February 20, 2012

Island Hopping With Emera

Barbados is the latest Caribbean island to feel the Emera squeeze

by Miles Howe

The Dominion - http://www.dominionpaper.ca

More than Snowbird Syndrome: Nova Scotian power company Emera is on a buying spree in the Caribbean, including in the Barbadian capital of Bridgetown. Photo: Lisle Warner

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HALIFAX—On a small island north of Venezuela, 4,500 kilometres from Halifax, Barbados Light and Power (BLP) recently issued a news release. Energy use on the Caribbean island has hit a low not seen since 1974.

“Some people are now simply just turning off all the electricity in their homes, especially when they're not home,” says Carson Cardogan, a Barbadian ratepayer. “They're pulling out everything. Every plug. Including the fridge. People are living virtually in the dark, in order to not pay Barbados Light and Power the hefty electricity bills.”

While the average Canadian might applaud such a downward shift in power consumption, this is not a question of Barbadians “going green” by choice. It is the work of Nova Scotia’s Emera, BLP's new owner.

Emera, the Nova Scotia-based company, moved fast onto the scene in Barbados, purchasing a 38 per cent share in the largely nationally-owned BLP in May 2010, and another 41 per cent in January 2011. When shares in BLP were trading at $12 on the Barbados stock market, Emera offered BLP shareholders $25 per share—an offer they could not refuse. A few dissenting voices, on call-in programs and social media panels, urged caution against selling off the national power company to a foreign interest, but the deal went through unencumbered.

Later, an investigation by the Fair Trade Commission (FTC), Barbados' regulatory body, suggested that BLP shares were devastatingly undervalued, and should have been priced in the $40 to $50 range.

Writers at “Barbados Underground”, one of the nations' most read independent media sites, suspected something was amiss with the deal. The FTC, as regulator of BLP's power rates prior to the sale to Emera, would have been well-informed of BLP's assets and net worth. To emerge post-sale saying that Emera had purchased a more valuable company than they thought they had is suspicious indeed.

This isn't Emera's first Caribbean purchase. The company already has a controlling interest in the Grand Bahamas Power Company, the monopoly service provider to about 20,000 customers on the island of Grand Bahama. Purchased in 2009, its relationships on the island of Grand Bahamas have been anything but easy. Operation Justice Bahamas (OJB), a grassroots organization, has gathered over 5,000 signatures from disgruntled customers who have cried foul over skyrocketing power bills.

OJB's actions forced the Bahamian government into an ongoing investigation into Emera's business practices, including hundreds of allegations of overpricing, “guess-timation,” and destructive power surges. Sarah MacDonald, Emera's chief officer in the Caribbean, suggested that difficulties in meter-reading were related to the fact that over 8,000 Bahamians did not have a postal address, an allegation that OJB dismisses as a “slap in the face.”

OJB is hoping the governmental investigation is the first step towards a class-action lawsuit against Emera.

“They are, in my words, driving the people into poverty. And they are causing people to lose business,” says Troy Garvey of OJB.

Emera also owns a 19 per cent equity interest in St. Lucia Electricity Services Limited (LUCELEC). While Emera’s involvement in St. Lucia seems to be developing at a slow pace, the situation on Barbados is unraveling quickly.

In Barbados, public allegations of exorbitant power bills, based on incomprehensible calculations, are running rampant, and representatives from industry agree. Sir David Seale, chairman of RL Seale & Company, one of Barbados's largest rum bottlers, has publicly railed against Emera, calling the current situation “unacceptable for industry.” Seale has had to divert company money towards developing new energy infrastructure, and has shifted to diesel generators in an effort to get off the Barbadian grid.

Meanwhile, the government, in an attempt to keep electrical power flowing into some of the more impoverished homes in Barbados, instituted a plan in October 2011, known as Energy Cost Mitigation Assistance (ECMA). The ECMA is a one-off grant of $5 million for welfare-recipient Barbadians, which was created to offset the global increase in fuel costs that are supposedly responsible for BLP's steady rise in power bills.

Before Emera purchased BLP, there was no apparent need for an emergency-style government fund for the nation's poorest to pay their power bills.

Emera’s electricity rate increases, be it in Nova Scotia, on Grand Bahamas or in the Barbados, are all approved by a “third-party” regulatory body, and are thus granted some veneer of legitimacy. In Barbados, that regulatory body is the Free Trade Commission (FTC). In Nova Scotia, the regulatory body is the Utility and Review Board (UARB).

