The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company's top executive yesterday admitted it is "not an easy sell" to add an extra charge to all customer bills to pay for $15m in Hurricane Dorian restoration costs.

Dave McGregor, the utility's chief executive, defended the Storm Recovery and Stabilisation Charge that will be added to all its light bills from April 1, 2020, as "the fairest way for customers to pay" for the damage inflicted on its transmission and distribution network by the category five storm.

Acknowledging that many GB Power customers were still facing "tough times" rebuilding businesses and lives shattered by Dorian, and that an increase in electricity costs will be the last thing they want, Mr McGregor said the extra charge was "unfortunate" but necessary to rebuild essential energy infrastructure.

Pointing out that GB Power had delivered predictable energy costs through its fuel hedging initiative, and that tariffs had not increased for eight years, he added that such reliability "needs to be paid for" after the utility incurred almost $45m worth of uninsured restoration costs in four years when Hurricane Matthew's 2016 damage is factored in.

Mr McGregor spoke out after the Grand Bahama Port Authority (GBPA), the utility's regulator and Freeport's quasi-governmental authority, revealed the imminent addition of the extra charge to all GB Power bills with effect from April 1, 2020.

The charge for its three customer categories will be:

• Residential - $0.013 cents per kilowatt hour (kWh) or 1.3 cents

• Commercial - $0.008 per kWh or 0.8 cents

• GSL (industrials) - $0.010 per kWh or one cent

The GBPA added that the Storm Recovery and Stabilisation Charge will represent an increase of less than $7 per month for the "average" residential customer, and $24 for the "average" business customer, in a bid to soften the upcoming blow and any consumer push back/fall-out.

However, the new fee's implementation means that Grand Bahama energy consumers will feel a little of the pain their New Providence counterparts are set to receive when Bahamas Power & Light (BPL) shortly adds its own additional levy to pay for its $580m refinancing. That will presently be based on 15 percent of a customer's consumption.

Mr McGregor yesterday told Tribune Business that the extra charge is a "pass through" fee that GB Power will not make money from, much like the fuel charge. He added that the utility had also sought to minimise the impact on the commercial sector, and encourage the private sector's post-Dorian revival, with lower rates for such customers while also recognising their higher consumption volumes.

The GB Power chief also reiterated that the electricity supplier, and its GBPA regulator, had initially sought to address storm restoration costs through the creation of a self-insurance fund. However, Hurricane Matthew arrived before it could be created, and Dorian has further forced that strategy on to the back burner.

"It's going to be tough," Mr McGregor admitted of the impact on consumers. "You never wish to come back with any price increase. The Port Authority in its announcement did note that we've been talking for a while about implementing a self-insurance fund or storm insurance fund, where we would collect and pool funds collected from customers and put them into a bank account."

However, the $27.5m worth of damages inflicted by Hurricane Matthew instead forced the GBPA to approve a "five-year rate stabilisation plan" where the utility recovered its restoration costs via savings from its fuel hedging programme.

This was to delay implementation of the self-insurance fund until 2022 when GB Power would have recovered its Matthew costs. It was also contingent on there being no other major hurricane striking Grand Bahama before then. Enter Dorian.

Karla McIntosh, the GBPA's in-house attorney, said in a statement: "The regulatory framework agreement governs the rate setting protocols and reporting requirements for GB Power, including a mechanism to recover costs associated with natural disasters.

"We have worked with the utility to ensure efficiency of operation, necessary capital investments and quality of service. With regulatory oversight, this was achieved with no increase to rates since the establishment of the framework agreement in 2013.

"Unfortunately, Hurricane Dorian had a disastrous impact not only to life and property, but also substantially impacted Grand Bahama Power Company's generating, transmission and distribution assets. The full cost of restoration associated with Hurricane Dorian is approximately $15m."

That sum applies only to GB Power's transmission and distribution network. While its flood-damaged Peel Street plant and other generation assets were covered by insurance, utilities are unable to obtain such coverage for all their transmission networks as carriers typically shy away from the risks presented by hundreds of miles of exposed electrical lines and poles.

"We don't profit from this," Mr McGregor told Tribune Business of the new charge. "This will be a direct pass through like the fuel charge is. The only alternative is to build this into the rates, but when there is no hurricane we end up making money.

"We feel this is by far the fairest way for customers to pay for the hurricane. The hurricane needs to be paid for, and the best way is to pay through the customer. It will be a separate line on the bill, a separate charge. It will pay off Dorian's $15.6m, and this will be paid off in five years assuming the load comes back the way we hope.

"After that, subject to the approval of the Port Authority, we will continue with the charge at a slightly lesser rate so that we save for future storms. That's the philosophy. It's not an easy sell. It's tough times for all of us. But we spent the money and need to get it back."

Acknowledging the likely complaints that will follow, Mr McGregor said GB Power had concluded that it was better to add an additional charge to customer bills now rather "than incur borrowing costs" that will raise tariffs even higher in future.

"It's like a credit card bill that just gets higher and never goes away," he added. "We've already outlaid. We always try to minimise these costs as best we can. It's just unfortunate. But we've not had a rate increase since 2012.

"We've managed two issues - cost control measures and fuel hedging - to keep the lid on rates despite inflationary pressures. The fuel rate is locked in until 2022, and we have a very reliable system here in Grand Bahama. Customers do appreciate that, but that needs to be paid for.

"We have succumbed to two storms in four years. Dorian was $15-$16m, and Matthew $27.5m. No business can absorb almost $45m in extra costs. Asking customers for another cent per KWh is unfortunately what we have to do, and it is part of the regulatory framework worked out with the Port Authority in 2013.

Still, Mr McGregor said GB Power had been able to give its commercial and industrial customers some relief with the lower rate. "It's important the commercial sector returns," he added, "so we're trying to give them a little bit of help.

"This is all about making sure we're in the position to deal with the next storm as well as we did with this. No one can argue that the teams at GB Power did a good job in restoring power in short order, and it's important we're in position to do that as there will be other storms. It's inevitable, and we need to be in a position to manage that."