By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company’s (GBPC) $80 million West Sunrise plant has started operations with a workforce that is 92 per cent Bahamian, the monopoly power provider yesterday saying it would further improve reliability following a year in which outages were “cut in half”.

Responding to Tribune Business’s questions, GBPC said construction of the West Sunrise Plant, which became operational last Thursday, had been completed in just 12 months - a duration it described as “extremely fast” for work of this type.

While the average base rate for GBPC’s business and residential customers was set to increase by $0.03 per kilowatt hour(kWh), from $0.178 per kWh to $0.208 per kWh, the company pledged that this would be more than offset by the fuel-related efficiencies generated from the new plant.

GBPC added that its total system losses were currently running at about 9.5 per cent, of which 5 per cent was technical (electricity lost as it was transmitted down the wires), with the balance coming from non-technical losses, such as the theft of electricity.

And the power company, which has 50 per cent of its ordinary shares listed on BISX via ICD Utilities, told Tribune Business that it had been given a clean bill of health on its billing practices via a report conducted for its regulator, the Grand Bahama Port Authority (GBPA).

Explaining the rationale for its new tariff structure, which consists of a base rate and fuel charge mechanism (FCM) to recover fuel costs, GBPC said: “The key to maintaining reliability and stabilising power costs is the commissioning of the West Sunrise Plant.

“The addition of this 52 MW [Mega Watt] plant translates into roughly 80 per cent of the current peak load, so GBPC is very confident that there will be a significant improvement in the overall plant fuel efficiency.

“As a result, we are able to absorb an $80 million investment into our base rate with no increase in the all-in-rate to customers because of the reduction in fuel cost.

“During 2011 we began to see an improvement in reliability to our customers - on average the amount of outages that customers experienced was cut in half. With the addition of the West Sunrise Plant we will continue to see a reduction in plant related outages.”

Pointing out that its previous rate structure had no link to the level of capital investment made in its electricity infrastructure, GBPC added: “As utilities require large capital investments, the standard used in regulatory environments is to establish a tariff that is based on a return on investment.....

“The rate is formula driven and is the result of three known components: Operating expenses, depreciation, and a return on capital. On a three-year basis (3.5 years for the first one) the utility will submit a three-year forward looking forecast that will be subject to review by the regulator. The resulting tariff will be fixed for three years and the utility will be held accountable to meet the targets set in its forecast.”

Pointing out that 35 of the West Sunrise Plant’s 38 staff members were Bahamian, GBPC added: “We are proud of the fact that we constructed a new 52MW plant in less than 12 months - that is extremely fast for this type of construction.

“As well, establishing a rate structure is not a simple task and there were many stakeholders who needed to be involved. Although it may feel like a long time, we believe we have reacted very quickly to the needs of our customers and the island.

“Within 18 months of Emera having management control over the company we have delivered a new 52MW plant and a rate structure that is based on regulatory standards used throughout the world. To have implemented this rate structure before the introduction of the new plant would have caused an overall price increase to customers, something we wanted to avoid. We seek to make the right decisions that are in the best interest of customers, and in our line of business that takes time.”

And the Grand Bahama power supplier added: “GBPC is in its second year of a three-year turnaround plan that Emera assisted GBPC in developing after acquiring majority control of the company.

“The construction of the West Sunrise plant, which replaces the aging generation fleet, will reduce the cost of generation. This, combined with initiatives to lower operating costs, have been a priority for GBPC.

“The financial stability of the utility is key to its ability to successfully meet the energy requirements of the island, and the new rate structure will support the utility’s endeavours to find new, lower costs supplies of fuel for Grand Bahama.”

Asked how customers were likely to respond in relation to the base rate increase, GBPC pointed out that the fuel savings and efficiencies were likely to reduce total bills by about $0.015 per kWh.

It added: “Once customers familiarise themselves with the regulatory principles that we are guided by, we trust that they will understand that the base would have to increase to absorb the investment in the new plant, but they will be comforted to know that the fuel savings from this investment will drive their all-in-cost lower than what they currently pay.

“This new plant is our medium-term strategy to improve reliability and decrease customer costs. The long-term strategy is to reduce our dependency on fossil fuel and we continue to work towards that goal.”

As for the report into GBPC’s billing practices, carried out by the PricewaterhouseCoopers (PwC) accounting firm for the GBPA, the GBPC said: “The audit was one that was initiated by our regulators, GBPA.

“We fully cooperated with the auditors, and the report showed that our billing system, including fuel surcharge, were being accurately calculated.”