The Tribune

• URCA initiates fuel tariff compliance review
• Will examine how calculated, use of proceeds
• FNM chief: Transparency ‘absolutely critical’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s leader yesterday demanded that regulators publicly disclose the results of an upcoming study into whether Bahamas Power & Light’s (BPL) massive fuel charge hikes broke the law.

Michael Pintard told Tribune Business it was “absolutely critical” that the Utilities Regulation and Competition Authority (URCA) unveil the findings of an independent third-party consultant’s review of whether the fuel charges levied on consumers since January 2021 “are in compliance with the law and regulatory framework” for the electricity sector.

He spoke out after URCA formally launched the competitive bidding process for selecting the consultant that will research how BPL has calculated the fuel tariff, which typically accounts for between 50-60 percent of of a customer’s total bill, over the 39 months (three-and-a-quarter years) between January 1, 2021, and March 31, 2024.

Based on the period covered, and the scope of works/terms of reference set out in the bid’s request for proposal (RFP), if properly done the study could provide answers to a number of controversies surrounding the Davis administration’s management of BPL that have yet to be resolved.

These include the fuel hedging initiative left in place by its predecessor, and whether the current administration failed to ensure its continuation and thereby unnecessarily burdened Bahamian businesses and households with an extra cost thought to total between $90m-$110m.

That resulted from the so-called “glide path” strategy, implemented by BPL and the Government with URCA’s approval from October 2022 to March 2024, in an effort to enable the state-owned energy monopoly to reclaim previously “under-recovered” fuel costs that are supposed -under law and regulation - to be passed on 100 percent to electricity users.

BPL’s failure to do so produced the “glide path”, which resulted in fuel charges imposed on Bahamian consumers increasing by 163 percent over an eight-month period between October 2022 and June 2023, hitting their peak in time for maximum summer consumption. And the consultant’s fuel charge review will also assess how BPL and the Government have used the extra funds generated by the “glide path”.

This has recently become another source of BPL-related controversy. The Ministry of Finance, in its recently-released debt bulletin for the three months to end-March 2024, retroactively revised figures for the debt owed by BPL going back almost two years. BPL’s debt was hiked by around $70m for each of the quarters going back to end-June 2022 when compared to the numbers contained in the prior report.

And, while the “glide path” was advertised as essential to enable BPL to reclaim its under-recovered fuel costs, repay a previous loan advanced by the Government and thereby reduce its outstanding debts, the data contained in the Ministry of Finance’s report showed there has been relatively little progress in achieving the latter objective.

BPL’s end-March 2024 total debt stood at $255.4m, representing just a $2.8m decline from the end-December 2023 figure just three months earlier, and only an $11m drop from the debt’s peak at $266.4m at end-March 2023. With the debt still so high, Mr Pintard was among those arguing it appeared the monies generated by the fuel charge hikes have not been used for the purpose stated by the Davis administration.

This will now all be reviewed by URCA’s consultant, with the energy sector regulator hinting it has been pushed to act by the “widespread outcry” from Bahamians over this nation’s astronomical energy costs.

“The objective is to document how the BPL fuel tariff is calculated - the process followed, formula used and the supporting documentation required - and determine if the charges to customers since 2021 are in compliance with the law and regulatory frameworks,” URCA said of the imminent fuel charge review.

“The Bahamas is facing very high electricity costs, primarily driven by the high and volatile cost of fuel used. This is also compounded by the use of old and inefficient generation assets. The high price of energy has resulted in widespread outcry from customers from all rate classes.

“The fuel cost for a generating unit can be attributed to its heat rate, fuel price and level of utilisation, plus other charges for transportation and applicable taxes and duties. The level of utilisation of fuel will be significantly impacted by operating practices.”

After reviewing all applicable legislation and regulations, including the existing Electricity Act 2015 and its 2018 amendments plus the 2020 regulations introduced to facilitate BPL’s fuel hedging strategy, URCA said that among the consultant’s goals is to “determine if the [fuel charges to customers between January 1, 2021, and March 31, 2024, complied with the law and regulatory frameworks”.

