The Tribune

• Food stores ‘don’t know how long’ they can survive

• Coca-Cola supplier confirms energy cost doubling

• Resort chief: ‘I’ll go somewhere else’ if $1,295 again

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Soaring Bahamas Power & Light (BPL) bills were yesterday said to be imposing “a stranglehold” on commerce with multiple businesses struggling to survive up to 100 percent year-over-year increases in their energy costs.

Resorts, food stores and manufacturers, which are among The Bahamas’ major employers as well as BPL’s largest customers, all told Tribune Business they have no choice but to pass at least some of the hikes on to consumers via higher prices and thus further sustain the post-COVID cost of living crisis.

Walter Wells, president and chief executive of Caribbean Bottling Company (Bahamas), the local Coca-Cola producer, disclosed that his firm’s electricity costs have more than doubled year-over-year to squeeze profits and cash flow. Acknowledging that the impact is “right across the board” for all businesses and residents, he added: “I don’t know how people are coping.”

And Molly McIntosh, general manager of Green Turtle Cay’s Bluff House Beach Resort, told this newspaper that she will be seeking “somewhere else” to live if her electricity bill remains as high as the peak summer billing she just received. While the Government and BPL have both sought to reassure households and businesses that energy costs have peaked, she revealed her July-August home bill was a 123 percent increase on her previous $581 high at $1,295.

Meanwhile, Philip Beneby, the Retail Grocers Association’s president, said both food store chains and individual locations were complaining about increased energy costs that range from what he described as a “low of about a 50 percent” rise to surges as great as 85 percent or even 100 percent year-over-year.

“Just about as many of the retail operators I’ve spoken to, they are all complaining about BPL bills - how they have spiked, and putting a lot of them in a serious position,” he told Tribune Business. “It’s eating away at the little profitability of the business and, I mean, I don’t know how most of them are really making it.

“But they are complaining. They don’t know how long they’re going to be able to continue with it. That’s across the board; from the chains to the individual ones. For some of them, the increases are as low as about 50 percent, and as high as about 80 percent to 85 percent compared to where it was.

“In some cases, the operators who were paying $5,000-plus per month, the bills they are receiving now are as much as $9,000-plus. Some of them that were $20,000-plus, their bills are now about $50,000. In some cases, it’s just doubled. That’s what we’re faced with. It’s like a stranglehold on you. They’re all complaining about it.”

Given BPL’s status as a monopoly supplier, Mr Beneby said there was little the food distribution and retail industry can do but “hope for the best” and that the fuel charge portion of bills will soon reduce to market rates as promised by the Davis administration. In the meantime, to maintain their commercial viability and survive this period, he explained that many operators will have no choice but to pass a portion of the increased energy costs on to consumers via higher food prices.

“This is about as high as we’ve seen it for as long as I can remember,” he added. “They [the operators] cannot absorb it themselves for any length of time. The only thing they can do is try and pass it on as slow as they can.” However, to do this, Bahamian food stores and wholesalers must first overcome the bureaucracy and delays associated with price controls, as a significant portion of their inventories are subject to such restrictions.

Asked how difficult the industry’s trading environment is at present, Mr Beneby replied: “It’s not easy, Neil. I can tell you that much. It’s a difficult field to be in at this time. It’s not easy for sure. That’s all we can do; hang in there, hang in there. That’s all we can do for as long as we can.”

The Association’s president was backed by two of his largest members. Rupert Roberts, Super Value’s principal, told this newspaper in a recent interview that higher gas prices (transportation costs) and BPL were increasingly eating into the 13-store chain’s profit margins, although its ongoing company-wide solar roll-out will eventually mitigate this and reduce energy costs.

“The gas stations and BPL are taking our sales. It’s cutting into the grocery budget [of consumers],” Mr Roberts said. His comments were echoed by Gavin Watchorn, president and chief executive of BISX-listed AML Foods, who told shareholders in the Solomon’s and Cost Right operator’s 2024 first quarter report that higher BPL costs were shrinking profit margins.

“Although sales for the quarter improved over the previous year, inflation pressures continue to impact our business. Expense increases, such as utilities and wages, as well as shrink have had a negative impact on our margins, and customers’ shopping behaviours demonstrate that their spending capacity remains limited,” Mr Watchorn wrote.

While sales for the three months to end-July 2023 rose by $3.2m, or 7.2m, to $47m year-over-year, AML Foods saw its profits decline 46.3 percent against 2022 comparatives. They dropped to $690,000 as opposed to $1.284m for the prior year, with the group’s cost of sales rising by $2.62m to $32.63m. In addition, sales and administrative expenses jumped by nearly $1m, matching the sales rise with a 7.2 percent increase to $13.377m from $12.476m.

Food retailers are among BPL’s largest customers because they consume large quantities of energy to run their refrigeration and other systems on a 24-hour seven days per week basis to prevent perishables and other stock from spoiling, Manufacturers, too, have comparable energy demands for similar reasons.

Caribbean Bottling’s Mr Wells told Tribune Business: “Our electricity bill today is more than 100 percent higher than what it was a year ago. It has more than doubled without reservation. Obviously, it’s significant from a profit and cash flow perspective. It’s right across the board. From a residential standpoint, I don’t know how people are coping with it. It’s really significant.”

