Grand Bahama News

GBPC says consumers benefiting from hedging

Thanks to hedging its fuel cost for the last 10 years, Grand Bahama Power Company (GBPC) has been able to maintain consumers’ fuel costs at a lower rate than the rest of the country, the company’s president, Dave McGregor, said.

McGregor said GBPC, which has been hedging fuel since 2012, but more specifically following Hurricane Matthew in 2016, had to “aggressively” lock in an affordable price at which it purchased fuel per barrel.

“There are three components to the electricity bill – the cost of service, cost of fuel and taxes,” he noted.

“The fuel part has been frozen at 10 cents per kilowatt hour (kWh) since 2016. What we did for our customer was to commit that between 2016 and 2021 to lock in the fuel price to 10 cents.”

McGregor explained that the company was able to maintain that rate through a financial transaction, securing the price of fuel at around $50 per barrel, a level that customers can afford.

“We were able to lock in fuel at $50 per barrel because we wanted price stability for our customers,” he said. “Certainly, for the industrial customers, which equates to about 30 percent of our revenue.”

After Bahamas Power and Light (BPL) CEO Shevonn Cambridge announced that BPL will have to increase its fuel surcharge in the next month or two, Minister of Works and Utilities Alfred Sears said earlier this month the government will subsidize BPL rather than allow the company to pass on the price hike to consumers.

“With respect to BPL, BPL cannot absorb increases, so there are only two options,” Sears said.

“One is to pass it on to the consumer or for the government to provide a subvention to pay and the prime minister has made it very clear that the government is committed to providing a measure of safeguard for the consumer given the fact that, in many homes, people’s lives have been disrupted through unemployment, through death, through illness as a result of the pandemic.

“This is a reality within our country. It’s one thing when you stay here in Nassau but as you travel throughout this country, you will see that people’s lives have been upended, especially in Grand Bahama.”

This subsidy though does not appear to benefit all Bahamians, as it does not apply to GBPC.

The company is regulated by Grand Bahama Port Authority (GBPA), which allowed the company to slightly raise its rate earlier this year.

In January, GBPA approved the power company’s application to increase its base rate.

GBPC requested a base rate increase of 6.3 percent, but the base rate increase was reduced to 3.3 percent, after discussions between GBPA and GBPC.  

The increase came into effect on April 1, 2022.

“Even with the recent 3.3 percent increase, Grand Bahama is still in the lowest third of electricity costs across the Caribbean, and we will endeavor to maintain fuel costs as best we can,” McGregor said.

He also said that while the requested increase was not approved, GBPC continues to “hang in there” despite the inflated cost of fuel and other expenses occurring worldwide.

Last week, the cost of oil on the international market was $101 per barrel. McGregor predicted that at that price, Grand Bahama Power could lock in its purchase price for 2023 at $90 (or a little over) per barrel.

“We are discussing if that is a smart decision,” he said. “Nonetheless, we must let things settle down in Europe, look at summer travel and then take another look at it ($90) in the fall, to see if we can lock in a more cost-effective fuel price.”

GBPC, which was acquired by Emera, a Canadian energy holding company based in Halifax, Nova Scotia, in 2010, has come under fire over the years by local activists, who held several demonstrations in front of the company’s headquarters to protest the cost of electricity.

While McGregor acknowledged consumers’ complaints about bigger bills, he posited increases are due to increased use.

“Where it used to be $100, now it’s $200,” he said.

“The only reason for that is because they are using more electricity. After all, nothing has changed (on our end).”

McGregor said that as an example, during the hot summer months, homeowners use their AC and run units above the 76-degree suggested temperature.

“This causes the unit to burn more electricity to keep the home cool,” he said.

GBPA President Ian Rolle, while commending power company executives for their wisdom in implementing a hedging program, noted that a healthy utility company should stand on its merit.

“It should operate in a framework that allows sufficient return to continuously go into the market to get funding, which is necessary to maintain and also purchase new equipment. And having properly maintained equipment and newer equipment burns less fuel which affects the consumers directly,” Rolle said.

“So, if the power company in Freeport, because they operate very efficiently, there really should never be a need for government to subsidize your utility company. You prefer a business to run on its merit.”

McGregor explained that Emera has invested heavily in the power company, starting with $80 million in the new West Sunrise generation plant, which it had to rebuild following Hurricane Matthew for $30 million, and again after Dorian for $85 million.

The company only recouped $60 million of the $85 million from insurers.

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