilowatt hour of power produced at Blue Hills costs almost twice as much as a KWh produced at Clifton Pier. Using Blue Hills is costly and inefficient because its assets run on automotive diesel (ADO), a less efficient, more expensive fuel source.”
PowerSecure planned to construct a new 140 Mega Watt power plant at Clifton Pier as the centrepiece of efforts to address these issues, adding: “A new, high efficiency power plant at Clifton Pier anchors the PowerSecure plan. Adding 140 MW there provides the leverage to minimise costly operations at Blue Hills.”
PowerSecure will now never have the chance to execute on this plan, which had the new generation capacity coming on line by 2018. Explaining its $462 million capital investment plan for the five-year management agreement term that has now ended, the operator said up-front expenditure would enable BPL to operate more efficiently with less fuel.
“New assets are essential to modernisation, along with upgrades to existing assets and improved operations and maintenance practices,” PowerSecure wrote in the ‘business plan’.
“By making an upfront capital investment in new assets, an estimate of 2015 budgeted fuel costs shows that more than $100 million can be saved in fuel costs. The plan attempts to reduce approximately $5 in fuel expenses for every $1 in depreciation expense on an annual basis.”
With fuel accounting for 62 per cent of BPL customers’ bills, reducing costs in this segment is critical if the utility - without PowerSecure - is to reduce all-in electricity costs to $0.214 per kilowatt hour (KWh) in 2020, a 50 per cent reduction from $0.44 per KWh in 2012.
Focusing on other potential cost savings, PowerSecure’s plan focused on achieving loss reduction and boosting revenues. “In some parts of the system, our due diligence revealed that more than 15 per cent of energy produced is either lost in delivery or is not accounted for in revenue,” the BPL business plan said.
“Either way, it is material. We expect that reducing unaccounted billings to a normal industry benchmark can reclaim approximately $10 million per year for the business.”
PowerSecure said the 15 per cent loss rate was well above industry standards of 4-7 per cent, and added: “This is a costly performance shortfall at current rates, burdening customers with as much as $14 million annually for energy they do not consume.”
It added that line losses in the Family Islands were as high as 20 per cent, with these locations also consuming 35 per cent of BPL’s more expensive ADO fuel.
“A number of recurring expenses can be more effectively procured and managed to reduce non-fuel operations and maintenance by 10 per cent to 15 per cent, including debt reduction,” PowerSecure suggested. “Staffing levels are high by about 30 per cent, creating an opportunity to save about $20 million.”
Desmond Bannister, minister of works, yesterday said the Government would not agree to such a BPL downsizing, even though PowerSecure argued that it “has become a business necessity to reduce the size of the workforce” and bring it into line “with the outer limits of affordability”.
PowerSecure had planned to reduce the BPL workforce by 35 come October 2016, using voluntary separation packages, with 233 redundancies targeted for August 2017. This strategy delayed the payment of $9.5 million in severance costs, with the collective 268 headcount reduction - from 1,061 to 793 - saving $15.8 million in annual salaries.
With BPL’s wage bill reduced from $63.4 million to $47.7 million, PowerSecure estimated this would shave almost three cents per KWH of customer bills.
“An examination of BEC’s budget reveals several areas of potential cost reductions, including customer bad debt, excess inventory and lube oil,” PowerSecure said.
“For example, lube oil alone can be more effectively procured and managed to reduce non-fuel operations and maintenance by $6 million compared to the 2015-2016 budget. Also, the bad debt provision is over $90 million and is increasing by roughly $11 million per year, which underscores why improving customer operations is a plan priority.
“Today, customers apparently do not see the value, as indicated by more than $10 million in annual bad debt expense. Customers do not experience consistent, accurate, reliable interactions with the utility, which has led to a customer delinquency rate of 85 per cent.”