NASSAU, Bahamas — Grand Bahama’s electricity costs will be 40 percent lower than Nassau’s and the rest of The Bahamas during the 2023 summer peak after the island’s utility locked in fuel costs at 12-14 cents per kilowatt hour (kWh), The Tribune reported on Monday, October 17, in an article written by Business Editor Neil Hartnell.
Dave McGregor, Caribbean chief operating officer for Emera, Grand Bahama Power Company’s 100 percent owner, told Tribune Business he hoped the difference in energy costs would steer investors towards the island and help revive its struggling economy.
“If I were to believe the numbers we’re seeing out of BPL next summer, all things being equal, we’ll be 40 percent less cost than the rest of The Bahamas,” he asserted. “I’ve seen the numbers that BPL has pushed out for next June. If they are at 27 cents per kWh, and we’re at 12-13 kWh, that’s a huge difference and I hope that helps investors decide where to invest because Grand Bahama needs it.”
GB Power’s fuel costs will be close to half, or 50 percent less, than BPL’s for the nine-month period between March and November 2022 based on what the latter unveiled recently. BPL’s fuel charge will hit 23.3 cents per kWh for the three months from March 1 to end-May 2022; 27 cents for the June to end-August period; and 25 cents for September to end-November 2022.
These compare to the 12-14 cents per kWh charge that GB Power estimates it will have to levy on customers throughout 2023 after it managed to lock-in 80 percent of its fuel needs for 2023 at $51 per barrel via its continuing hedging strategy. The figures, and the differences with BPL, thus give New Providence residents and businesses – and those through the rest of The Bahamas – an insight into what might have been had the state-owned utility continued its hedging.
Tribune Business previously revealed a December 9, 2020, e-mail from former BPL chief executive, Whitney Heastie, to the then-Board revealing that the hedging strategy executed via the Inter-American Development Bank (IDB) had provided the foundation for an 11.5 cents per kWh fuel charge for all customers through to March 2024.
“The hedges approved by the Board were finally executed as per the final orders below,” Mr Heastie wrote. “Our ‘settled’ price was below the maximum premium price granted to the IDB. These new hedges allow BPL to have a fuel charge at/or below 11.5 cents per kilowatt hour through March 2024.”
That 11.5 cents, which is 58 percent less than what BPL proposes to levy at next summer’s peak when consumption is highest, also matches the charge GB Power plans to levy on its own customers in their November bills. GB Power’s success at fuel hedging, and maintaining relative fuel and overall electricity price stability for its customers over an eight-year period since 2014, is likely to raise uncomfortable questions for BPL and the Government as to why they cannot do likewise.
And the Grand Bahama energy provider’s recent success, in being able to lock-in and hedge 80 percent of its 2023 fuel needs at $51 per oil barrel, may also cause some to wonder why BPL has not sought to re-enter the market with global market prices starting to slowly come down.
The Government and BPL have repeatedly said the initial fuel hedging structure, put in place by the Inter-American Development Bank (IDB), remains in place. That is correct, as the December 2020 hedge executed by the IDB covered a total 3.565m barrels of oil for BPL that were priced at $40 each and split into three tranches.
This transaction hedged 80 percent of BPL’s fuel needs for 2022, 50 percent of its requirements for 2023, and 25 percent of 2024’s needs via the IDB’s upfront hedge. These were were not hedged 100 percent because BPL needed to monitor global oil price movements so that it did not end up hedging at a price above market costs and thus end up losing money.
The Government, though, is not giving the full story. BPL was supposed to “backfill” the original IDB hedge by purchasing the extra fuel volumes to fully address its needs. This was to be done via a series of trades, known as call options, that would have enabled BPL to obtain fuel – covering the 20 percent balance for 2022, 50 percent for 2023 and 75 percent for 2024 – at prices below then-prevailing oil market rates had they been executed.
It was these trades, scheduled to have been executed in tight windows in September 2021 and December 2021 just after the Davis administration took office, that were not carried out. As a result, BPL has increasingly been buying fuel at higher market rates with the fuel charge artificially held at 10.5 cents per kWh via the combination of government subsidies and Shell non-payment. This can no longer be sustained, and consumers must pay up as a result.
While not wishing to become caught up in the political controversy over BPL’s fuel hedging and prices, Mr McGregor told Tribune Business he “cannot help but take a look across the ocean” after GB Power unveiled a relatively minor increase (in comparison to BPL) in the fuel charge on customer bills from 10 cents to 11.5 cents per kWh with effect from November 2022. See complete article in The Tribune at http://www.tribune242.com/news/2022/oct/17/gb-electricity-costs-40-below-rest-bahamas/
