The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Grand Bahama resort operator yesterday said its owners will have to “pay more for the privilege of running a hotel” on the island if proposed water rate increases are ultimately approved.

Magnus Alnebeck, the Pelican Bay Resort’s general manager, told Tribune Business it is “the most fantastic thing” that the island’s water “monopoly” is owned by the same people responsible for regulating it and approving the proposed rate increases.

Pointing out that approval of Grand Bahama Utility Company’s proposal will merely increase his resort’s losses, he added that he opposes the rate increase while “absolutely” agreeing that the Utilities Regulation and Competition Authority (URCA) should take over regulation of all utilities within the Port area.

The Grand Bahama Port Authority (GBPA), which is responsible for regulating GB Utility and approving a rate increase proposal that could take effect as early as May 1, has already pledged that it will undertake “a fair and transparent review process” that will balance the water provider’s interests with that of consumers.

However, many like Mr Alnebeck are sceptical given the obvious conflict that arises between the GBPA’s regulatory responsibilities and the private, for-profit interests of its shareholders, the Hayward and St George families, who also own and control GB Utility through their Port Group Ltd vehicle. Kwasi Thompson, the Opposition finance spokesman and east Grand Bahama MP, has already argued that in this case the GBPA is effectively regulating itself.

“Of course they want a rate increase,” Mr Alnebeck said of GB Utility. “I think it’s the most fantastic thing. The most fantastic thing is, of course, the ownership of the Port Authority is the same as GB Utility Company, so it’s a self-regulating thing. I think both you and I would love to negotiate our salaries with ourselves, them we will get a decent increase.

“The way their press release was written, people forget that it’s the same ownership.....” Asked whether URCA should take over utilities regulation in Freeport to eliminate such conflicts, either perceived or real, Mr Alnebeck replied: “Absolutely. I can’t see how a utility company that has a monopoly can be owned by the same people that have the regulatory power. It doesn’t make sense to most people anywhere in the world.”

URCA, though, does not yet have national regulatory authority for water. And the GBPA has the statutory responsibility for regulating utilities in the Port area by virtue of Freeport’s founding treaty, the Hawksbill Creek Agreement, while both Grand Bahama Power Company and Cable Bahamas are still challenging URCA’s bid to regulate their operations in the Freeport area via the Supreme Court.

The fear has been that, if the GBPA relinquishes regulatory authority for utilities in the Port area, it could be seen and interpreted as consent to abrogate the entire Hawksbill Creek Agreement treaty and thus undermine it. For that very reason, Pastor Eddie Victor, head of the Coalition of Concerned Citizens, in the wake of GB Utility’s rate increase proposal has called for an “URCA-type” committee - rather than URCA itself - to scrutinise the application.

Mr Alnebeck, meanwhile, said the GB Utility proposal threatened to further increase Pelican Bay’s existing losses. Unlike companies and hotels elsewhere in The Bahamas, which would merely see their profits partially eroded, he explained that the application - if approved - will only add to the ‘red ink’ and financial support required from owners and shareholders alike.

“It’s going to increase our losses, and owners are going to have to put more aside for the privilege of running a hotel in Grand Bahama. It’s as simple as that,” Mr Alnebeck told Tribune Business. “I don’t know who can pass this on to their customers without reflecting on their cash flow which, in our case, is a negative cash flow. We’re not in a position to pass that on. It doesn’t work like that. The only thing we can do is stop watering the grass and plants and cut back.”

GB Utility is clearly expecting large volume users, namely higher income residents and the business community, to bear the brunt of the increases. Those consuming between 10,001 and 20,000 gallons per month, and representing 8 percent of the customer base, will see their bills rise by around $20.73 per month - representing a jump from an average $71.42 to $92.14. This is equivalent to a $248.76 annual increase in water costs.

Users of more than 20,000 gallons per month, chiefly hotels such as Mr Alnebeck’s Pelican Bay and Freeport’s large industrial companies, who comprise 5 percent of customers, will see their tariffs jump by $125.74 per month to an average $558.67 compared to the present $432.93. This is equivalent to a $1,508.88 annual increase.

However, the GB Utility rate application refers to “averages” for each category of customer, so it is clear there are individuals and businesses in each who will pay more than the figures given. GB Utility, in its rate increase application, pledged that 40 percent of its customer base - those who use 2,000 gallons or less per month, and are likely to be lower income residential users - will not see any price hikes from the adjusted tariff structure that is due to take effect on May 1. Average consumption among this group is 600 gallons per month, and the average bill is forecast to remain at $12.83.

The water provider, in a statement, said a further 47 percent of clients - who consume between 2,001 and 10,000 gallons monthly - will only see an $8.16 per month tariff increase that will take their average bill from $28.13 to $36.29. This equates to an annual water cost increase of $97.72 - less than $100.

Pastor Victor, though, is arguing that GB Utility’s shareholders and owners should pay for the costs incurred in financing the company’s new reverse osmosis system rather than passing this burden on to the consumer. Suggesting that Grand Bahama residents should, if they can afford to, seek to access their own well water, he also questioned how consumers outside the Port area could be hit with a rate increase without the Government’s involvement or approval.

GB Utility, seeking to justify the recovery of at least some of its $15m Hurricane Dorian restoration costs from its customers, said that while the $5m investment in a reverse osmosis system will provide extra supply resilience and sustainability in the future this has come at a significant increase in operating costs and “a financial loss”.

“Reverse osmosis systems are extremely expensive to operate in comparison to well water plants, adding an additional $2.5m to the utility’s annual operating costs from 2021 at a financial loss to the utility. This additional operating cost, to date, will not be recouped in rates retroactively,” GB Utility said in a presentation.

“GB Utility also experienced $3m in Hurricane Dorian-related infrastructure storm damage. In addition, there was approximately $2m in uninsurable losses associated with Hurricane Dorian including over $500,000 in costs to operate the free water depots for residents and 25 percent discounts given to residents for water usage.

“These costs were at a financial loss to the utility and will not be recouped in rates..... GB Utility deferred the rate case for two years, at a significant financial burden and cost to the utility. To defer any longer will result in higher cost accumulation and consequently rates, and jeopardises the utility’s ability to maintain and produce potable water and remain functional.”