The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The energy regulator’s pledge that it has begun “an active review” of the up to 163 percent hike in Bahamas Power & Light’s (BPL) fuel charge was yesterday branded “critical” to its continued credibility.

Michael Pintard, the Opposition’s leader, who has attacked the Utilities Competition and Regulation Authority’s (URCA) silence on the issue since BPL’s fuel charge controversy first erupted eight months ago, told Tribune Business it was vital that the review’s findings be disclosed prior to the first increases being felt in consumer bills from early November. 

He spoke out after URCA, in a short two-paragraph statement, confirmed that its assessment has begun and that the results will be made public. “As the electricity sector’s regulator, the Utilities Regulation and Competition Authority (URCA) has commenced an active review of Bahamas Power and Light’s (BPL) proposed fuel charge increase to be reflected on customers’ November 2022 electricity bills.

“URCA advises the public that, in accordance with is regulatory mandate, it will present its findings to the public at the conclusion of this review.” No timeline for the review, or publication of the findings, was provided and URCA now has less than three weeks in which to complete its work before the BPL increases are set to start kicking-in. 

The two-paragraph URCA statement was released one day after Tribune Business started making inquiries about the regulator’s position on the series of BPL fuel charge increases that are set to send electricity bills for both businesses and households soaring over at least the next 13 months.

Mr Pintard, who previously questioned URCA’s “objectivity” given that its head of electricity regulation when the fuel charge concerns first emerged, Shevonn Cambridge, is now BPL’s chief executive, said of yesterday’s brief announcement: “While late, we’re pleased that URCA is going to commence a review and we, like other members of the public, are looking forward to seeing the results.”

The controversy was exposed in late February 2022 when the 3.2 cents per kilowatt hour (kWh) increase recommended by BPL’s management and Board, which would have resulted in a 30.4 percent hike taking the fuel charge from 10.5 cents per kWh to 13.7 cents, was rejected by the Davis administration’s Cabinet on the basis it would be too damaging for the fragile post-COVID economy.

This sparked questions over whether the Government, and BPL, were in violation of the law - in particular the Bahamas Electricity Corporation (Amendment) Regulations 2020 - which were enacted to facilitate the state-owned energy monopoly’s fuel hedging initiative.

These required BPL to pass 100 percent of its fuel costs on to consumers, but the rate increase rejection raised the likelihood this was being breached through the Government providing taxpayer subsidies. Another issue concerned the “over and under account”, which was designed to keep BPL’s fuel hedge in balance. This account was allowed to fluctuate within a 5 percent margin either side, and the suspicion then was that these limits had been breached. 

Both issues were subject to URCA’s oversight, but no answers were provided until the Government and BPL last week confirmed the fuel charge had indeed been subsidised through a combination of taxpayer funds and non-payment of Shell’s fuel bill. The end result of delaying February’s planned increase is a series of more massive fuel charge hikes from which no household or business can escape.

“We thought it really important to raise concerns over their silence,” Mr Pintard told Tribune Business of URCA. “We are hoping they will respond and intend to weigh in. We hope this is done in a timely fashion given that the pressure on the public is going to be felt in the short-term.

“The timeline is critical, so they are clearly aware that the public is watching. URCA’s review and findings are critical because the last thing we want is for an important regulatory body that is designed to protect consumers for their credibility ti be adversely impacted by them not engaging in what is a very critical issue for the consumer.

“URCA plays a pivotal role in this society, and as policymakers we should be careful not to put them in a compromising position. URCA was quiet prior to the transition in leadership when we were asking questions about whether the Government was compliant with the regulations and the law when they proposed the increase in February. We were wondering why URCA did not weigh in,” the Free National Movement (FNM) leader continued.

“The manner of this rate increase, which is of such a huge magnitude of up to 163 percent, that screams review and explanation. Them reviewing expeditiously is critical given the sequence of events and the role of URCA in the oversight of consumer protection and energy regulation.”

One energy industry source, speaking on condition of anonymity because they were not authorised to speak publicly, said URCA has the authority to investigate just how BPL arrived at this position of needing to extract tens of millions in extra dollars from its household and business consumers that - ultimately - represents a wealth transfer to global oil giants such as Shell with its unpaid $80m-$90m fuel bill.

“Finally URCA is doing its job. It’s unfortunate it’s been quiet for such a long time,” the source said. “We’ll see what they come back with and how comprehensive their findings will be. Let’s see how thorough their investigation is going to be.”

The Government and BPL have repeatedly said the initial fuel hedging structure, put in place by the Inter-American Development Bank (IDB), remains in place. That is correct, as the December 2020 hedge executed by the IDB covered a total 3.565m barrels of oil for BPL that were priced at $40 each, and split into three tranches.

This transaction hedged 80 percent of BPL’s fuel needs for 2022, 50 percent of its requirements for 2023, and 25 percent of 2024’s needs via the IDB’s upfront hedge. These were were not hedged 100 percent because BPL needed to monitor global oil price movements so that it did not end up hedging at a price above market costs and thus end up losing money.

The Government, though, is not giving the full story. BPL was supposed to “backfill” the original IDB hedge by purchasing the extra fuel volumes to fully address its needs. This was to be done via a series of trades, known as call options, that would have enabled BPL to obtain fuel costing below then-prevailing oil market rates had they been executed.

It was these trades, scheduled to have been executed in tight windows between September and December 2021 just after the Davis administration took office, that were not carried out. As a result, BPL has increasingly been buying fuel at higher market rates with the fuel charge artificially held at 10.5 cents per kWh via the combination of government subsidies and Shell non-payment. This can no longer be sustained, and consumers must pay up as a result.

The Prime Minister, in his national address last night, admitted that “the buck stops with me” over the BPL fuel charge hike but did not give a full explanation for what had happened. Asserting that an increase was “inevitable”, Philip Davis KC said: “I wanted to delay it for as long as I could. High energy costs are already a source of pain for households and businesses.....

“I wanted to hold off and give more people time to find work in a growing economy. And, indeed, many Bahamians have found work over the last months. We also wanted to spare consumers the increase during the spring and summer months, when people consume more electricity.”

Tribune Business understands that Mr Cambridge has been replaced at URCA by Mark Hudson, another former BPL executive, as acting head of energy regulation. Meanwhile, Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, said URCA’s review and disclosure of the findings is “critical in establishing public trust” that the fuel charge increases are fair and justified.

“From a governance standpoint, that represents good practice,” he said of URCA’s pledge. “It’s important that a regulator have confidence in any rate being proposed by an energy provider. Now, given the circumstances of our economy and the jump back from where COVID has left us, it’s really critical people understand this is appropriate, justified and a fair rate increase.

“Our economy is just getting its feet underneath it, and the impact of increased energy costs goes very far. We don’t want to diminish economic activity or consumption but it may have that result. We saw the proposed increase earlier this year, which the Government chose not to do, but the long-term impact could be more severe.”

With many Bahamians believing such matters are “dictated”, and their only method of relief is social media, Mr Aubry said it was vital that regulators such as URCA show there are “checks and balances” in the system by providing “objective and critical analysis” of proposals such as BPL’s fuel charge hike.

He added that it was vital for URCA to complete its work, and disclose the results, before the increases take effect in November so that any adjustments are made as per the regulator’s decision. The ORG chief voiced particular concern for small and medium-sized enterprises (SMEs) who, he said, lack the “margins” and resources to cope with such a significant jump in their energy bill.