FortisTCI has acquired 100 percent of the shares of the Grand Turk-based electricity company, Turks & Caicos Utilities Limited (TCU). The purchase agreement was finalized last Thursday.
TCU operates two diesel fired power plants that serve more than 2,000 residential and commercial customers between Grand Turk and Salt Cay. Combined, both islands have a generating capacity of 9.2 megawatts (MW) with a peak demand of 4.2 MW. TCU currently operates pursuant to a 50-year licence that expires in 2036.
“We believe that there are immediate and long term synergies from the operational amalgamation of both companies that will benefit all stakeholders,” said president and CEO of FortisTCI, Eddinton Powell. “We look forward to working with electricity consumers on Grand Turk and Salt Cay in the weeks, months, and years to come. We intend to be a full strategic partner in all areas of our service territories. Quality service, infrastructure, technology, and human resource development will continue to be our main focus across all Islands.”
FortisTCI is a subsidiary of Canadian-owned Fortis Inc. and is the licensed provider of electricity on Providenciales, North Caicos, Middle Caicos, East Caicos and on adjacent cays. The company also provides services through Atlantic Equipment & Power Limited (AEP) to South Caicos. Together, FortisTCI, AEP, and TCU will service over 11,000 electricity consumers in the Turks and Caicos Islands.
Stan Marshall, president and CEO of Fortis Inc. said, “The electricity business is highly capital intensive and we are focused on meeting the growing needs of electricity consumers. The acquisition of TCU further demonstrates our commitment to being a long term strategic partner in the Turks and Caicos Islands.”
The Provo-based utility was sold to Fortis during the early years of the previous Progressive National Party (PNP) administration. When it was discovered by employees that the firm they worked for was being sold, concern for their employment was raised with the government. Then premier Michael Misick claimed he had no knowledge of the sale of the important utility. Issue was taken with his statement because the monopoly licence called for the government to approve any such sale.
After the Fortis buyout, a new monopoly licence was negotiated with the PNP government, permitting Fortis a 17 percent profit and the right to add a fuel factor to the monthly charges. Fortis uses diesel generation, as does the nearest mainland based power company, Florida Power and Light (FPL). Both utilities import diesel fuel via ships and store the fuel in huge tanks. The FPL tank farm and diesel generators are based at Port Everglades in Fort Lauderdale. The Fortis tanks and generation are located on Providenciales.
The current FortisTCI rate of $0.26 per kwH is based on two factors: $0.06 for fuel and $0.20 for the cost of generation, distribution, maintenance and administration. The FPL rate is about $0.04 on average, based on total power consumption. Other charges including a prior storm damage recovery charge and taxes bring the rate to about $0.08 per kwH. Therefore, the customers’ cost of generation, distribution and administration by FPL is about one-third the Fortis rate. FPL has been permitted by the Florida Utilities Commission also to charge an additional fuel factor due to the escalating cost of diesel fuel in recent years. Currently this is $.03 per kwH.
A portion of the increased cost locally can be explained on the basis of efficiency of size. However, based on the law of diminishing returns, the Fortis charges are seemingly out of line with reality.
While FortisTCI CEO Eddinton Powell has said that their smaller operations raises cost levels, the power utility in Grand Turk, with about one tenth of the customer base, charges the same rates. Despite Powell’s assertions, the utility also charges larger commercial users a higher rate.
Florida Power and Light is permitted an 11 percent return to their stockholders and Fortis is allowed 17 percent, based on the PNP-Fortis agreement. However, it appears Fortis has been permitted to expense all purchases, including massive capital investments the firm has made, on a “cash” basis thus writing off the investments in total in the year the purchases were made. This has the immediate effect of reducing their claimed profits.
Fortis has said publicly they have not realized their 17 percent allowed profit and they want the government to pay them the difference. This, it appears, has caused Governor Ric Todd to insist that the utility to abandons its cash accounting and move to a depreciated system that will reflect more closely the life of the capital equipment and buildings they are purchasing and therefore raise their actual audited profit level.
Despite the massive write-offs permitted to FortisTCI, it is the best profit producing utility among the Canadian firm’s eight public utilities. Fortis’s consolidated yearly financial statement shows a net (clear) profit of $1,000 per customer per year. It is thought that, with a depreciated accounting system reflecting more accurately the true profit levels, this would be much higher. If the permitted 17 percent profit level is exceeded, Fortis will be forced possibly to refund excess profits and reduce rates charged.
Meanwhile, FortisTCI is stepping up actions to shut off slow paying customers on short notice and employing the police to arrest those who are stealing power.
Allen Robinson, the customer relations manager for Fortis, has said, "We will enforce full legal action against power thieves and will recover revenues lost."
Fortis is claiming a loss of $2.5 million in revenue as a result of power stolen by consumers who bypass their residential power meters.
Fortis requires prompt payment of its residential bills by cash or cheques drawn on local banks. They will not accept credit or debit cards, either local or international.
Despite the high charges, many customers have complained about power outages and low voltage problems, which have caused damage or complete loss of appliances. Former Minister of Works Sam Harvey, now a hopeful candidate for re-election, has said that, if he is elected, he will tackle the high cost of electricity.
Fortis has made small contributions to needy charities and provided a few annual scholarships. They also engage in extensive training of their staff to assure efficiency. However, they have refused to run a power line to the new National Trust building at the cave tourist site on Middle Caicos. The building is between 200 to 300 feet from existing power distribution lines. The National Trust plans to provide sanitary facilities for visitors and tourists if they can obtain power to their site.
Fortis has told the National Trust, a nonprofit statutory body, to pay the cost of the power poles, pole mounted transformer and lines. However, Fortis uses the right of way for their power lines without compensating the TCI government.
Following the announcement that Fortis has purchased TCU, Governor Todd has taken to the airwaves to deny that his decision to not allow TCU a rate increase had anything to do with the sale to Fortis.
“That was strictly a commercial decision,” said the governor.
TCU is claiming they suffered huge losses rebuilding their system in Grand Turk in late 2008 and early 2009 after damage suffered by the early September 2008 Hurricane Ike. The rate increase was not requested, however, until earlier this year – 3-1/2 years after the damage.
On this issue Todd said, “...earlier this year I received the application for a rate increase by TCU and after careful consideration I decided that increase was not justified.”
Todd summed up his decision to refuse both of the utilities their requested rate increases, saying, “I decided to freeze the prices because the increase to consumers was not justified... we followed the rules, we followed the proper processes and I am confident we took the right decision.”