Why the lights go out
By Juan McCartney
Guardian Senior Reporter
juan@nasguard.com
At a press conference earlier this year, Bahamas Electricity Corporation officials said they expected no load shedding to take place this summer.
After the hottest summer in recent memory, and the failure of BEC to prevent repeated instances of prolonged load shedding, many people now look skeptically at anything uttered by management at BEC.
The blackouts have also left Bahamians calling for the head of BEC general manager Kevin Basden. But Basden, who holds a Bachelor of Science degree in electrical power from Oklahoma State University, and has worked at BEC for 30 years, is not to blame.
At least, not for what happened this summer.
If one wishes to attribute the state of BEC, which up until a few months ago was flat broke and near failing, to anyone in particular, then one need look no further than the usual suspects involved in floundering state enterprises — the politicians and their appointees.
The reason your power goes off so frequently is that BEC — not too long ago a profit-making corporation that came to the brink of financial collapse last year — has been repeatedly subjected to the poor policy-making decisions of previous government administrations.
Why so many blackouts?
Without money, BEC was unable to stick to its maintenance schedule and overhaul the nine diesel generators at its Clifton Pier plant and the seven gas turbines at its Blue Hills plant before summer began.
Without proper maintenance, some of the generators — as most mechanical equipment tend to do — eventually failed.
BEC was unable to meet the demand for electricity, and on more occasions than many would care to remember, had to institute a systematic shutdown of certain areas of New Providence for several hours. These shutdowns are also called ‘rolling blackouts’.
BEC officials have estimated the cost of servicing the generators at the Clifton Pier and Blue Hills plants at $30 million.
All the generators that have failed are located at the Clifton Pier plant.
The diesel generators require overhauling each year, according to BEC general manager Basden, who also told National Review that they have not been properly serviced in four years.
Basden said that the gas turbines require servicing every three to four years. He said they had also not been serviced in four years.
BEC was $30 million in the hole when its fiscal year ended at the beginning of October last year.
The majority of parts required for an overhaul must be ordered 12 months in advance.
BEC was so broke at the end of its last fiscal year and had such a dismal track record, that the companies that make these parts insisted on payment up front. BEC simply did not have the money.
Many of the parts for the overhaul of the diesel generators will arrive in August, according to BEC executive chairman Michael Moss.
He also said that parts for the overhaul of the gas turbines would continue coming in up to the end of December.
Moss pointed out that some of the overhauls at Clifton Pier have begun, but the technicians who service these generators would not begin work until all the parts were on site.
Why is BEC broke?
Progressive Liberal Party chairman Bradley Roberts has promised that if his party should form the next government, there will be a commission of inquiry launched into why the Bahamas Electricity Corporation is in its current financial state.
The PLP would do well to save taxpayers’ time and money by admitting the obvious, which is that for the past 50 years politicians have meddled in BEC’s affairs to the point that the state-run power provider can barely function on its own.
And both the PLP and the Free National Movement are culpable.
BEC’s decline really started in 1993, when the then Ingraham administration decided to stop paying BEC for streetlights and made the corporation absorb that cost.
Then in 1994, the Ingraham administration imposed what amounts to a 10 percent tax on fuel BEC imports.
Making a bad situation worse was the FNM government’s decision to not allow BEC to pass that cost on to customers.
The Ingraham administration also imposed a seven percent stamp tax on fuel imports. BEC is allowed to pass that on to the customer.
BEC’s profits took a serious hit because of those decisions and the corporation steadily made less money.
That move set the corporation up for the knockout which came in 2004 when electricity rates were reduced across the board and the way BEC was allowed to charge customers was fundamentally changed by the Christie administration.
Roberts and then BEC chairman Al Jarrett have repeatedly denied that the rate reduction negatively impacted the corporation’s finances, but the data proves them wrong.
In 2004, the Christie administration decreased some residential customers' rates by 10.4 percent and other residential and small commercial consumers' rates by five percent.
That same reduction exercise also reduced large commercial customers' rates by seven percent.
BEC claims that not only did the rate changes affect its bottom line, but two other government decisions also cut heavily into its profits.
Prior to 2004, BEC was able to charge the highest maximum demand recorded by a commercial customer in a particular month for a period of 11 months after that month.
During that reduction exercise the number of months BEC could charge that high demand figure was scaled down to six.
In addition, the 2004 exercise required BEC to pay a three percent interest rate on all deposits, but the corporation was not given the power to penalize customers for late payment by withholding that interest, as is the case with many other utilities in the region.
In 2004, BEC was still a viable operation when it earned a profit of $14.16 million.
BEC's records show that in 2005 it made a profit of $15.306 million.
But $14 million of that profit came from the sale of BEC’s shares in Cable Bahamas.
In 2005, BEC only made $1.306 million profit from its operations.
BEC actually lost $2.916 million in 2006.
In 2007, the corporation lost $21.23 million
In 2008, BEC lost $16.015 million
In 2009, BEC lost $26 million.
In 2010, BEC lost more than $28 million.
Last year, BEC raised rates by about 5.25 percent across the board and stopped paying the government for street lights.
Those two moves were expected to generate about $24 million for the corporation.
BEC also started passing the extra 10 percent fuel tax on to customers.
Moss said the corporation is now on track to make $7 million profit when its fiscal year ends in October.
That is just a general overview of the state of BEC’s finances. There are hundreds of millions of dollars behind this picture that have been shifted, begged and borrowed to keep the corporation afloat.
BEC moving forward
Moss and Basden claim that a generation assistance plan which asks businesses that use a large amount of electricity during peak hours will remain in effect until rental generation units can be installed.
The fact that the rental units were not installed sooner as was promised, is mainly the fault of management but could be also due to BEC’s bad credit.
The owners of these units wanted to be paid upfront and insisted on guarantees from European financial institutions before they would ship them.
But that doesn’t change the fact that rental units could have been ordered earlier.
Moss and Basden have made promises that the situation will improve — promises they have both made before.
While there have been some critically good decisions made by the government regarding BEC, there are several decisions the current Ingraham administration has made in running the corporation that have been a complete waste of taxpayer dollars.
The most glaring would be the repeated decisions to have mass reconnections for thousands of disconnected customers.
These moves tug at the heartstrings and make for good political fodder, but are impractical and costly.
For now, Bahamians must accept the fact that electricity rates will remain high in The Bahamas.
The country has no coal and does not drill for oil or natural gas.
There is no nuclear or hydroelectric power in The Bahamas, and the cost of solar power on the level that BEC would need to implement it is prohibitive.
Wave generation and wind technology could be explored, but that will take time, and of course, money.
That means that the country is stuck importing Bunker C diesel fuel — one of the most toxic types of fuel on earth.
More Bahamians would do well to learn better conservation techniques. Simple things like not running your water heater all day and replacing traditional light bulbs with energy-saving ones are a start.
Also, BEC conducts free energy audits on homes. People should seek to take advantage of this.
And for those who can afford it, installing solar panels on homes is also a good idea.
As far as the future of BEC, the Ingraham administration appears to have saved the corporation from doom for the time being. We will see how this plays out over the next few years.
If the PLP returns to power it will hopefully give the corporation some time to heal before it starts meddling again. But if history is any indicator, that is a doubtful prospect.
However, if any government is really serious about BEC, it will do what it knows needs to be done and privatize it.
After all, governments should regulate corporations not run them.
Aug 15, 2011
thenassauguardian
