The Tribune

• Pledges oil price surge won’t derail strategy

• Reassures no change to rates and timeline

• ‘Real-time billing’ to resume in 2024’s Q2

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light (BPL) yesterday revealed it had regained 56 percent of its “under-recovered” fuel costs by end-August 2023 while reassuring that surging global oil prices will not derail this strategy.

The state-owned utility monopoly, in response to Tribune Business questions, asserted it will not have to adjust previously forecast fuel charge rates and timelines despite the pressures from rising global oil prices that market observers believe could hit $100 per barrel before month’s end.

Higher oil prices mean BPL has to pay extra for the fuel that it acquires at spot (present) market costs, which could potentially inflict further pain on already-suffering households and businesses who, for the past year, have had to grapple with fuel charge increases of up to 163 percent as the utility recovers costs that it previously failed to bill consumers for.

However, BPL pledged that current oil market volatility will have no impact on the projected upcoming fuel charges that it unveiled in its so-called “glide path” strategy on October 4, 2022. And it also “does not anticipate” that it will have to extend this strategy beyond the forecast end-2024 first quarter finish.

BPL thus told this newspaper that it will “resume real time billing” in the 2024 second quarter, which starts in April, meaning that the fuel charge seen on household and business bills will solely reflect the price/costs BPL is paying on the open market. Presently, and for the next six months, all electricity bills will reflect oil market prices plus an extra charge to recoup costs that BPL previously failed to pass on to its 100,000-plus customer base.

“BPL has no plan to adjust its current rates outside of what was already published,” the utility responded, when asked by Tribune Business whether these might have to be adjusted upwards to reflect rising costs imposed by higher global oil prices. It gave the same answer when asked if such pressures could force an extension of the so-called “glide path” beyond the projected 2024 first quarter end.

“We do not anticipate an extension to the glide path recovery scheme,” BPL said. “As communicated, the glide path recovery is expected to conclude at the end of the first quarter of 2024. We will resume real-time billing in the second quarter of 2024. Again, it is important to know that we continue to take advantage of our current hedging schemes and there are other cost-saving measures.... that will help lower fuel costs.”

While acknowledging the threat rising global oil prices pose to the cost of BPL’s ‘spot’ market purchases, the utility added: “We are still substantially hedged, so the exposure is only for the unhedged volume. It is also noted that, as we head into the cooler months, the frequency of shipments to the Family Islands reduces, there is greater flexibility to use our more efficient generating units as load demands decrease, and our overall fuel consumption decreases.”

However, one source with knowledge of BPL’s fuel hedging strategy when it was first implemented in 2020 under the Minnis administration, yesterday questioned BPL’s assertion that it remains “substantially hedged”. Given that BPL is now in the final year of that initial three-year hedge, and smaller volumes were hedged the further this strategy went out, the source estimated that just 30 percent of its fuel has been acquired at low below-market rates.

BPL, too, has never broken down the “glide path” fuel charges into what proportion reflects current fuel purchase costs and the remainder of the hedge, and that which represents the “under-recovery” and extra billing. Asked for a breakdown by Tribune Business, BPL did not provide one, explaining that this was a “moving target each month based on actual costs, fuel usage”. The latter refers to changes in the fuel mix between heavy fuel oil (HFO) versus automated diesel (ADO).

However, BPL confirmed it has now regained the majority of its previous “under-recovery”. It told this newspaper: “What we can share as at the end of August 2023, [is] BPL is on target to recover more than 56 percent of the under-recovered fuel charge consumed between July 2021 and October 2022.”

This means that a substantial amount, some 44 percent, remains to be recovered over the seven months between September 2023 and March 2024. It also indicates, as per the “glide path” rates, which peaked when summer consumption peaked, that BPL back-loaded its reclamation of prior fuel cost “under-recovery” to coincide with when businesses and households using more than 800 kilowatt hours (KWh) per billing period were at maximum electricity usage.

The Government has never precisely stated how much this fuel “under-recovery” is costing the Bahamian people and businesses. However, it is likely to be somewhere between $90m and $150m. Alfred Sears, ex-minister for public works and utilities, who then had responsibility for BPL, last October informed the House of Assembly that the utility’s debt to Shell was around $90m as he unveiled the plans to pay it off in a series of $10m monthly installments through to June 2023.

And the last 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.”

Government loans to state-owned enterprises (SOEs) and agencies also near-tripled during the first nine months of the 2022-2023 fiscal year to $110m, which Simon Wilson, the Ministry of Finance’s financial secretary, previously confirmed was to help BPL pay off its fuel arrears to Shell.

For the three month period from September to end-November 2023, BPL customers above the 800 KWh consumption threshold will be paying a fuel charge of 25 cents per kilowatt hour, down just slightly from the June to August 2023 peak of 27.6 cents. Then, for the final three months from December to end-February 2024, they will be paying 18 cents.

That is based on BPL’s assertion of no change in rates or timelines holding true. The utility’s statement that the “glide path” strategy will cease at the end of the 2024 first quarter also suggests a possible March finish, rather than the February date stated in BPL’s October 4, 2022, release, although the difference could be a reflection of when bills are issued and received/paid.

One source, speaking on condition of anonymity, yesterday voiced surprise that BPL’s fuel charge “glide path” will extend into next year on the basis that the initial announcement in October last year only reflected the period up to November 2023. 

No mention was made, they said, of the latter three months to end-February. “I thought it would be over and we would be back on market pricing come November. Clearly I’m wrong,” they added. “That announcement gave me, and probably everyone in this country, the impression we would be back on market pricing by November/December this year.”

Meanwhile, a BPL insider estimated that based on market-rate fuel charges some eight to nine cents - or around one-third - of the summer’s peak 27.6 cents per kilowatt hour (KWh) rate represented the fuel “under-recovery”, thus providing some insight into just how elevated consumer billings are.

The $90m debt to Shell was accrued because BPL held its fuel charge at the hedged 10.5 cents per KWh price even after the trades to secure extra cut-price volumes were not executed by the Davis administration. This resulted in BPL having to buy increasing fuel volumes at higher global market spot prices, but the full cost was not passed on to consumers as the 10.5 cents rate insufficient to cover this

BPL’s fuel costs are supposed to be passed on 100 percent to consumers by law, and government officials last October conceded that it had cost taxpayers “tens of millions of dollars” to hold the utility’s fuel charge at 10.5 cents. With the Government prevented from providing direct subsidies, the higher BPL fuel charges are required to reimburse the Government for paying-off Shell’s debts and effectively keeping the lights on.