The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

Bahamas Power & Light’s (BPL) fuel hedging strategy will be continued beyond its June 2022 end, a Cabinet minister promised yesterday, although there may be some adjustments.

Alfred Sears, minister of works and public utilities, said this will be one of the first issues that the newly-appointed BPL Board has to address. Given that the hedging strategy is effectively underwritten by the Government, or Bahamian taxpayer, he added that discussions were taking place over whether its scope should be narrowed to assist only “vulnerable” households.

“There have been a number of discussions with the outgoing chairman [Dr Donovan Moxey] and the Ministry of Finance. The hedging strategy is a financial arrangement which helps to stabilise the price of fuel. That facility is backstopped or supported by the Government,” Mr Sears said.

“There is a discussion whether that subsidy by the Government should be applied to all consumers or only vulnerable consumers, and I know that’s the discussion that is taking place within the Ministry of Finance. The hedge is one of the first issues that the new Board will have to address in concert with the Ministry of Finance and, of course, the Ministry of Works.

The hedging strategy, executed by the former Minnis administration in July 2020, was designed to both stabilise the “fuel charge” component on BPL customers’ bills as well as produce millions of dollars in savings for those businesses and households, as well as the taxpayer and the Government.

The move was viewed at the time as representing a triple win for BPL’s customers; the Government and its fiscal position; and the overall economy and the foreign exchange reserves.

For the “hedge” locked-in the fuel charge component of customer bills at 10.5 cents per kilowatt hour (KWh) until June 2022, providing businesses and households with electricity rate certainty for a two-year period at a time when their finances were under huge strain due to the economic crisis created by COVID-19.

Mr Sears yesterday said hedging’s continuation will “stabilise the price of energy during this transitional period”, adding that it would be integrated with the Government’s renewable energy drive and other initiatives.

“Clearly, with the price of oil rising daily, one mechanism for providing stability of price for the end-use consumer is by hedging,” he added. “So there will continue to be some hedging mechanism, and that will be a matter for the Board and also for the Government, which at the end of the day is going to have to provide the guarantee.”

The Deloitte & Touche accounting firm will be at BPL this week to conduct its assessment of the fuel hedging strategy’s efficacy as part of a review that will also see them examine the energy monopoly’s proposed $535m rate reduction bond (RRB) issue.

BPL’s fuel hedging, which was supported by the Government and Inter-American Development Bank (IDB), puts control of monthly electricity bills back in consumer hands. With rates fixed, and no longer vulnerable to global oil price fluctuations, Bahamian energy costs for the past 16 months have been determined by each business and households’ management of their consumption.

The utility’s reduced fuel costs have also helped reduce the drain on the $2.4bn external reserves at a time when The Bahamas needed to preserve every cent of foreign currency when tourism-related inflows virtually dried up.

BPL’s annual fuel bill is one of the most significant drains on the foreign reserves, which are vital to maintaining the Bahamian dollar’s one:one parity with the US dollar. The hedge thus likely eased some of the anticipated pressure on the external reserves.

The state-owned energy monopoly, in its one-year review of the hedge conducted in summer 2021, asserted that it brought average residential customer bills down by 24 percent versus June 2018.

“The average residential customer saved $42 on the fuel charge in June 2021 versus June 2018 (prior to the hedge). That extrapolates to an annual savings on the fuel charge of about $500. More broadly, the research shows that from August of 2020 to June 2021, customers and the public treasury have saved $15m as a result of the hedge programme,” it said.

BPL said if that trend continues, it projects savings of about $40m to customers and the Public Treasury between August 2020 and January 2022.

Mr Sears, meanwhile, said Shell North America remained “willing to partner” with the Government on both the 225 Mega Watt (MW) power plant and associated liquefied natural gas (LNG) regasification terminal at Clifton Pier that will provide New Providence’s baseload electricity supply.

“There was a meeting between the Prime Minister and executives of Shell, and I also had a meeting with them,” Mr Sears said. “I participated in both meetings and the conversation.

“Shell is available, and has expressed its willingness as the Government recalibrates, to work and facilitate and is willing to partner with the Government. That in a nutshell is the outcome of the conversation.”

BPL’s long-standing legacy debt stands at around $290m, and is something Mr Sears said will be the responsibility of the new Board to deal with. “The function of the Board is to look at how to deal with the legacy debt at BPL, which is $290m, almost $300m, and then to fund whatever the business strategy is in terms of power generation, improvement of distribution and transmission infrastructure for the whole country,” he added.

BPL’s new board consists of Pedro Rolle, chairman; Daniel Ferguson, deputy chairman; Errol Davis; Anthony Farrington; Reneika Knowles; Dirk Simmons; Cheryl Simms; and Nadia Storr.