The Tribune

• Pledges fuel cost drop to ‘offset’ 6.3% rise bid

• Utility’s annual investment to rise 67% to $20m

• PharmaChem closing eliminates 5% of demand

By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

THREE-QUARTERS of Grand Bahama Power Company’s customers will see their monthly bills remain unchanged or decrease by up to $2 despite its bid for a 6.3 percent base rate rise, it was revealed yesterday.

Dave McGregor, president of the island’s energy supplier, told Tribune Business that reductions in the fuel charge component of electricity bills will “offset” the proposed base rate hike for most should it be approved by the utility’s regulator, the Grand Bahama Port Authority (GBPA).

Explaining the rationale for the increase, which was submitted to the GBPA on August 1, 2024, in accordance with GB Power’s regulatory obligations, he said the extra revenues generated by the increase will help to finance a 67 percent jump in GB Power’s annual capital investments to $20m per year between 2025-2027.

The extra investment, Mr McGregor told this newspaper, would facilitate the increased integration of renewable energy into GB Power’s grid through the deployment of a batter energy storage system (BESS) that is expected to be installed and operational by 2026.

Asserting that the utility has “tightened the belt as best we

can”, he said this had enabled it to apply for a base rate increase one full percentage below the 7.3 percent inflation suffered by The Bahamas over the past three years covered by its present tariff structure.

Disclosing that GB Power had lost 5 percent of its total demand in January 2024 with the closure of PharmaChem Technologies pharmaceutical plant, while the total electricity load consumed by the island’s major industrial customers has “under-performed”, Mr McGregor voiced optimism that the utility is “out of the woods” after resolving the outages that plagued early summer.

And, while the latest rate application comes at an especially sensitive time for relations with the Government, given that Parliament recently enacted an Electricity Act that seeks to circumvent the GBPA’s ability to regulate electricity in Freeport, the GB Power chief said it was best to “let the courts figure that out” in a reference to the utility’s legal action over who has the legal authority to supervise it.

GB Power’s new rate application, which covers the three-year period between 2025-2027, generated opposition and criticism from both sides of the Bahamian political divide when it was unveiled yesterday, as well as provoking concerns from the island’s business community and residents.

However, Mr McGregor said the submission was merely “part of the process” that it committed to as part of the Operating Protocol and Regulatory Framework agreed with the GBPA for electrical utility regulation in Freeport. This mandated that it provide a rate application for the GBPA’s review, and rejection/approval, by August 1 as the three-year cycle came around again in 2024.

GB Power, in a statement, said this year’s submission is broken into two components. Besides the 6.3 percent base rate increase “to maintain investment and operations going forward”, it also features a “system resource plan” designed to align the utility with the Government’s National Energy Policy goal of generating 30 percent of The Bahamas’ energy needs from renew- able sources by 2030.

Seeking to both justify, and defend, its 6.3 percent base rate increase bid, GB Power said the extent of the hike sought is lower than The Bahamas’ inflation rate over the past three years. And, with a fuel hedging strategy already in place to cover 2025-2027, it pledged that its proposal will “result in a small all-in decrease for the majority of electricity customers” due to the base rate hike being more than offset by lower fuel costs.

“The reduction in the fuel pass through will offset for most people,” Mr McGregor confirmed to Tribune Business. “All 75 percent of our customers will see is between zero and maybe a $2 a month” decrease. The base rate is the electricity bill component from which utilities such as GB Power generate the revenues to cover their operational costs and investment needs, as well as service debts and make a profit.

GB Power’s fuel charge, which is a 100 percent pass-through to customers, accounts for around 40 percent of the total electricity bill and is not impacted by the utility’s application. Justifying the extent of the base rate rise, Mr McGregor said: “We’ve requested the base rate in the current at below inflation. It’s not an easy thing - 6.3 percent compared to 7.3 percent.

“Like every business in The Bahamas, we always try to minimise our costs. Insurance, in particular, is a line item that has gone up significantly and continues to be significant. The supply chain has been tight. It’s just expensive with transformers, lubricant products. We buy a lot of lube oil. All of these products had above-inflation increases.

“Like every business we tighten the belt and do the best we cab, which is why it [the base rate increase] is below inflation.” Mr McGregor said the proceeds from the rate increase, which will take effect from New Year’s Day 2025 if approved, will help finance expanded capital investment by GB Power.

“Normally our capital budget is in the region of $10m-$12m a year,” he told Tribune Business. “I would say that in the years 2025, 2026 and 2027, this will increase significantly more than that to in the region of $20m.

“That’s really the integration of renewable energy into our system. Already we have two large solar plants, Fairfield and Devon. The next step for us is to deploy battery energy storage to store excess solar produced during the day and to stabilise the system when the sun goes behind the cloud.

“That will be the focus of investment, and we will continue to try and improve the reliability of the existing plant. Reciprocating engines take a lot of maintenance and a very capital intensive programme for nine engines.”

Describing battery energy storage as a “one-off investment”, Mr McGregor said GB Power’s capital investment needs would return to the traditional $10m-$12m per annum in the next three-year cycle from 2028 to 2030.

As for progress on battery energy storage’s development, he added: “Were doing the studies at the minute to determine what capacity we need. That should be done before the end of the year. I suspect we’ll be going out for quotes early next year, and it’s usually about a year to deliver and install battery energy storage, so I suspect it will be completed in 2026.”

Mr McGregor, who is also Caribbean chief operating officer for Emera, GB Power’s 100 percent owner, said the estimated $10m price tag for utility-scale battery energy storage has changed little. “The battery market seems to have softened a little bit. There’s a lot more availability and a little less expense than a year ago, so we’re very confident that it can go down a bit,” he added.

Nikita Mullings, GB Pow- er’s chief operating officer, said in a statement that only commercial customers may see a slight increase in their light bills if the GBPA approves the base rate increase as proposed.

“With the impact of our fuel hedging programme, residential, general large service and large industrial customers are forecasted to receive a small reduction on an all-in basis while commercial customers would see a small, estimated increase of less than 2 per-cent,” she said.

“Since our last rate adjustment in April 2022, we have seen reduced sales from our general large service customer classes due to lower energy consumption, the loss of our largest customer and significant inflationary pressures.

“We know there is no good time to propose a rate increase, but the requested adjustment is essential to maintain and improve the efficiency and reliability of services, and to allow us to invest in critical infrastructure maintenance as outlined in our system resource plan to enable the integration of renewable energy sources in keeping with the Government’s targets.”

Mr McGregor, mean- while, said PharmaChem Technologies’ January 2024 closure had been “very, very significant” for GB Power. “They were about 5 percent of our demand, and when a big slice of demand disappears like that, overnight everyone ends up paying for that because the fixed costs get spread across the rest of the customers,” he explained.

The GB Power chief added that there had been “a general under-performance” for 2024 to-date when it came to energy demand from major industrial users, known as general service large clients, which collectively consume about one-third of the utility’s load.

Revealing that GB Power is already working to implement fuel hedges for 2028, with 2027 already set, Mr McGregor declined to comment on the potential conflict between its GBPA rate application and the Government’s Electricity Act given that the whole issue of who should regulate it remains an active dispute before the courts.

“In the meantime we’ve got to comply with the regulatory framework that’s worked well for Grand Bahama since 2012. It’s a process we follow every three years,” he added. “It’s important we have a transparent regulatory framework that holds us accountable for costs and makes sure we can get a reasonable return on investment so we can continue to invest.”