The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Concerns were voiced yesterday that Bahamas Power & Light (BPL) could potentially be violating the law by failing to fully pass its fuel costs on to residential and business consumers.

The fears were raised after Pedro Rolle, BPL’s chairman, suggested that the state-owned utility was absorbing rising global oil prices itself rather than passing the cost on 100 percent to its customers as required by the Electricity Act and accompanying regulations.

Multiple Tribune Business sources, speaking on condition of anonymity, revealed that BPL received a “warning letter” from sector regulator, the Utilities Regulation and Competition Authority (URCA), in 2018 after it failed to pass on the equivalent of just 0.2 cents per kilowatt hour (KwH) to consumers via its fuel charge. The utility had sought to hold the fuel charge at 19 cents per KwH, but was ultimately made to pass the extra 0.2 on by URCA.

With BPL and the Government thus prohibited from directly subsidising the fuel charge for all the former’s customers, questions were raised in light of Mr Rolle’s comments as to how and why this was seemingly being done now. Besides the likely cost to the Bahamian taxpayer of subsidising BPL’s fuel purchases, several sources queried whether URCA was likely to investigate and take action given the speed with which it responded in 2018.

And they also suggested that BPL bills, and especially the fuel charge component, could see a major hike from July 1 onwards because of the recent surge in global oil prices, which last night left per barrel costs at $103.7 per barrel and $108.4 per barrel respectively. That date is when BPL’s latest hedge comes to an end, and a “reconciliation adjustment” is due to be made to the fuel charge that will be spread over the following year. 

“Are they operating consistent with the law? Do they have the finances to afford it, and what are the legal provisions that allow them to do this?” one source said of the announcement that BPL was presently absorbing increased fuel costs. “The Board has to be bound by the law as well as the Government? What is the legal mechanism allowing them to do this, and can the company afford this without government support?”

Neither Mr Rolle nor Alfred Sears, minister of works and utilities, who has responsibility for BPL, responded to Tribune Business calls and messages seeking comment last night. Mr Sears on Tuesday, though, reassured that BPL’s fuel hedging strategy remained in place as a mechanism to provide price stability and certainty to customers.

However, Tribune Business previously reported that rather than focus on whether the hedging initiative had been cancelled or not, the key question was whether BPL and the Government executed the necessary trades to secure the hedge in September and December 2021 as the structure had to be maintained on a quarterly basis.

Shevonn Cambridge, URCA’s head of electricity regulation, did not return Tribune Business messages seeking comment. One source told this newspaper that the regulator, which can demand to see BPL’s fuel price calculations, needed to focus on whether the utility was compliant with a mechanism called the “over and under account” that is set out in the Bahamas Electricity Corporation (Amendment) Regulations 2020.

These reforms established BPL’s fuel hedging mechanism and the way it operates. BPL’s hedging strategy sets a target price that is based on the costs and quantities of the various fuels it expects to use. If it runs its more efficient engines for longer than anticipated, and burns lower volumes of cheaper fuel, then the utility enjoys savings that “accumulated” as reserves in what was known as an “over and under account”.

The 2020 regulations stipulated that the “over and under account” be created to monitor fuel price movements over the hedge’s year-long period. The “over and under account” is allowed to fluctuate by 5 percent either side of the fixed price at which BPL purchases fuel, and if it exceeds those limits then the fuel charge - presently standing at 10.5 cents perKwH - has to be adjusted.

One source explained that if BPL’s fuel costs were more than 5 percent below the price it paid for fuel, then the excess savings had to be passed on to the customer. But if fuel costs exceeded that purchase price by more than 5 percent, then BPL has to also pass these extra costs on to consumers - something the source said it may now be in non-compliance with if it (or taxpayers via the government) are absorbing millions of dollars in increased fuel costs.

BPL’s aborted release in early March 2022 had sought to raise the fuel charge by 30 percent or 3.2 cents per kWh to 13.7 cents - an increase that would have far exceeded the 5 percent +/- threshold. It was previously suggested that BPL had sought such an increase because the failure to execute the September and December hedges had forced BPL to buy more of its fuel on the ‘spot’ market at higher prices than if it had hedged.

As a result, it had been forced to use the reserves in its “over and under account” to cover the difference, and these monies were likely depleted. One source yesterday suggested that the necessary “over and under account” adjustment, as well as the sharp increase in global oil prices since last September, means that BPL customers will see a significant increase in the fuel charge and overall bill come July 1.