Costly spares

The Barbados Light and Power Company (BLPC) spent some $19 million over a two-year period to replace components of a steam turbine generating plant that it had planned to retire following the last electricity rate hike in 2010.

Instead, the BLPC has extended the life of the plant until 2023, but repurposed one of its two power-generating units to house spare parts.

“I believe it is S2…is not actively generating [electricity] right now. S1 is. But the unit S2 is used as spares for S1,”Director of Finance at the company Ricaido Jennings testified on Thursday before the Fair Trading Commission (FTC) on day 7 of the hearing that’s reviewing a request for a rate increase.

The information was made public as intervenor and accountant David Simpson – who has teamed up with attorney-at-law Tricia Watson – cross-examined Jennings.

“What would have happened and the accounting treatment that would have happened there, is that these investments would have been included in the cost of the plant and the retirals would have been taken out of the cost of the plant as well,” the finance chief stated.

The witness was also asked if the $19 million provided any new generating capacity during the two years identified.

“To the best of my knowledge, no it did not provide any additional capacity,” Jennings told the commission.

The intervenor asked, why then were the millions spent and the witness deferred the question to the company’s asset management team.

“What happens…is that these are the things that need to be

replaced to make sure the steam engine continues to run. So we have a number plant and every year there are things that need to be retired and they get replaced. They are retired…and treated as depreciated and added as interim additions,” the witness offered.

“In your professional expertise and your understanding of the $19 million investment and your explanation of retirement dates, should that $19 million have been capitalised as additions to the plant, or should it have been treated as repairs and maintenance to an asset that was fading in terms of its useful life and ability to generate power and treated as an expense?” Simpson asked the finance director.

“Not just in my professional opinion, but in the professional opinion of the auditors as well,” he replied.

The intervenor also asked Jennings to explain the economic benefit of the unit that is being used for spares and which is

depreciated.

This question was once again deferred to asset management, but the witness still pointed out that the company cannot run a unit without spares.

But while agreeing that a unit can’t be operated without spare parts, Simpson suggested to the finance director that normally spares are a repairs and maintenance expense cost as needed.

He expressed concern that the unit was taken out of production and allocated to spares but was still being maintained as part of the asset category and even being depreciated.

The intervenor then asked Jennings to give the present value of the unit that is being used for spare parts, but the witness told him there are other company officials better-placed to answer that when they testify.

However, he said the spares are treated as “critical”, a description supported by the auditors.

Pressed further, Jennings could not say if all of the spares in the unit are critical, but admitted that the company still has to source spares from the open market.

Asked how long the unit housing the critical spares could remain dormant without further deterioration to the plant, the finance chief replied: “I can tell you that the information I have from the asset management team suggests that the critical spares that they have are useful to the life of the steam [plant] which is 2023.”

Jennings was also cross-examined by acting Public Counsel Sharon Deane who asked him to justify a series of increases in the price of items the company is requesting in its application. He agreed with the data contained in a document that was read by Deane showing that the BLPC wants $260 for a damaged meter that currently costs $50; $650 for another type of damaged meter that is presently priced at $200; $130 for a new service that’s below 200 amps and costs $50; and $200 for a renewable service application that is currently priced at $50.

“Is it possible to justify such increases for the above services, when by your own admission, inflation as measured by the consumer price index only increased by 38 per cent since 2010?” Deane queried.

“These are typical non-standard charges. There are not typical standard charges. I think this is just to realign with the costs of these proposed services. There are not expected to be everyday charges that everyone pays. My colleague who deals with cost of service can certainly help to understand the justification for it,” the witness replied.

The hearing resumes Friday at 9 a.m. at the Accra Beach Hotel and Spa.

emmanueljoseph@barbadostoday.bb