• Utility locks in 2023 fuel costs at 12-14 cents

• Almost half or 50% below BPL’s surging rate

• GB Power: 80% hedged at $51 per barrel 

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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).

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.

“We tried to hold off for as long as we could,” Mr McGregor explained, saying the increase was due to higher fuel prices, “and we avoided the summer season when bills are highest, held our breath and tried to scrape through, but we need to start collecting for that.

“We’re quite pleased. Nobody likes to see their bills going up, but the good news here is the hedging programme continues to deliver value and we’ve kept our eye firmly on that ball. We’ve been watching the oil markets every day..... We could have bought oil at $99 per barrel during the summer but that wasn’t going to help anyone. 

“We monitor it every day, and had an opportunity a few weeks ago to hedge and lock in 2023. We hedged 80 percent at $51 a barrel..... Who can argue that $51 a barrel is not a good deal? Eighty percent at $51, we’re really pleased we executed that and it’s really going to benefit our customers next year.”

Mr McGregor acknowledged there was always “a degree of apprehension and suspicion mixed in” when an electricity utility such as GB Power initiates a fuel hedging initiative. This stems from fears it might end up on the wrong side of the global oil markets, locking in fuel purchases at a higher price than where spot rates move “and looking like idiots”.

However, over the past eight years GB Power has “ended up on the positive side” through leveraging the expertise of its Canadian parent, Emera, and working with its regulator, the Grand Bahama Port Authority (GBPA). Mr McGregor pointed out that Emera’s Barbados operation had been prevented from hedging its fuel purchases by the regulator there, resulting in customers facing fuel charges as high as 30 cents per kWh.

“I’m just really glad we were allowed to do it back in 2014,” he added. “Who else has managed to lock in a fuel price at 10 cents per kWh from 2016 to 2021” and through almost to year-end 2022? While unable to give a dollar figure for total customer savings as a result of fuel hedging, Mr McGregor said: “The true savings have been over the last few years where customers have saved enormously.

“We said if we hadn’t hedged fuel costs would be 18 cents or higher.” The GB Power chief added that the utility had flexibility to respond to global oil market changes, including sudden and substantial price drops, by leaving 20 per cent of its fuel needs un-hedged and purchasing them at the prevailing spot rate.

Explaining that higher global oil prices have forced the fuel charge increase from 10 cents to 11.5 cents per kWh from November 1, 2022, Nikita Mullings, GB Power’s chief operating officer, said in a statement: “With GB Power’s fuel purchase strategy, or fuel hedging programme, we have been able to protect customers from global price volatility as the cost of oil has risen this year...

“We know there is never a good time for a rise in costs, and these are particularly difficult times for many Grand Bahamians. Without hedging, fuel costs would be at about 18 cents per kWh. For 2023 we’ve managed to hedge our fuel costs at less than $51 a barrel.

“Based on current market trends, the fuel charge for 2023 should range between 12 to 14 cents per kWh. It’s clear our fuel strategy continues to benefit customers despite the unprecedented rise in global oil prices. With the continued price volatility, we will be communicating regularly with customers on fuel costs. Beginning in November and every month thereafter, we will be advising customers of the fuel cost monthly.”

GB Power said that with the November 1 increase, a residential customer consuming 350 kWh per month will see the fuel portion of their bill rise by approximately $5. It added that fuel costs are a direct pass-through to customers, and the company does not benefit in any way from the fuel charge.

“We want to encourage customers to be mindful of energy use and to consider adopting habits such as limiting air conditioning use, turning lights out and lowering hot water consumption to help manage monthly electricity costs,” added Mrs Mullings. “At the end of the month, every effort to conserve is meaningful.”