By KHRISNA RUSSELL
Tribune Chief Reporter
krussell@tribunemedia.net
WITH Bahamas Power and Light on the “precipice of financial fallout”, there was no room to defer increasing the fuel surcharge, resulting in higher electricity bills for consumers, Public Works Minister Alfred Sears said yesterday.
According to the minister, a glimpse of the power provider’s dire financial straits could best be seen in the millions it owes to the Shell company.
As a result, he revealed an arrangement had been reached for the government to provide a subsidy to Shell in the amount of $10m each month. The payments began on Saturday, October 1, 2022 and will continue until June 2023.
This would mean the arrears BPL owed to Shell is pegged at around $90m.
Nonetheless, Mr Sears said it was not the government’s intention to place hardship on Bahamians.
“BPL is on the precipice of financial fallout if we do not act immediately to align the fuel charge with current global prices, ensure reliable sources of clean, reliable and sustainable energy and move to reduce our reliance on fossil fuels as promised by our blueprint for change,” Mr Sears told the House of Assembly yesterday.
“Therefore, BPL will aggressively implement the necessary systems transformation to improve its operational efficiency in the generation transmission and distribution of power, protect vulnerable consumers and take account of the losses incurred by the utility provider during the COVID-19 pandemic.
“The COVID-19 pandemic in 2020 came on the heels of a series of catastrophic storms between 2015 and 2019 that impacted The Bahamas costing more than $9 billion in damage. Further, we were already on a slow rebound from the previous global recession. These realities were the main catalysts for BPL’s then board and executive management team to implement a fuel hedging strategy in July 2020 that pegged BPL’s fuel charge at 10.5 cents per kilowatt hour.”
Mr Sears said at the time the fuel hedge worked in the country’s favour when energy costs were an historic low. He added that during this time, there was a prolonged period of low fuel costs and Bahamians benefitted from the hedging.
However, in the last 12 months, fuel costs have increased globally at an astounding rate due to the global economic and political shocks, he told Parliament.
The minister said the fuel used to generate electricity now, which is diesel and mostly what BPL uses, has increased over the past year by 100 percent.
He told members of Parliament that the low strike price— $45 — of the hedge strategy per barrel and the assumptions of relying on more heavy fuel rather than diesel were compromised by a number of factors.
“Those factors included the fire in 2018 at Clifton Pier which limited BPL’s capacity to burn heavy fuel and the poor design and execution of the new Wartsila engines, which rely also on diesel fuel. Thus, these factors eroded the benefit of the hedge strategy and placed BPL in a spiralling cash crisis.
“Notwithstanding the global trends, BPL has maintained the fuel charge of 10.5 cents per kWh; however, as the hedged volumes were declining under the current hedging strategy, and the absence of any sign of immediate relief in the market, BPL is no longer able to realise any of the benefits of its current hedging that had existed at the outset of the fuel hedging strategy. Further, the ongoing war between Russia and Ukraine and the exit from the pandemic have caused fuel prices to skyrocket with no significant decline anticipated in the foreseeable future.
“That being said, BPL finds itself at a crossroads. Not even future market experts had anticipated that there would have been a 100 percent increase in fuel prices due to the adverse impacts of the pandemic and the ongoing war. Further, present market conditions are not considered conducive to increasing the hedge volumes under the terms of the existing hedge strategy.
“Continuing in this manner has become absolutely untenable to our power provider and the company must now move to adjust the monthly fuel charge to carry out necessary systems transformation and ensure the sustainability of its operations.”
He also said: “We are cognisant that an increase in the fuel charge may not be popular at this time. However, I assure this honourable House as the prime minister did yesterday, that deferring it or refusing to do it will create greater hardships down the road or, worse case scenario, result in the catastrophic failure of BPL, something no right-thinking Bahamian could ever consider.
“It is for this reason that yesterday (Tuesday), BPL announced an increase in electricity rates due to the rising cost of fuel needed for the generation of electricity at its plants throughout the country.”
Mr Sears assured Bahamians that the BPL was aware of the possible hardships associated with the increase.
For a large majority of BPL customers, who consume less than 800 kWh (kilowatt hours), the fuel charge is increasing by two cents per kWh, which will result in an increase this quarter of less than $20 per month. For those who consume more than 800 kWh, the increase will be 4.3 cents per kWh.
BPL has said the price increases will be gradually phased in.
During each phase of the implementation, customers can expect an increase of two cents per kWh up to 800kWh and 4.3 cents for all units over 800kWh.
“I wish to further explain to consumers that consumption of 0-799 kWh will be charged at a rate of 12.5 cents; however, consumption exceeding 799 kWh will be charged at the higher rate. In simplistic terms, the first 799 kWh on all consumer bills, regardless of total consumption, will be billed at the lower fuel charge for the prescribed period.
“The intent is for two cent increases to continue quarterly to August of 2023, capping 18.5 cents per kWh for consumers who use less than 800 kWh or 27.6 cents per kWh for those who consume more than 800 kWh. BPL anticipates a gradual decline after August 2023 but must emphasise that this is most certainly contingent upon the fuel supply market at that time.
“I must emphasise that the intent of this fuel charge increase is to help right size and not enrich BPL and is for a period of approximately 12 months. Further, the highest fuel charge increase for the higher category of consumption — above 800 kWh — is just two cents higher than the 25 cents per kWh charged at the height of the global recession in 2010 and is only for three months between June and August 2023. Even with these increases the electricity rates will be lower than a number of our regional counterparts. The most vulnerable consumers will pay less than the rates currently employed in Jamaica, Barbados, Cayman Islands and Turks and Caicos Islands,” Mr Sears said.