The advice from Sir John Swan and Michael Murphy to Ascendant shareholders in their opinion in August 6 edition of The Royal Gazette was apt. The more so because of its timing, although I doubt the shareholders will subordinate their potential personal gain to a vision that many probably have trouble making sense of.
The argument made was from a wholly business perspective. This was very interesting to me personally because my own take is, and has long been, almost the same, yet its logic is based on the technical aspects of the problem.
I, too, looked at as much Algonquin information as a few weeks on the internet would offer.
What I saw was an opportunistic investor whose primary expertise is not the operation of natural gas distribution systems — their primary North American gambit — and certainly not in operating electricity supply systems. Their primary expertise is in operating utilities, any utilities, under the constraints created when those utilities are regulated by a public authority.
What needs to be written in large capitals here is that almost every regulated utility is guaranteed a usually fairly determined rate of return on investment. This is delivered by setting rates based on costs and accounting as presented by the operators, and interpreted by the rate-setting body. The gambit then is quite simple: manage the operation so the costs line up and the investments line up in the best way to ensure that the fair return is as fair in the operator’s favour as possible.
What was absent in what I found was what Sir John mentioned and more: there was no evidence that Algonquin was the driver behind any of the systems’ movements towards renewables. In general, where these were mandated, they were done, but rarely to more of a degree than required — even if costs might indicate otherwise.
Similarly, the firm is not above continuing to use legacy, coal-fuelled plants. The other thing that was absent was any outreach to customers to encourage distributed generation or measures classed as demand-side or efficiency programmes. Finally, I dug and dug and found nothing about grid upgrades to smart-grid levels or to allow peer-to-peer transfers.
The “no surprises” prediction here is that Algonquin will buy Belco and continue to burn whatever fuel is most profitable in those shiny new generators — given their fuel-adjustment charges, of course. They will call for proposals for whatever renewables the Regulatory Authority of Bermuda mandates and will negotiate very hard, but eventually sign the power purchase agreements and take as much power as they must.
They will be compliant but not proactive. Remember also that their overarching mandate is from their shareholders; that mandate will be to maximise their return — all of which will leave the island. Could we, as a community, do better? As Sir John pointed out, yes we could.
Ascendant would have to hire a management who could see the vision of the utility as being primarily the integrator of the system in which it is a large generator of base capacity, but whose role is primarily to stabilise the grid and balance the intermittent, large and distributed renewables and storage sources, and facilitate peer-to-peer trading.
What Sir John should have added was that doing this can be actually more lucrative for the Belco shareholders than selling at $36.00. Algonquin is bidding $36.00 because they are sure that they can get the return to pay it. They will do this by simply gaming the system to their advantage.
The fact is that a group of Bermudians could choose to become owners as opposed to shareholders, and the company could become a progressively managed vital part of the community, again, and be paid accordingly. And the money would flow to Bermudians.
Bermudians have had the guts to do this kind of thing before — as shipbuilders, as farmers, as creators of an iconic tourism economy, to create the offshore insurance industry. Clearly we need to reach for the next star. Managing our electricity system may not be quite the next thing on that list, but we will never find out what is if we do this thing badly.