They will tasked to “advise whether BPL has complied with the law, regulations and regulatory frameworks in the cost per kilowatt hour charged to customers for fuel in each rate class”. And, if BPL has violated the law and regulations, the consultant must “describe the breach in words and quantify it in monetary terms” meaning the dollar amount this has cost the Bahamian people.

The report must also “provide a listing of the actual allowable recoverable fuel cost broken down by each component, for example, purchase price, additives, transport etc; the actual fuel charge billed to customers broken down by rate class; [and] the amount of under/over recovered for each month”.

Once this has been completed, the consultant - for each of the 39 months covered by the study - must look at the fuel charges billed to BPL customers; the revenue received by the utility and outstanding accounts receivables, breaking this down by rate class.

These actions, according to the RFP issued by URCA, will enable the consultant to “provide an account of the changes in BPL’s accounts used to record fuel purchases [and] advise on how the funds received from customers have been applied to pay for fuel purchases”. In other words, to determine how BPL has been using the proceeds and if fuel costs are all that it has been recovering.

Mr Pintard told Tribune Business that the URCA scope of works, and questions that the review is seeking to answer, are exactly the same as those raised by the Opposition in the House of Assembly, press conferences and letters written to the regulator and Prime Minister Philip Davis KC and for which they have “gotten very few answers”.

This, the FNM leader added, was why it was so critical for URCA to publish the full findings once the study is completed so that the Bahamian people can judge for themselves. “We look forward to seeing what the outcome is of the studies being conducted,” Mr Pintard said. “We have asked in multiple ways, and in different forms, to get to the bottom of what is being contemplated by URCA.

“That’s what’s important: The release of the results to the general public so that all and sundry are able to make a determination themselves on the manner in which BPL is functioning and the extent to which policymakers are compliant with the law and acting in the best interest of consumers. They have to be very transparent. That’s absolutely critical. They ought to publish it. Absolutely.”

Mr Pintard, though, pointed out that in effect the consultant will also be scrutinising URCA’s actions given that it approved, or stated it had no objection to, BPL’s “glide path” strategy and fuel charge hikes. “URCA itself had authorised the glide path and increased fees,” he added.

“One perspective is that URCA had to do some review and study of its own to justify supporting the increase that the Government has asked for. And some of what they are asking for now must have been the basis for why they approved such an increase. Some of those questions they should be able to answer themselves.”

No timeline is provided for when a consultant will be selected, and the BPL fuel charge review completed, but all bids are to be submitted by a June 24, 2024, deadline. The first preliminary report is to be provided to URCA within five years of being hired.

The Davis administration has blamed a variety of factors for soaring BPL costs, including the Ukraine war’s impact on global oil prices, while also attempting to talk away the fuel hedge initiated by its predecessor as having failed to deliver the promised savings and not being worth the paper it was written on.

However, ex-BPL chief executive Whitney Heastie, in a letter to Alfred Sears KC, then-minister of works and utilities, on October 18, 2021, said the fuel hedge was on track to save electricity consumers some $54m over the 18 months to January 2022 if maintained.

The Opposition has charged that the Davis administration failed to support the fuel hedging structure it met in place because it did not execute the trades required to purchase the extra cut-price oil volumes needed to keep the fuel charge to consumers low. Scheduled to have been executed in tight windows in September 2021 and December 2021 just after the Davis administration took office, the trades did not occur.

As a result, BPL was forced to increasingly buy fuel at higher market rates even though the tariff/charge to consumers was held artificially low at 10.5 cents per kWh via a combination of government subsidies/loans and non-payment to its fuel supplier, Shell.

It was thus failing to cover the cost of its fuel supplies, and the Davis administration compounded the amount that had to be subsequently recovered via the “glide path” by holding the fuel charge at 10.5 cents for a further eight months.