The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The implementation of Grand Bahama Power Company’s hurricane ‘self-insurance’ fund has been pushed back one year until January 2017 under its newly-approved tariff structure.

Paul Miller, the energy monopoly’s managing director, told Tribune Business that it had “flexibility” over when to implement the Fund, which is designed to raise $1 million per year via a small charge levied on consumer bills.

GB Power’s initial three-year rate application proposed introducing the Fund this January, but Mr Miller said: “Based on the consultation and feedback, it was decided to delay the implementation of the hurricane self-insurance fund, and its implementation has been delayed until January 2017.

“That was something where there was flexibility over when that was introduced, and working together and based on feedback from the Port Authority, this was deemed to be an acceptable solution from that perspective.”

The Fund is an effort by GB Power to prepare for the worst-case storm scenarios, ensuring it has financial reserves to effect multi-million dollar repairs to critical infrastructure that might be delayed if it has to seek funding form elsewhere.

It is common for energy utilities in storm-hit areas to establish a Hurricane Self-Insurance Fund, given that they - like GBPC - are unable to obtain insurance coverage for their transmission and distribution assets.

Mr Miller told Tribune Business that GB Power’s “philosophy was embraced’, in that the Fund was seen as a “proactive”measure to minimise the financial impact of catastrophic disasters.

He added that with most “best in class utilities” having already adopted self-insurance policies, GB Power did not have to come up with new processes of its own.

“We’ll take next year to ensure all the proper mechanisms are put in place, and ensure the Fund does what we said it’s going to do, and all the controls are in place to make sure it’s properly done,” Mr Miller told Tribune Business.

In a previous interview, he said GB Power’s self-insurance ‘charge’ would be equivalent to just an extra $30 per year for 85 per cent of its residential customers.

“It is a small amount based on energy usage,” Mr Miller said of the $0.003 per kilowatt hour (Kwh) charge that will be levied upon customer bills to finance the Self-Insurance Fund.

He conceded that GB Power had already amended its original proposal, which sought to levy a ‘flat fee’ on all customers, to a charge that was based upon energy consumption.

“In our original filing, we had come out with a flat rate per customer fee for residential, commercial and large customers,” Mr Miller told Tribune Business then.

“With the feedback from one of the stakeholder sessions we held, we came to the realisation that we had had a lot of discussion on the hurricane charge, and felt a better way this can be levied was one that was reflective of customer energy usage.

“This seems to make more sense, and is more equitable across different customer classes.”

The charge is not without its critics. The Grand Bahama Chamber of Commerce, in its response to GB Power’s 2016-2018 tariff proposal, argued that the utility should finance the Self-Insurance Fund from its profits rather than burden already hard-pressed consumers with a further levy on their light bills.

Mr Miller, though, rejected this, arguing that it was established practice worldwide for the energy industry to finance self-insurance funds from consumer levies.

He said studies commissioned by GB Power had highlighted the need for such a self-insurance mechanism, as they had estimated that a Category Four hurricane similar to Hurricane Joaquin would inflict $28 million worth of damage on its infrastructure if Grand Bahama was hit.

“The studies indicate that a Category Four hurricane like Joaquin, if that were to hit Grand Bahama, that would create upward of $28 million in damages to be recovered,” Mr Miller told Tribune Business.

“That’s why we said: ‘Let’s be prudent here, start at $1 million and see what the Port Authority rules on that’.”

He stressed that the impact on light bill costs would be minimal, with 85 per cent of GBPC’s residential customer base seeing just a $30 increase that is spread out over and entire year. “High-end” residential users will see a “close to” $100 increase.