The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama’s private sector yesterday rejected any increases in the island’s base electricity tariffs, fearing such proposals will “dampen new investor interest” and cause more business failures.

Kevin Seymour, the Grand Bahama Chamber of Commerce president, branded as “quite problematic and troublesome” the plan by Grand Bahama Power Company (GBPC) to increase base tariffs for numerous customer groups between 2016-2018.

Effectively describing the Power Company’s proposal as a ‘mixed bag’ from the private sector’s perspective, Mr Seymour said the base tariff plans represented “a shell game” where certain customer categories would see increases to offset reductions enjoyed by others.

“There are certain aspects of the proposal that we would support,” the Chamber president told Tribune Business, “namely those parts of the proposal that speak to reductions in the tariff.

“Any part of the proposal that speaks to an increase, we are certainly not in favour of. It’s a bit of a shell game with what they’re doing, because on the one hand they’re giving the impression they’re giving certain decreases to the public, and on the other hand they’re taking those back from other customers.

“We would prefer to see a situation where the tariff rates are decreased across the board.”

The summary of the Grand Bahama Power Company’s (GBPC) 2016-2018 rate submission promises that 90 per cent of customers will see no rise in total energy costs over the three-year period.

However, only two customer categories will see a decrease in their base tariff. To protect low income consumers and minimal energy users, the GBPC proposal recommends a 4.5 per cent ‘base rate’ reduction for the first 350 Kilowatt Hours (kWh) used by all customers.

The only other group set to enjoy a ‘base rate’ decrease is Freeport’s large industrial concerns, the likes of Polymers International and PharmaChem, who will see an 8.5 per cent decline at all consumption levels. They will have a ‘brand new’ tariff classification created just for them.

GBPC is essentially proposing a small increase in the ‘base rate’, the portion of the electricity bill that generates all GBPC’s cash flow and profits, for most customer classes. However, this will be offset by a corresponding decline in fuel costs, which are assessed as a pass through to the consumer.

Mr Seymour, though, told Tribune Business that any increase in the base energy tariff was self-defeating to the goal of attracting more investment and commerce to Freeport.

He said representatives on the two trade missions to recently visit Grand Bahama, one from the Chinese province of Hubei, the other from the Greater Houston Black Chamber of Commerce, had expressed interest in investing on the island.

The Chamber chief, though, reiterated that “the exorbitant cost of power” was the main reason why many previous businesses in the light manufacturing and heavy industrial sectors had “packed up their trunks and left”.

“It is beyond dispute that Grand Bahama’s moribund economy is in desperate need of economic stimulus,” the Chamber said in a statement.

“The increases being proposed by the GBPC, if granted, will likely dampen new investor interest and precipitate further business failures.

“We support a decreased base revenue requirement and a reduction on rate base from 10 per cent to 8.8 per cent. However, such reduction should proportionally pervade all consumption tiers.”

Mr Seymour emphasised that the criticism of GBPC’s three-year rate proposal was ‘amicable’, and that the private sector was appreciative of investment that had “eliminated” previous power blackouts.

“The only aspect that is outstanding at this stage is the tariff rates,” Mr Seymour told Tribune Business, “and if we can get them to be more reasonable on the tariff and timeframe for recouping that, we’ll be all set.”

He added that the Chamber wanted “a win-win for all”, and suggested that GBPC could exploit its monopoly status to lengthen its ‘investment payback’ period without any adverse impact.

“We understand they need to recoup their investment, but because they are a monopoly and competition is absent, we believe they can stretch out the recouping over a longer period of time, and this will have the affect of reducing tariffs across the board,” Mr Seymour told Tribune Business.

“They have a carte blanche monopoly. I fully understand the Power Company wanting to get as much as they can, as quickly as they can.”

The Chamber’s statement, issued over the weekend, added: “We recommend that the GBPC decelerate its expected return on investment (ROI) by clawing back its investment returns over a slightly longer period of time.

“With all other things being equal, this single action should immediately result in lower tariffs across the board for all end consumers. Since the company enjoys monopoly status, the risk associated with such a decision is likely to be minimal.”

Given the Power Company’s monopoly status, Mr Seymour urged the Grand Bahama Port Authority (GBPA) as regulator to “step up and ensure fairness and equity on both sides”.

He also called on it to assess the Power Company’s current fuel hedging arrangements, particularly whether its ‘locking in’ of prices in advance had left it “underwater” and unable to pass the effects of existing low oil costs on to consumers.

“It would appear from what they’ve [the Power Company] said that they’re on the wrong side of a hedge, and consumers are not getting the full benefit of lower oil prices on the open market,” Mr Seymour told Tribune Business.

“The question becomes whether they should recover the full amount of that, or whether there should be some sharing of the part of the hedge that causes the the fuel to be artificially high and the benefits not passed on to the consumer.”

And Mr Seymour argued that the Power Company’s proposed self-insurance fund, which would cover energy infrastructure repair costs in the event of a major hurricane, should be financed from its profits and not consumer bills.

The proposed Hurricane Self-Insurance Fund will add a $0.03 per kWh charge to GBPC’s tariffs, raising around $1 million per annum from 2017 onwards.

“We agree that a form of insurance to mitigate any catastrophic losses which may result from a force majeure is prudent from a risk management and business perspective,” the Chamber statement said.

“We understand from our meeting with executives of the GBPC that the company’s infrastructure may not be insurable in the commercial markets. In light of the aforementioned, we suggest that the self-insurance programme being proposed be funded solely from the GBPC’s profits.

“This may be achieved by the establishment of a ‘sinking fund’, whereby each year a specific dollar amount is appropriated by Board resolution from the GBPC’s retained earnings.”