The Tribune

• CEO says nothing imminent or decided

• ‘Necessary’ to offset ‘diminished returns’

• ‘Not much room for change’ on fuel hikes

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light’s (BPL) chief executive yesterday warned the utility’s base tariff rate must ultimately increase to offset “diminished returns”, adding: “The sooner, the better.”

Shevonn Cambridge, reassuring that no such hike is imminent, nevertheless told Tribune Business it is “a necessary adjustment” that must be implemented for future financial stability given that BPL’s margins continue to be squeezed by rising input costs that have only worsened amid the current spike in inflation.

No timelines for such an increase have been set, and he added that significant work over a six-12 month period would be required to determine the appropriate base tariff to set. However, Bahamian businesses and households, already facing an up to 163 percent increase in the fuel charge component of their electricity bill during this summer’s peak demand, will be less than thrilled about the prospect of another rise no matter how far away it may be.

“The bottom line is that we’re going to have to look at our rates and make the necessary adjustment,” Mr Cambridge told this newspaper, confirming he was referring to BPL’s base tariff. “If you look at what’s going on around the world with other utilities that would seem to be the course to take.”

Asked about the timing of any base tariff increase, he replied: “Obviously the sooner the better, but even the work to get that done requires some time. You’re looking at six to 12 months easily. I’m not saying, though, that it will happen in six to 12 months. I don’t want to see that in a headline.”

BPL’s bill is split into two components, each accounting for around 50 percent of the bill. While the fuel charge is supposed to be a 100 percent pass through of such costs to the utility’s end-consumer, the base rate tariff is intended to cover all other expenses such as labour/payroll; parts and maintenance; and capital expenditure.

The latter is also intended to generate BPL’s profits. However, many observers have argued that the cause of the utility’s financial strife can be traced back almost two decades to the first Christie administration, when the late Bradley Roberts and Al Jarrett, in their capacities as then-minister and chairman respectively, cut BPL’s base tariff rate to a level where it was selling electricity below the cost it took to produce it.

The then-Bahamas Electricity Corporation (BEC) was able to claw back some of the base rut cut under the subsequent Ingraham administration when it was headed by executive chairman, Michael Moss, but it was unable to recover all the lost ground due to concerns about the impact on companies and households struggling with reduced employment and income following the 2008-2009 financial crisis and recession.

Asked yesterday whether BPL was still producing electricity below cost, Mr Cambridge replied: “I don’t think they started off selling below the cost of production, but there’s been increases in all the inputs and the necessary adjustment on the back end has not been made. Over time the returns have diminished to the point where we have to address it.” Any base rate increase, though, would have to be approved by both BPL Board and the Cabinet.

The BPL chief, meanwhile, said “there isn’t much room for change” to 2023’s rolling quarterly increases in the utility’s fuel charge. His comments came after Robert Sands, the Bahamas Hotel and Tourism Association’s (BHTA) president, revealed that the industry had advocated that the utility extend this initiative over a longer period to allow for lower hikes and thus minimise the impact.

While Bahamian resorts have factored BPL’s fuel charge increases into their budgets for 2023, Mr Sands told Tribune Business: “We’re working with BPL to increase the period at a lower rate so the end result will be the same but there will be less impact.”

Mr Cambridge, while confirming such a request was made, said BPL had rejected it as it had limited room for manoeuvre in raising sufficient financing to repay $90m owed to its fuel supplier, Shell, and the Government. “They mentioned it, but we pretty much came to an understanding on that. I think they understood our position,” he added of the hotel industry.

“All that was taken into consideration when we came up with the glide path strategy. There’s not much room for changing. At present we’re right on track with our projections and forecasts. The good news is we’re not changing up, but we’re not changing down as well. Everything is moving just as the forecast indicated. We have bills to pay and it’s a pass through.”

Mr Cambridge reiterated that BPL and the Government were hopeful that early warning of the rolling fuel charge increases, which were unveiled on October 4 last year, would give companies and households sufficient time to take action that mitigates the impact. They are also hoping that the hikes will be sufficiently short-term enough to enable customers to withstand the impact to their finances.

Consumers who use less than 800 kilowatt hours (kWh) per month are presently paying a 14.5 cents per kWh fuel surcharge, while those consuming higher than this threshold are paying 19.1 cents. The former category will see that figure increase by two cents per kWh to 16.5 cents for the three months between March and May 2023, with a further jump by the same magnitude to 18.5 cents for the six months from June 1 to end-November 2023.

As for businesses and high energy user, who the Government is hoping will bear the greatest burden, their fuel charges are set to increase by 4.3 cents per quarter. It will leap to 23.3 cents per kWh for the March to May period, and then to 27.6 cents between June and August, before declining slightly to 25 cents during September to November.

The sharp fuel charge increases, which some have estimated will see overall customer bills rise by up to 80-90 percent during summer’s June to August peak consumption, are necessary to pay outstanding debts owed to both Shell and the Government.

This resulted from BPL holding the fuel charge at 10.5 cents per kWh for an extended period of time even though its fuel costs had significantly increased because the Government elected not to execute the trades (purchases) to acquire low-cost volumes that would gave further supported BPL’s existing fuel hedge.

Mr Cambridge, meanwhile, said “nothing has changed” with regard to BPL’s proposed $535m rate reduction bond (RRB) refinancing and the potential deal with Shell North America for New Providence’s baseload generation. Both transactions thus remain on hold, or in abeyance, with the former unable to proceed due to unfavourable global interest rates as a result of recent hikes.

The BPL chief, though, conceded that “the time has passed” for when the utility’s legacy debt needed to be refinanced. With this as pressing and urgent as ever, he said: “We’re looking at a number of options. Nothing is off the table. That’s as much as I can say on that at the moment. As soon as we can get it done, we will. It’s something that is being actively worked on. Management and the Board are exploring a number of options and I wouldn’t want to pre-empt that.”