The Tribune

• Under 2% cut-off in May before fuel charge peak

• Above-market fuel charge won't end till 2024 Q2

• Summer energy consumption 30% up on winter

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light (BPL) yesterday said it has seen a "negligible" increase in disconnections, with fewer than 2 percent of accounts cut-off in May, as consumers brace for the 163 percent peak fuel charge increase.

The state-owned energy provider, in written responses to Tribune Business questions, said there had been a minimal rise in disconnections year-over-year with 1.65 percent of customers cut-off for non-payment in May 2023 as compared to 1.61 percent in the same month last year.

While BPL provided no raw disconnection numbers, it added that of those disconnected in May 2023 some 949 accounts had their supply restored by month's end after paying-off the arrears or committing to a payment plan. This compared to 1,090 accounts that were reconnected during the same month in 2022

Many observers have been waiting for a sharp increase in disconnection numbers, and a similar rise in BPL's accounts receivables, due to the 'glide path' strategy initiated since October 2022 to recover at least $90m in unpaid fuel costs that the Opposition argues were incurred because the Government failed to execute purchases of low-cost oil to underpin the utility's hedging strategy.

That has been denied by the Davis administration, but BPL yesterday disclosed to Tribune Business that full recovery of its unpaid fuel bills will not be completed until the start of the 2024 second quarter - April/May next year. This means Bahamian businesses and households will be paying more, via their bill's fuel charge, than it costs BPL to acquire fuel so that the payment arrears and debts incurred between late 2021 and October 2022 can be paid off.

There is also time aplenty for BPL's disconnection numbers to soar given that the fuel charge is due to peak at a 163 percent increase, compared to October 2022 levels, for businesses and households using more than 800 kilowatt hours (kWh) between June and August. This coincides with peak summer consumption, which BPL says will be 30 percent higher than winter, and the true impact will be felt in bills due for payment over the July to October 2023 period.

For now, though, BPL said consumers were coping with a fuel charge that has been steadily increasing following the Prime Minister's October 2022 warning of what was to come. "In the month of May 2023, BPL disconnected less than two per cent (1.65 percent) of accounts (business and residential). Of that number, 949 accounts were reconnected by month-end," the utility said in response to this newspaper.

"Year-over-year, the difference is negligible. For the same period, May 2022, BPL disconnected 1.61 percent of accounts with 1,090 accounts reconnected during the month." While no actual disconnection numbers were provided, given that BPL is thought to have around 110,000 total customer accounts, the percentages translate roughly to between 1,800-1,900 - close to 2,000 - accounts that have fallen victim to disconnection for non-payment.

"BPL has not seen any significant increase in disconnections associated with the introduction of the 'glide path' fuel recovery strategy," the utility added. "Not only was the programme introduced during the winter months when consumption is lower, but it coincided with an increase in the VAT threshold to $400. This means that customers [do] not pay the 10 percent VAT on the first $400 billed. So there was no significant spike resulting in higher bills or increased disconnections."

The VAT exemption threshold's increase was designed to insulate lower-volume users, particularly lower income households, from the rolling fuel charge increases with the burden instead largely falling on businesses and wealthier households. Similarly, despite the ever-increasing electricity bills over the past nine months, BPL said there had been no corresponding increase in its accounts receivables resulting from customers having difficulty meeting their payments.

"We haven’t seen any significant increase in our overall receivables. We have seen some minor fluctuations depending on customer payment patterns, but our receivables balance remains relatively the same," it added. However, even though BPL's fuel charge will start to gradually reduce after August 2023, BPL admitted to Tribune Business that consumers will still have to pay elevated costs through to almost mid-2024.

"Based on our calculations and projections for 2024, we believe that will fully recover our fuel balance by the beginning of the 2024 second quarter," BPL said. "However, customers can expect to see a gradual decline in the fuel charge on their October billing statement. Moreover, we anticipate that operational efficiencies and other cost-saving strategies will allow for significant fuel savings, which is a direct pass-through to our customers."

