Thursday, May 18, 2017
By NEIL HARTNELL
Tribune Business Editor
The former Christie administration was yesterday urged to clarify the energy pricing of its ‘agreement’ with New Fortress Energy, an ex-Cabinet minister revealing he was “very concerned as to whether it brings any cost savings”.
Phenton Neymour, who held ministerial responsibility for BEC between 2007-2012, told Tribune Business he wanted to “read the full details of the proposal” after the Opposition’s leader tried to ‘make the case’ for the Minnis administration to approve the agreement.
Philip Davis, the former deputy prime minister, said the proposal called for New Fortress to supply energy to Bahamas Power & Light (BPL) via a 25-year power purchase agreement (PPA).
In a statement outlining the terms left behind by the former administration, Mr Davis quoted two prices at which New Fortress would provide electricity.
He said it had offered to supply energy at 13.5 cents per kilowatt hour (kwh) from 120 Mega Watts (MW) of “supplemental”, or additional, generation units that would be installed at BPL’s existing Blue Hills power plant.
And, looking longer-term, Mr Davis said the price of energy supplied from a new 260 MW power plant, also fuelled by liquefied natural gas (LNG) and constructed at Blue Hills, would be 10.35 cents per kwh.
But Mr Neymour, having read Mr Davis’s statement, said the former deputy prime minister “has not indicated any cost savings to the public”.
He explained that Mr Davis had given no figures, or percentages, on the likely savings that Bahamian households and businesses would enjoy compared to current electricity bills.
“This pricing strategy will accrue significant savings on electricity to the customers of BPL,” Mr Davis had asserted, but produced no comparison between BPL’s current prices and those involved in the New Fortress Energy deal.
But Mr Neymour, and energy industry players, particularly questioned whether the prices quoted by Mr Davis were ‘all-in’ prices, meaning they included both generation and fuel costs, or just represented on of these elements.
Suggesting that the quoted figures were potentially “very deceptive”, Mr Neymour said BPL’s current base rate was around 11 cents per kwh.
“The question is if he’s referring to these rates being the total cost, including the cost of fuel,” he told Tribune Business of Mr Davis’s statement.
“The rates he gave; he needs to indicate whether that’s the cost of generation, which is less than that today, or is he talking the full cost to the consumer, which includes the base rate and the fuel. If he’s talking 13 cents plus the base rate, that is a rate increase compared to what we currently have.”
BEC’s last-known fuel charge was around 12.67 cents per kwh in September 2016, the last official data produced, and other energy sector contacts also queried the potential cost savings from the New Fortress deal to Tribune Business.
“One thing that really does concern me is that they say they will be pricing at 13.5 cents per kwh initially,” one energy industry contact, speaking on condition of anonymity, told this newspaper.
They said that New Fortress, which has a contract to supply the Jamaica Public Service Company (JPS), is understood to be pricing its LNG at $16 per 1,000 BTUs (British Thermal Units).
Also assuming that BPL achieved a heat rate of 7,500, the source said this would result in a fuel price alone of 10.5-11 cents per kwh.
“It’s impossible for them to do it at 13.5 cents if that’s an all-in cost (including fuel and generation costs),” the source said, “and it’s further impossible for them to do it at 10.35 cents per kwh.
“It must be determined what is in the quoted/indicated cost – are they all-inclusive of fuel, equipment, shipping costs, operations and maintenance costs?
“If not, then what other charges are in place? This fuel cost is very expensive and impacts the final cost to the consumer. Is there a breakdown of what is contained in this price.”
Another energy industry contact, also speaking on condition of anonymity, expressed similar scepticism over the prices quoted by Mr Davis.
“It doesn’t look like everything’s in those numbers,” they said. “I would be totally sceptical that’s the price paid at the end of the day. I don’t see how it is. The devil’s in the details. I’m almost wondering if those prices you are seeing are fuel prices.”
Tribune Business understands that rival energy suppliers were offering to provide BPL with electricity priced at an ‘all-in’ cost of 13.5 cents per kwh, with fuel accounting for 5.9 cents of that.
The New Fortress terms, meanwhile, include an ‘escalator’ clause that allows it to increase prices by 3 per cent per annum, beginning in 2022.
“The 3 per cent escalation clause is a huge annual mark-up,” one energy source told Tribune Business, with another agreeing that it was “pretty big”.
This newspaper understands that New Fortress’s rivals had also included such escalator clauses in the proposals to cover operations and maintenance costs, which rise because of inflation - but as low as 0.5 per cent.
Mr Davis, though, sought to put the pressure on the newly-elected government to approve the New Fortress deal left behind by the Christie administration, while also revealing it is not fully approved - and therefore not binding.
“If Prime Minister Minnis truly believes he heads the people’s government and that it is the people’s time, I strongly urge him and his Cabinet colleagues to move ahead with this new energy deal recommended to the Bahamas government by the energy sub-committee, and presently before the cabinet for review,” Mr Davis said.
He described the draft Heads of Terms with New Fortress Energy as “ a major government intervention that will transform the energy sector in line with the country’s National Energy Policy, and will accrue enormous benefits to the Bahamas”.
“The vexingly high cost of electricity, coupled with an unreliable electrical grid and equally unreliable power generation plants, continue to negatively impact the quality of life of our people and the competitiveness of our national economy,” Mr Davis said. “Therefore, a paradigm shift is evident.
“The Heads of Terms to be negotiated between the Government of the Bahamas and New Fortress Energy is consistent with the Government’s commitment to the national development tool called public-private sector partnership (PPP), where the private sector plays critical fiscal and technical roles in facilitating public infrastructure development, relieving much of the financial burden that past and successive governments have had to singularly shoulder in these endeavours.”
Neither Mr Davis, nor Kenred Dorsett, minister of the environment and housing, could be reached yesterday for additional comment on the many unanswered questions surrounding the New Fortress deal. E-mails and phone messages were not returned.