The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company’s (GBPC) chief executive has pledged to avoid any “harmful rate shock” for storm-battered customers when it seeks to recover its restoration costs.

Emphasising that the utility’s primary focus was on restoring services to all its customers, Sarah McDonald told Tribune Business it would eventually have to work with the Grand Bahama Port Authority (GBPA) to determine the best method for recovering its “prudent costs”.

The decision by GB Power, and the GBPA as its regulator, to defer implementation of its hurricane ‘self-insurance’ fund for one year means that restoration costs are currently being funded from the energy monopoly’s existing financial resources.

Under the rate structure approved in early 2016, the financing mechanism for GB Power’s self-insurance fund was delayed until January 2017 - too late to assist with Matthew restoration costs.

Mrs McDonald acknowledged that the recovery effort “isn’t cheap”, given the amount of workers and resources dedicated to rebuilding a transmission and distribution (T&D) network that was almost completely destroyed by the Category Four storm.

She did not give an estimate for the total cost, but Paul Miller, GB Power’s former managing director, told Tribune Business in late 2015 that the utility’s own studies had shown a hurricane of Matthew’s strength would inflict $28 million worth of damage on its infrastructure,

“It won’t be cheap,” Mrs McDonald told this newspaper of GB Power’s restoration costs. “You cannot have that many resources, and people working these hours, without a cost.

“We’re conscious of it, managing it carefully, and recognising it has to be done. We’ve been talking to the GBPA to say: Are you comfortable with our pace? We’ve been able to go back to the regulator and say: Are these [costs] prudent?”

After Tribune Business raised the ‘hurricane self-insurance fund’, she replied: “If we had had something like that, it would have helped to cover it. Insurance companies will not insure transmission and distribution (T&D) assets.

“We have to find another way to fund it. We’ll work with the GBPA to find a way to recover the prudent costs of restoration, but we don’t want a rate shock that will be harmful to people trying to get back on their feet.”

Mrs McDonald said GB Power would be assisted by its ongoing fuel hedging programme, which now enables the energy utility to know what its fuel costs are for the next three years.

These had declined slightly, and with the predictability and certainty created by the ‘hedge’, Mrs McDonald said GB Power was now able to “manage overall costs and prices a bit better”.

Reiterating that GB Power would seek to recover Matthew-related costs where it could, and in a manner that minimised the impact for consumers, she added: “This is something we have to figure out with the regulator.

“There will be a formal hearing on how we approach this, and what is the best option. But we don’t want people to think we’re splitting hairs, and trying to worry too much about it.

“We’re managing the company, managing the costs, and right now the focus is getting the power on.”

When it made its 2016-2018 tariff proposal back in 2015, GB Power had proposed adding a $0.003 per kilowatt hour (Kwh) charge to customer bills to finance the Self-Insurance Fund.

Mr Miller said at the time that this would be equivalent to just an extra $30 per year for 85 per cent of its residential customers, and GB Power subsequently amended the proposal from a ‘flat fee’ to one that was based upon energy consumption. “High-end” residential users will see a “close to” $100 increase.

The proposal, though, was not without its critics. The Grand Bahama Chamber of Commerce at the time 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 earlier this year.

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

The self-insurance fund was 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.