The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

BAHAMAS Power & Light (BPL) is hiking its fuel charge to recover $76m in costs that it failed to pass on to customers after the late 2021 oil purchases designed to underpin its hedging strategy were not executed.

Shevonn Cambridge, BPL’s chief executive, admitted to the Bahamas Hotel Tourism Association’s (BHTA) annual general meeting (AGM) that major electricity consumers - including resorts - will see the fuel charge component of their electricity bills increase by up to 163 percent during summer 2023 as the state-owned utility seeks to recoup “under-recovered” fuel costs related to its hedging strategy over an 18-month period.

This was explained to BHTA members in highly-guarded, technical language, with Mr Cambridge referring to the situation as “a perfect storm”. However, his comments confirm the only way BPL was able to maintain the 10.5 cents per kilowatt hour (kWH) fuel charge for as long as it did - until October 2022 - was through not passing the full fuel cost on to households and businesses after it failed to execute the trades that would have supported this price.

BPL’s fuel costs are supposed to be totally passed on 100 percent to consumers. By electing not to do so, BPL breached the Electricity Act regulations implemented in 2020 to facilitate its fuel hedging strategy. Mr Cambridge at the time was chief of electricity regulation at the Utilities Regulation and Competition Authority (URCA) before being appointed to head BPL earlier this year.

“As the world opened up and the market opened up, the price of fuel went up, consumption went up and, as hedging goes, one hedges as you go out into the future,” Mr Cambridge explained. “One tends to do a declining volume hedge, and our volumes were going down. That created kind of a perfect storm… with the right-sizing effect resulting in the glide path strategy that we’re now in.”

The “glide path strategy” is the rolling, phased-in increases to BPL’s fuel charge that Bahamian households and businesses will have to endure throughout 2023. While BPL’s initial hedging structure, implemented in summer and December 2020, remains in place, the Davis administration elected not to execute oil purchases in September and December 2021 - known as ‘call options’ - that would have secured more cut-price fuel and sustained the charge at 10.5 cent per kWh.

Mr Cambridge, meanwhile, added: “So the extreme increases in fuel costs on the market, and increasing fuel volumes, have resulted in fuel costs exceeding the amount being charged… and as a result of that difference, we wound up with some under recovered amount.

“As we said, it was a direct pass through as we seek to recover that amount since the glide path has been place. So the fuel charge, after holding the fuel charge constant for that period of time, at the end of August, we had some $76m in under recovered fuel. The glide path is going to allow us to try and zero that out in the next 18 months.”

The Government’s political opponents have accused the Davis administration of making a serious blunder by deciding not to execute the fuel hedge-supporting oil purchases shortly after it was elected to office in September 2021. They claim this will cost Bahamian businesses and households a combined $100m over the course of 2023 via soaring electricity bills that need not have been incurred if these trades were executed.

Whitney Heastie, BPL’s ex-chief executive, told the former Board that the fuel charge component of customer bills had been stabilised at no more than 11.5 cents per kWH through to 2024 if those trades were continued. But without them, BPL had increasingly been purchasing its oil at spot market prices from late 2021 onwards, yet not passing the full cost on to customers for some months, as now admitted by Mr Cambridge

With BPL’s mounting debts to Shell, its fuel supplier, increasingly unsustainable, the Government has reached an agreement to pay the global oil giant $90m over a nine-month period at $10m per month. It is this payment, and BPL’s huge hiking of the fuel charge to recover this debt and government loans previously made to support the 10.5 KwH price, that has prompted Opposition charges that the Davis administration has cost the Bahamian people over $100m.

However, the Government and BPL were last year said to lack the $40m in free cash needed to finance cut-price oil purchases that would have saved electricity consumers millions.

Government officials, speaking on condition of anonymity because they were not authorised to talk publicly, told Tribune Business the cash-strapped position at both the Public Treasury and BPL when the Davis administration took office in September 2021 meant there was simply no liquidity available to finance the acquisition of more below-market oil to further underpin BPL’s fuel hedge.

While the Opposition has attacked the Government failure to execute the trades, this newspaper was told that this does not account for the bigger picture BPL faced at that time with a $246m loan due to mature in February 2022 and no funds to repay it. Any failure to meet this obligation, and even default, would have caused serious repercussions for both the country’s and BPL’s creditworthiness.

Mr Cambridge also told the BHTA: “As we go on long-term, we’re looking to improve on our energy mix. So we have plans to put in place a utility-scale solar plant for New Providence… about a 60 Mega Watt (MW) station. We’re looking at putting that in the vicinity of Blue Hills power station as well.

“What that will do is provide us with 60 MW of power during the daylight hours, which is projected to have some $25m to $30m fuel cost savings for us. And, if all goes well, that’s about a 24-month to commercial power type operation.”