He voiced scepticism as to how much BPL’s fuel charge will reduce given expectations that global oil prices will soon hit $100 per barrel again, although for the minute they appear to have stabilised at $91.02 per barrel on the West Texas Intermediate index, and $94.58 for Brent Crude, as this newspaper went to press last night.

“It’s really a challenge for ourselves and, I have to say it’s pretty much the same for every other business in town at the moment,” Mr Wells added. “I keep reading these messages that it [BPL’s fuel charge] should start coming down soon. I hope that is the case, but time will tell. I suspect it’s going to be a challenge in seeing it drop down from the standpoint that a barrel of oil keeps increasing. It’s a challenge to say the fuel charge is going down when fuel costs are going up.

“The flip side of that is it’s also pushing companies to increase prices to try and recoup the loss. It has a negative impact all-around. The cost of electricity is ultimately higher than I have ever seen it before.”

Ms McIntosh, though, voiced fears that increasing hotel rates to counter BPL’s escalating costs will at some point make Abaco and other destinations too expensive and cost them their repeat visitor customer base. While the Bluff House has enjoyed a 15 percent increase in business for 2023 to-date compared to 2019, even without the marina fuel business that existed pre-Dorian, she added that surging energy costs threaten to put a damper on this.

While the Bluff House is presently closed to resort guests until October for refurbishment and cleaning, Ms McIntosh said she had felt the impact in her own bill. “Personally, my biggest bill up to now has been $581, but then it went to $1,295,” she disclosed. “You can imagine that got me looking at other places to live.

“It really, really had an impact on me personally and, business wise, we’re losing money because the electricity rates have gone up and we haven’t raised our rates. It’s not just the Bluff House, but Green Turtle Cay and the whole of Abaco. We’ve really been hit hard.

“If my electricity bill is like that again I’m definitely going to have to look at somewhere else to live. If you’re spending more money than you’re making, there’s only so much that you can do. I love it here. I’ve been through the mill. I stayed through the hurricane, after the hurricane, saw such progress and people coming together. You get hit with things like this, and it’s a little dismaying,” the Bluff House chief added.

“They say it’s going to go down. We will see very soon whether I get another bill for $1,295. I’ll have to do something. That’s not sustainable on my salary. It’s very likely you will see people leave because they cannot pay the bill. Solar would be great, but the initial investment to buy it and have to put it in is beyond a lot of people’s reality.” The $1,295 bill was issued for the period July 20 to August 18.

Ms McIntosh said she and others “wouldn’t mind paying a bit more money” to BPL if it resulted in better service and more reliable, consistent power supply as opposed to frequent outages “half the time” and appliances being fried. She added that Abaco’s post-Dorian rebound, and projected future economic growth, meant more investment in the island’s energy infrastructure is required.

The Bluff House will likely have to consider raising its rates to visiting boaters for using the marina’s electricity by between five-ten cents per kilowatt hour as the property has to cover its costs. Summer room rates may also have to be adjusted. “I hope we don’t lose business,” Ms McIntosh said. “In Abaco we have a lot of repeat business. People have a loyal following and they keep coming back, but how long will that continue before price increases send them somewhere else?

“Our business so far this year is 15 percent over what we made for 2019 [pre-Dorian]. Every day brings out reservations for November, January, March and some periods are already sold out - June and July. We’re booking reservations for both the marina and the restaurant. Normally this time of year things slow down a bit in terms of reservations, but they are piling in. It is really busy.”

BPL’s all-in electricity rates increased by 70 percent for the period June-August 2023, compared to October 2022, due to the imposition of a so-called ‘glide path’ strategy to recover fuel costs that the utility had failed to recoup from passing them on to customers. This resulted in the utility’s fuel charge increasing by some 163 percent from 10.5 cents per kilowatt hour (KWh) in October 2022 to 27.6 cents for that three-month summer period.

Both the Government and BPL will be hoping that the fuel charge “glide path’s” impact will be relatively short-lived, and businesses will be able to survive soaring energy costs over the remaining months of 2023 prior to the ‘glide path’s end at the close of the 2024 first quarter. The fuel charge shown in customer bills will then return to reflecting the market rates at which BPL buys its fuel.

BPL last week told this newspaper that some 44 percent of its “under-recovered” fuel costs remain to be recouped over the ‘glide path’s’ final seven months. The glide path rates, which peaked alongside summer consumption, indicate BPL back-loaded its reclamation to coincide with when businesses and households using more than 800 kilowatt hours (KWh) per billing period were at maximum electricity usage.

The Government has never precisely stated how much this fuel “under-recovery” is costing the Bahamian people and businesses. However, Alfred Sears, ex-minister for public works and utilities, who then had responsibility for BPL, last October informed the House of Assembly that the utility’s debt to Shell was around $90m.

The $90m debt to Shell was accrued because BPL held its fuel charge at the hedged 10.5 cents per KWh price even after the trades to secure extra cut-price volumes were not executed by the Davis administration. This resulted in BPL having to buy increasing fuel volumes at higher global market spot prices, but the full cost was not passed on to consumers as the 10.5 cents rate insufficient to cover this

BPL’s fuel costs are supposed to be passed on 100 percent to consumers by law, and government officials last October conceded that it had cost taxpayers “tens of millions of dollars” to hold the utility’s fuel charge at 10.5 cents. With the Government prevented from providing direct subsidies, the higher BPL fuel charges are required to reimburse the Government for paying-off Shell’s debts and effectively keeping the lights on.