The Tribune

• 30% fuel charge hike rescinded

• As Cabinet did not approve move

• But even greater rise in holding-off 

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

Bahamas Power & Light’s (BPL) plan to raise its customer fuel charge by 30 percent with effect from yesterday did not happen because it was not approved by Cabinet, it was revealed yesterday.

Alfred Sears, minister of works and public utilities, who has responsibility for BPL, told reporters ahead of the weekly Cabinet meeting that BPL’s fuel charge - which typically accounts for between 50-60 percent of customer bills - will remain at 10.5 cents per kilowatt hour (kWh) under the existing ‘hedging’ arrangement.

BPL was forced to retract a Monday release, unveiling a fuel charge increase of 3.2 cents to 13.7 cents per kWh, less than two hours after it was issued to the media on the grounds that the move had not been approved by the Government’s highest decision-making body.

Mr Sears confirmed that the Davis administration had not agreed to the fuel charge increase despite a Cabinet sub-committee having just been created to address rising oil prices, and the negative impact they will have on energy and transportation costs, plus the wider Bahamian economy, as a result of Russia’s invasion of Ukraine.

“Specific to the statement that was issued Monday by BPL with respect to the increase in the rate for electricity, the matter was raised with me by the chairman [Pedro Rolle] last week and I spoke very briefly with the Prime Minister,” Mr Sears said.

The Government, as BPL’s 100 percent shareholder, did not have an opportunity to review and give the go-ahead for an increase. Mr Sears indicated it was important that it do so given that Bahamian taxpayers are effectively “the backstop” for the existing BPL fuel hedge, which has stabilised the price of electricity for almost two years.

“So the people of The Bahamas are really funding the subsidisation of electricity in The Bahamas, and the matter has not been brought to Cabinet at this time, and therefore the release was premature,” Mr Sears added.

However, while the BPL release has been discarded, and the developments it detailed may never happen, its contents give a good insight into the thinking and decision-making of the utility’s Board and senior management as they seek to mitigate the impact of soaring oil prices on households and businesses.

Tribune Business understands that the release had been approved by BPL’s Board, which ties in with what its chairman, Mr Rolle, told this newspaper on Sunday. When Tribune Business contacted him to ask whether BPL plans to extend the existing fuel hedge that is due to expire end-June 2022, he replied that he was discussing the very subject at that moment.

Disclosing that four people, who he did not name, were meeting with him, Mr Rolle said a statement on the matter was due to be issued shortly. “We are trying to determine what our next move is at this very moment,” he added. “We are discussing the hedging, the impact of what is happening in Ukraine, discussing all those things.

“Until we have made up our minds about how we put the numbers together it would be premature for me to comment.” The promised statement duly emerged on Monday, only to be withdrawn via an e-mail sent to the media by Whitney Heastie, BPL’s chief executive, less than two hours later.

The statement, which announced a new fuel hedge that will now not happen, said the 30 percent rise to 13.7 cents per kWh would “remain well below market prices”.

Without the protection afforded by the hedge, BPL said its customers would be at the mercy of soaring global oil prices that have been exacerbated by the Ukraine conflict, and the fuel charge would jump by 80.9 percent to 19 cents per kWh.

With the proposed hedge containing the jump to 3.2 cents, as opposed to 8.5 cents, the state-owned energy monopoly said the 13.7 cents per kWh rate would still be 39 percent lower than if market prices were allowed to prevail, thus producing significant savings for households and businesses.

BPL said the now-shelved fuel hedge would have resulted in just an $8 monthly increase in electricity bills for low-usage consumers, using 250 kWh per month, while those using 600 kWh would suffer a $19 rise.

And BPL’s now-discarded release warned that the longer the Government delays in implementing a new fuel hedging mechanism, the more costly it will be for consumers and businesses, as well as the economic recovery.

