Dear Editor,
BEC's executive chairman, Leslie Miller, the erstwhile "potcake", recently demanded that the government proceed with the organization's restructuring, post haste. Some may liken the restructuring effort thus far to a conundrum given the seeming vacillations regarding the desired end product and the interminable delays arriving at a conclusion.
To appreciate the major challenges facing the Bahamas Electricity Corporation (BEC), and the huge effort that will be required to restore the enterprise to a semblance of its past glory, demands a cursory glance at the organization's financial history over the past decade.
BEC, once a vibrant, profitable enterprise and winner of the country's 100 Day Challenge, was plunged into the red for the very first time in its modern history during its financial year that commenced October 1, 2005 and ended September 30, 2006.
Apart from earning a meager profit during the financial year ended September 30, 2010, and recording a minor loss during the financial year ended September 30, 2011, due principally to system restoration work in the aftermath of category 3 hurricane Irene, BEC has recorded major losses each financial year since the calamitous loss incurred during its financial year ended September 30, 2006.
To the untrained eye that year-end loss might appear to signal the beginning of BEC's misery. To a more sagacious observer a review of the corporation's results for the prior year, ended September 30, 2005, points to a somewhat earlier genesis of BEC's woes.
BEC reported a profit of $15.306 million at its September 30, 2005 year end. However, $14 million of this sum was due to the sale of shares bought by BEC during the Cable Bahamas initial public offering (IPO) in 1994, the value of the shares having appreciated by $14 million over the intervening 11 years. Had sale of the shares not been consummated prior to the fiscal year end, BEC's profit would have plummeted to a mere $1.306 million.
A report, issued during January 2006 by BEC's consultant, P. A. Consulting, following their 2005 review of the corporation's operations, clearly delineates the genesis of BEC's woes and the urgent actions needed to rectify the problem. I do not intend to regurgitate the details here. Suffice it to say that BEC's capitalization has been so eroded because of failure to have promptly addressed the issues noted in the January 2006 report that significant recapitalization of the enterprise will be needed.
In an earlier communication, following the government's announcement that BEC would be split into two enterprises, I cautioned against such a move. My view remains as it was then. It would have been far better to have invited proposals for installation of a 100 MW (megawatt), BOO (build, own, operate) generating plant.
Broadly speaking, the bidder, satisfying relevant criteria, while committing to complete installation of the plant in a timely fashion, and sell electricity to BEC at the lowest cost, would have been deemed the successful bidder.
Competition within the highest cost segment of BEC's operations would thus have been introduced. It may not be too late to pursue such an option.
Coincidently with the foregoing, BEC ought to have been pursuing, and still ought to pursue, sourcing of a supply of CNG (compressed natural gas), or propane for its Blue Hills Power Station GAS turbine plant.
GAS turbines, as the name implies, are ideally suited to burning gas. In fact, the vast majority of GAS turbines burn gas. It is only in locations like The Bahamas, where gas has not been available, that GAS turbines have been modified to burn diesel oil.
A brief digression is in order. LNG (liquefied natural gas) has oft been touted as a possible fuel alternative for the heavy fuel oil burning, slow speed diesels at the Clifton Pier Power Station. The quantum of BEC's fuel consumption, in my view, falls far short (less than 50 percent) of the quantity that would make an LNG facility viable.
I am also unaware of any commercial, slow speed diesel power generation facility operating on gas.
The following, simple mathematical presentation will readily show where, in addition to their design advantage already posited, conversion of the Blue Hills GAS turbine plant would be far more impactful in lowering BEC's fuel charge to its customers. While heavy fuel oil, the fuel used at Clifton Pier, costs much less than diesel oil, the fuel used at Blue Hills, the landed cost of gas is expected to be appreciably less than the cost of heavy fuel oil.
Approximate costs for the three fuel types will likely be as follows: gas - $15/MMBTU (million British thermal units); heavy fuel oil - $22/MMBtu; diesel - $33/MMBtu.
BEC's electricity production is fairly evenly split between Clifton Pier and Blue Hills. BEC's average fuel cost at present is therefore approximately 0.5($22 + $33) = $27.5/MMBtu. (The price of crude oil has recently fallen to a four-year low hence the price relationships shown may be somewhat skewed).
Converting the Clifton Pier plant to burning gas while leaving the Blue Hills plant burning diesel oil yields an average fuel cost of 0.5($15 + $33) = $24/MMBtu. Modifying the Blue Hills GAS turbine plant to burn gas while leaving Clifton Pier burning heavy fuel oil yields the following average fuel cost 0.5($22 + $15) = $18.5/MMBtu. A significantly lower overall fuel cost is thus achieved by converting the diesel oil burning GAS turbines to burn gas while leaving the slow speed diesels burning heavy fuel oil.
Moreover, Gas turbines, when operated in a combined cycle mode, achieve a similar efficiency (heat rate) to slow speed diesels. Lower capital expenditure, maintenance costs and superior plant availability are added benefits.
I believe a few, additional, brief comments are in order as I conclude.
Next to the high cost of power generation (and the cost reduction that would emerge from implementation of the strategies outlined), containment and collection of the huge receivables owed BEC, a function of the customer operations end of the business, and more particularly the "credit and collection" portfolio within customer service, would appear to be deserving of major focus.
The proposed split of the organization into "generation" and "transmission and distribution" companies downplays the necessary focus that is required to address this second major issue.
The problem can best be addressed, in my view, by BEC providing electricity service to the vast majority of its customers via pre-paid meters.
As regards transmission and distribution, an island 21 miles by seven miles requires only minimal transmission infrastructure, most of which is already in place. The major hurdle needing to be addressed from a distribution standpoint is the introduction of live line work. Customers, already subjected to multiple outages due to BEC's less than reliable generation performance, are being subjected to a double whammy because of scheduled outages to perform distribution line maintenance activities.
- Michael R. Moss
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