An October 18, 2021 letter written to Minister of Works Alfred Sears by the then-CEO of Bahamas Power and Light (BPL) Whitney Heastie provides comprehensive details of the company’s fuel hedge program, designed to lock in global oil prices at the lowest possible rates and stabilize the fuel charge to consumers.
Amid uproar in the House of Assembly throughout the day on whether Sears and other members of the Davis administration had been briefed on the need to continue the hedge trades, Opposition Leader Michael Pintard tabled the letter last night.
Despite objections from Sears, the House speaker allowed it.
The opposition contends that the failure of the Davis administration to execute hedging trades as advised by BPL’s hedging committee and board, left customers exposed and resulted in high fuel costs now being introduced incrementally by BPL.
Heastie started the six-page letter to Sears, the minister responsible for BPL, by stating, “Further to your email regarding the hedge program at BPL, I think it would be useful to provide a general overview of the strategic considerations that went into the structuring and implementation of this program, how the program works and the results, to date.”
Sears was advised in the letter that BPL through execution of the hedges was “seeing the huge benefits, given the price of oil on the open market…”
Heastie wrote, “…To prevent large movement in the fuel charge, timely fuel hedges are executed. These periodic purchases provide ‘layering’ of the hedges that will result in a smoothing effect to the fuel charge to customers over time.”
He also provided a summary of all the monthly settlement transactions since the inception of the fuel hedging program.
“As can be seen in Table 1 below, up through September 2021, BPL and its customers have benefited by a reduced $30 million fuel cost over the past 13 months,” Heastie wrote.
“It is estimated that by January 2022, the savings amount will be $55 million.”
Heastie added, “The reality is hedging has simply allowed for a lower, more stable price as compared to previous years where fuel prices adjust monthly.”
In response to Pintard bringing the document to the House, Sears insisted that he had never received a briefing on the hedge strategy “or hedge anything”.
Sears told the House, “Madam Speaker, what the honorable member to my recollection stated, is that a hedge strategy, a strategy was presented and we failed to act…”
He denied this was the case.
The minister said he read the letter when it was placed in his hand last night, and did not recall seeing it prior. Sears called the document a “description that was giving background information”.
Pintard first raised the issue of the hedge strategy in Parliament earlier in the day as MPs debated an amendment to the Value Added Tax Act to raise the exemption ceiling on electricity bills from $300 to $400.
While he insisted that the Davis administration’s refusal to execute a series of trades resulted in exorbitant increases in costs for consumers, Prime Minister Philip Davis and Sears both said they had not received any advice regarding certain hedge transactions the opposition continues to point to in its criticism of the Davis administration on the BPL issue.
“I continue to hear this diatribe of what we did not respond to or what advice we had and [that] we did not follow the advice,” said Davis in response to Pintard.
“The first thing you have to appreciate about advice when given; first of all, I would [have received] no advice or recommendations, saw no papers in that respect.
“I never saw any. None reached my desk, and as far as I am aware, it did not reach, the minister will speak for himself. That never happened.”
Sears then rose and said, “Not only was I not provided, but what this honorable member for Marco City (Pintard) has failed to disclose to this honorable House and to the young parliamentarians assembled (the Youth in Parliament members), is that what was on the table was a rate reduction bond to borrow $500 million.”
Sears also said, “What the honorable member has failed to disclose, Madam Speaker, is that the hedge, which was established, is still in existence to this day and will not, Madam Speaker, expire until 2024.
“The point of the matter is the hedge is still extant; it still exists.
“What is so unfortunate, because we have a duty not to mislead; we have a duty if it is reported that the hedge was stopped by the PLP administration, was canceled, isn’t it our duty, Madam Speaker, to say to the whole Commonwealth, the hedge is still in place and BPL is right now working through a committee, internal to BPL, [on] how to extend it?”
On October 4, Davis announced at a press conference at the Office of the Prime Minister that the fuel charge of 10.5 cents per kilowatt hour (kWh) is increasing incrementally beginning this month, all the way up to 27.6 cents per kWh next summer for consumers who consume more than 800 kWh (which the BPL CEO later confirmed is the majority of customers).
At the time, the prime minister also announced that the VAT ceiling for electricity bills will be raised from $300 to $400.
Pintard took the opportunity during debate on the VAT amendment bill to reiterate and expand on the Free National Movement’s (FNM) criticism of the government over what it has repeatedly called a failure to execute hedge transactions last fall to lock in oil prices and keep the fuel charge stable.
Speaking in the House yesterday, he said, “Rather than move the amendment, they should come to apologize for this Band-Aid solution that they have brought here, because what was not included in the prime minister’s presentation (in introducing the amendment) is that we are here with this Band-Aid solution precisely because the member for Cat Island, Rum Cay and San Salvador (Davis), assisted by the member for Fort Charlotte (Sears), refused to execute the trades that they were advised were absolutely necessary to stave off what we now face and they are now looking to Ukraine and Russia as scapegoats for where we are today.”
Pintard added, “Let me break it down for you. When this administration came to office, it met in place recommendations that it could maintain the cost of the fuel charge at 10.5 cents or thereabout; [it] could have been a marginal increase.
“If they had only followed the recommendations made to them.”
Pintard said the recommendations were made by BPL’s hedging committee and by the former and new boards of the utility company.
He said there was also a Cabinet draft paper under the former administration that was turned over to the new government.
“There was ample evidence that we had a plan in place to maintain the price of fuel in the vicinity of 10.5 cents and, even if it increased, certainly not beyond 11.5 cents,” Pintard said.
“That information was ignored. It was ignored and we challenge the minister of works; we challenge the prime minister to say in this House that they have seen none of these documents.”
But Sears told the House, “I have not seen a draft Cabinet paper. No draft Cabinet paper has ever been submitted to me … I can say that the hedge that the honorable member has focused on, and has been focusing on for months, still exists, still exists, still exists.”
He kept insisting that Pintard withdraw his statements that Davis administration officials ignored advice on hedging trades.
But Pintard was adamant in his assertions, repeating, “Let me state it differently in a simple way. If you continued to execute the trade, you would not have been subject to these spikes.”
The prime minister said, “The member accuses my administration of failing to do an act that has impacted the Bahamian people. We deny that. That is not true. So, I ask this member, he’s talking about executing trades. I want him to explain to the Bahamian people … what trades he is talking about.”
Pintard accused the government of being misleading on the issue of the BPL hedging.
“…What they do not want to tell you is that the doubling of your bill was not inevitable,” he said.
“Had they locked in the 10.5 per kWh, rather than leave so much fuel subject to the variation in price on the open market, you would not have been in this position.”
Pintard told the House, “The Free National Movement government … in putting in place the hedge program, we were advised by Deloitte, by the IDB, by the consultant who happened to assist the Grand Bahama Power Company in putting in place its hedge.
“…Again, the member for Fort Charlotte wishes to convince the public that increases in fuel charge were inevitable.
“Well, it was not inevitable because the very same groups that assisted us in putting in place the hedge that locked electricity rates at a manageable level, still too high in my estimation, even at 10.5 cents, is the same consultant that assisted Grand Bahama in maintaining around 11.5 cents roughly over an extended period.
“So, my point is, it was not inevitable. It occurred because you failed to do your job, which was to take advice to protect the Bahamian people, because not all of them are wealthy like a number of persons in this House.”