In Barbados, Malcolm Gibbs-Taitt, founder and director general of Barbados Consumer Research Organization, has brought into question the link between the FTC and the Barbados Securities Commission, the body meant to regulate the Barbados Stock Exchange. Both are chaired by Sir Neville Nicholls. The term “regulatory capture,” by which a regulatory agency meant to serve the common good is instead co-opted by private interests, applies here: one individual is overseeing BLP's sale, and also overseeing BLP's requests for rate increases (read: profit).

“My problem with the Fair Trade Commission is that it does not seem to have the ability to get the proper information before it,” says Gibbs-Taitt, “[or] to share that information with those that are involved in the process, to the extent that we can be reasonably assured that what it is doing in the names of the people, the consumers, [is something where] you could say, 'This is a job well done.'”

A similar instance of regulatory capture is at play in Nova Scotia.

Brennan Voegel, former Energy Coordinator for the Ecology Action Centre, notes that Peter Gurnham, largely responsible for the UARB's decisions on NSPI's rate increase requests, was formerly a lawyer in the service of NSPI.

“The major problem is that [NSPI] is guaranteed a rate of return...which allows them to usurp more money out of Nova Scotians,” says Voegel. “They have to make money, but there's very few industries in the world today that still enjoy that enshrined right to profit. And if it were an open market, like it should be, then electricity provided at the lowest cost, with the greatest degree of efficiency, would be the product that people would be choosing.”

The relationship between the UARB, the Nova Scotian government, and NSPI, which Voegel calls “the golden triangle,” has worked well for Emera's top brass. Executive salaries and bonuses have never been higher, with CEO Chris Huskilson taking home over $3 million in 2011. A new corporate head office on the waterfront in Halifax, a structure currently under construction, is slated to cost between $30 million and $40 million.

Executive salaries and bonuses aside, Emera's new-found role as Caribbean power boss begs the question: What exactly is afoot in the islands? Is this a case of classic Canadian snowbird syndrome? Or is a grander scheme in the works?

All of Emera's Caribbean purchases produce the vast majority of their power by burning oil or diesel —the weakest link in Emera's control of the situation. The company is not in the oil refinery or shipping business, and so is beholden to global market trends. Emera, however, is in the gas pipe building business, and already wholly owns Brunswick Pipeline, a 30-inch, 145-kilometre natural gas pipeline in New Brunswick.

Plans for an inter-Caribbean gas pipeline, with gas sourced from Tobago, have been brewing for several years. Venezuelan President Hugo Chavez initially encouraged a pan-Caribbean oil pipeline, to run oil from Venezuela, but the Tobago bid for a natural gas pipeline appears to have won out in the minds of investors.

At the time of writing, there was a flurry of activity in the Tobago project: international investors were found after several years of relative dormancy. The company with the lead in the project, Eastern Caribbean Gas Pipeline Company, shares at least one member of its board of directors, Dr. Trevor Byer, with LUCELEC’s board.

If Emera were to involve itself heavily with the construction of an inter-island gas pipeline, it would eliminate one more middleman—the distributor—from its electricity monopoly in at least two Caribbean nations. Whether this gas pipeline materializes and, more importantly, what its impact will be for Emera's Caribbean clients, remain to be seen.

“People are crying out every day” because of the skyrocketing power bills in the Barbados, says Carson Cardogan. “They're writing letters to the newspapers and the call-in programs. And it's having a very deleterious effect on the lives of many Barbadians.”

For the moment, Bahamians and Barbadians, and Nova Scotians, find themselves beholden to Emera's bottom line, a situation that to some—such as the pulp mill owned by Abitibi, and the one formerly owned by NewPage, and their hundreds of out-of-work employees—has already become untenable. Nova Scotians certainly remember that two of NSPI's largest industrial clients, prior to massive downsizing and bailouts in the case of Abitibi, and bankruptcy in the case of Newpage, made very public mention of the fact that escalating power bills were driving them to ruin.

While critics of the two companies suggest mismanagement as the more likely cause of their dire straights, it does beg the question, in Nova Scotia and beyond: Is Emera simply bad for business?

Miles Howe is an editor with The Dominion and a member of the Halifax Media Co-op.

This article was originally published by the Halifax Media Co-op.

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