No details were provided on how much these efficiencies and cost-savings could be. BPL’s previously-unveiled projections for the fuel charge, which typically accounts for between 50-60 percent of customer bills, forecast that it will peak at 27.6 cents per kilowatt hour (kWh) over the three-months between June 1 and August 31, 2023.

This is the period when consumption it at its highest due to summer air conditioning demand. It will then fall slightly to 25 cents between September and November for consumers using more than 800 kWh, before falling further to 18 cents between December 1, 2023, and February 28, 2024. Yet BPL itself has admitted that these movements and figures are not guaranteed due to global oil price volatility, with prices spiking again last week after output cuts by producer nations.

Several sources have forecast that, during the summer fuel charge peak, overall electricity bills could increase by as much as 80-90 percent. BPL, while not confirming any figures, yesterday acknowledged that further escalating electricity costs are imminent.

"BPL anticipates that higher consumption, coupled with the peak fuel charge, will result in higher electricity bills. We are projecting a 30 percent increase in consumption compared to the beginning or end of the year. BPL does intend to carry out disconnection exercises during this period. Any customer with an overdue balance - 30 days past due - can be disconnected," the utility added.

"We strongly encourage our customers to, in the first instance, conserve where possible and to remain current with their electricity account balances. We know that we do have customers who face hardships, and we encourage them to visit any of our BPL offices in New Providence or the Family Islands to discuss an affordable payment arrangement that will allow them to keep their accounts current and pay off any outstanding arrears."

The Government, though, has yet to explain what caused such sharp hikes in BPL's 2023 fuel charges, and why businesses and households are paying more via their bills than it is costing the utility to buy its fuel supplies on the global markets. Thus far, all it has done is blame the early 2022 increase in global oil prices on Russia's invasion of Ukraine.

The Opposition, though, has consistently argued that the cause was the Davis administration's failure to execute the additional low-cost oil purchases, or trades, in September 2021 to support BPL's fuel hedging strategy. Had it done so, the Free National Movement (FNM) has asserted, the Government would have secured additional cut-price oil volumes to keep consumers' fuel charges relatively low at between 10.5-11.5 cents per kilowatt hour (kWH)

The Davis administration still held BPL's fuel charge at 10.5 cents per KWh for another seven to eight months but, as a result, the fuel charges paid by customers were insufficient to repay Shell, the fuel supplier, in full and the debt owed to the latter began to accumulate. BPL during this time was having to buy increasing fuel volumes at higher global market spot prices, and the 10.5 cents was insufficient to cover its fuel costs.

Michael Pintard, Opposition leader, returned to the attack during his Wednesday Budget debate contribution in the House of Assembly. "The Government promised to lower the electricity rate after a careful examination of all contributing factors to energy costs," he argued.

"However, the failure to protect through the hedge programme preferential prices for fuel, has resulted in a 163 percent increase in the fuel charge and a resultant increase in electricity costs for vulnerable Bahamians, but most especially for middle class Bahamians and small businesses."

Several sources have suggested there were good and valid reasons why the September 2021 trades were not executed, namely that the cash-strapped government did not have the necessary $40m funding and cash flow available to finance the deals, especially with a $246m BPL loan coming due for repayment in February 2022 and nothing allocated to cover it.

However, the latest Fiscal Strategy Report revealed the extent of BPL's financial woes and the need for government support. “The recent disclosure of approximately $150m of payment arrears of Bahamas Power & Light (BPL) represents a significant unbudgeted liability of the Government,” it said. “To ensure continued provision of essential electrical services to the public, the Government has committed to ensuring payment of this liability by the corporation.”

Alfred Sears KC, minister for public works and utilities, who has responsibility for BPL, last October informed the House of Assembly that the utility’s debt to Shell was around $90m as he unveiled plans to pay it off in a series of $10m monthly installments through to June 2023. The $90m potentially accounts for the bulk of the $150m arrears identified in the Fiscal Strategy Report.

The need to repay Shell and, by extension, the Government is why Bahamian businesses and large households face up to a 163 percent increase in the fuel charge component of their electricity bill in the next several months.