Mr Heastie was quoted as saying the rise in global oil prices, which yesterday hit $105 per barrel as measured by the US benchmark, West Texas Intermediate crude futures, meant an increase in fuel costs on BPL’s next hedge was “inevitable”.

“We could wait until July 1, 2022, to adjust the fuel cost,” he was quoted as saying, “but doing so would mean a higher per kilowatt hour increase - 15 cents per kWh instead of 13.7 cents per kWh - and it would come in the summer time when consumption is highest, which would be more challenging for many customers.

“We know no one wants to see a rise in costs, but putting the increase in place now, when energy use is significantly less than during peak season, enables a lower increase to be spread over a longer period of time and eases the impact to customers’ monthly energy costs.”

Cabinet’s decision to hold-off on such a move thus threatens to saddle Bahamians with higher energy costs, but Mr Sears hinted that a new hedge had to be balanced with the interests of taxpayers who are financing this mechanism at a time when the Public Treasury is under great strain.

Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, speaking before BPL withdrew its release, said “any additional cost hit is going to be an impact on our economic recovery”. However, he added that the statement’s contents showed fuel hedging had been beneficial, which was “key” given the “pressing issue” of oil price rises.

Arguing that fuel hedging was only a short-term solution, Mr Aubry said The Bahamas needs to focus on economic diversification and renewable energy to mitigate energy price hikes and volatility.

“Containing costs through a hedging strategy is a short-term solution,” he argued, “but not a long-term solution because eventually the market catches up to you. There’s not much that can be done to manage this situation, but it reminds us that better fiscal management nationally and as entities is key.”

Calling for The Bahamas to find new industries that are less reliant on fossil fuels, the ORG chief said: “Hopefully this [Ukraine] crisis is resolved quickly, but let’s keep the focus on reform for the long-term. The more we prepare ourselves, manage our debt and focus on natural and alternative resources........”

The Prime Minister, in a recorded message from Belize, where he is attending a CARICOM meeting, pledged that upon his return the Government will “brainstorm” on how it can avoid raising electricity costs on Bahamians.

“My government will do its endeavour best to ensure that the rise in gas prices around the world will not have a deleterious effect on our people,” Philip Davis QC said. “God knows that our people could least afford to have more taxes or costs visited on their backs, and my government will do all in its power to see how we can avert raising the cost of electricity on our people. As soon as I’m back to The Bahamas, we will be sitting down to brainstorm this to see how we can best do that.”

It is difficult to see how, in the short-term, this can be achieved. The Bahamas, which relies almost 100 percent on fossil fuels to meet its energy needs, is a price taker and thus at the mercy of global markets that have been rocked by Russia’s invasion of Ukraine.

The best defence mechanism thus far has been BPL’s fuel hedging, which comes at a cost to the taxpayers who are also the utility’s customers. The Government also earns significant revenues from taxing vehicle gasoline and diesel, but given its fiscal crisis it will be reluctant to cut taxes.

Mr Sears said the Cabinet sub-committee, which was formed over a month ago, has been given “strict marching orders”. He added: “Since our existence, we have met with a number of global suppliers of LNG (liquefied natural gas), and also energy companies, both local as well as foreign, and we are working very aggressively to go back to the Cabinet with a number of proposals.”

The minister said the Government was “not proceeding” with BPL’s $535m rate reduction bond (RRB) refinancing “as framed” under the former Minnis administration. This was designed to free BPL’s balance sheet from some $321m in debt, and provide the funds needed to address transmission and distribution (T&D) upgrades that would have made the utility more efficient.

Mr Sears continued, “Therefore the purpose of this Cabinet sub-committee is to look at all of the available options, to consult with our domestic stakeholders and to take proposals back to the Cabinet and have the Cabinet make a determination.”

The Davis administration has been eager to avoid increasing electricity costs. Upon taking office, the Prime Minister said the Government could not proceed with the RRB because the debt servicing costs would impose too great a burden upon consumers via increased light bills.