The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company (GBPC) yesterday said it was “confident” that the number of residential customers set to experience reduced electricity bills in 2016 had increased to 95 per cent, with some in line for “close to 7 per cent” decreases.

Paul Miller, the utility’s managing director, told Tribune Business it had revised upwards earlier estimates that 85 per cent of residential customers would see reduced total light bills due to minor changes made to its three-year tariff proposal.

That proposal is now awaiting approval from the Grand Bahama Port Authority (GBPA), the Power Company’s regulator, and Mr Miller said the benefits for households would be “sitting there” once the consultation process concludes on January 15.

“We’re confident that with the slight revisions we’ve made, up to 95 per cent of our [residential] customers” will see a decrease in their energy bills, Mr Miller told Tribune Business.

“We’re confident that come January, there’s a decision that’s sitting there waiting for them.”

Besides the 10 percentage point increase in the proportion of residential customers set to see a reduction in their overall light bill, Mr Miller estimated that the extent of the decline could “be close to 7 per cent” for some.

Although the greatest residential energy consumers might see a 1-2 per cent rise, Mr Miller said they represented a small percentage of GBPC’s customer base.

He added that “just about all” GBPC’s commercial clients would also see a drop in their energy costs should the GBPA approve the 2016-2018 tariff proposal that is now sitting before it.

Acknowledging that GBPC’s proposal involved a “slight up and down in the base rate”, with some several customer categories seeing an increase, Mr Miller said this would be compensated for via “the larger offset” from a 30 per cent year-over-year reduction in global oil prices.

This, he emphasised, would result in total light bill reductions for most GBPC consumers and lay the foundations for reducing a ‘cost line item’ that has held back Grand Bahama’s economic progress and competitiveness.

Mr Miller told Tribune Business that GBPC’s generation heat rate, a key component in determining electricity costs and efficiency, had dropped by 50 per cent as a result of its new West Sunrise Plant.

He explained that this had further reduced GBPC’s fuel costs, as it now needed less Heavy Fuel Oil (HFO) to generate the same amount of electricity - savings that could be passed on to consumers.

Energy companies throughout the world have no alternative but to recover fuel costs by including them in customer bills, hence the fuel charge component.

Mr Miller said GBPC’s “many internal efficiencies”, stemming from the $80 million investment in the West Sunrise plant, had combined with the 30 per cent year-over-year oil price decline to benefit consumers.

He added that the modernisation of GBPC’s generation capacity, with the new plant able to produce 52 Mega Watts (MW), had produced “close to a 50 per cent reduction in the heat rate at that facility, compared to what we had with the steam turbines and combustion engines”.

Mr Miller, responding to private sector concerns over GBPC’s fuel hedging strategy, said it was “not aiming to beat the market” - its main goal being to ensure price stability and predictability, so that businesses and households could plan their finances.

The Grand Bahama Chamber of Commerce, in its position on GB Power’s tariff proposal, expressed concern that consumers were on ‘the wrong side’ of the latter’s fuel hedge, which had been left “underwater” as a result of the decline in global oil prices.

The Chamber urged the GBPA, as regulator, to assess whether the associated costs, and loss of benefits to consumers from the ‘missed’ drop in global oil prices, should be absorbed at least partly by the GBPC rather than passed on.

“Our fuel hedging policy is approved by the regulator,” Mr Miller told Tribune Business. “The strategy associated with fuel is that it becomes a direct pass through to the customer.

“Our fuel hedging programme is not designed to beat the market. We’re not trying to win $1 million by going all-in.

“Our policy allows us to look four years out. We’re looking at creating price stability so that we can predict what the band will be for the fuel charge for 2016, 2017, 2018.”

Mr Miller said that if GBPC remained at the mercy of the ‘spot market’, its customers will be exposed to energy price fluctuations that make it impossible to plan.

“All of this up and down is something we heard businesses complain about,” he told Tribune Business. “For them, in running a business the fuel charge is so significant it really created anomalies in their business plans and forward budget lines.”

Mr Miller said GBPC’s hedging strategy meant it knew what fuel prices would be for 2016.

“We’re hedged 75-80 per cent now,” he told Tribune Business, adding that the utility just this week locked-in a hedge that allows it to capture the $32 per barrel oil price range.

“We want to be able to display prudence to take advantage of low oil prices,” Mr Miller said, adding that GBPC was not completely “filling up the future tank” in one go.

He argued that with oil prices set to “hit bottom at some point”, a hedging strategy was vital to protect consumers before they rose again.

Mr Miller said utility companies such as Grand Bahama Power Company (GBPC) calculated their ‘base rates’ using various studies and models that “break out”the actual cost of providing energy to customers.

From these studies, energy firms were able to determine the revenue needed to cover operating costs, capital investment and depreciation, while ensuring they also earned reasonable returns and profits. GBPC has carried out just such a Cost of Services Study to support its three-year rate application to the GBPA.

“We are starting to lay the foundations for moving in the direction of transforming the way energy is produced in Grand Bahama,” Mr Miller told Tribune Business, “with the launch of renewables and alternative energy sources and, in doing so, have tremendous opportunities to work with customers on energy efficiency and being less dependent on fossil fuel generation. That’s where the game is being played.