The Tribune

• Lower electricity rate hike to ‘slow down’ reinvestment

• Says 42% of households to see bills rise by ‘under $1’

• Cuts recovery of Matthew restoration costs to fit flow

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama Power Company yesterday said it will suffer “a significant cash flow constraint” after it was granted just 53 percent of the base electricity rate increase it was seeking.

The island’s sole utility-scale provider, in e-mailed responses to Tribune Business questions, said as result it will have to cut operational costs and capital investments, “particularly in 2022”, with planned network infrastructure upgrades “slowed down” and delayed.

Acknowledging that “no one wants to see rates increase”, GB Power nevertheless said its approved base rate rise will have no impact on the 20 percent of residential consumers who consume the least energy. And those using between 201 and 350 kilowatt hours per month (kWh) will see an increase of just “1 percent or less” when the hike takes effect from April 1, 2022.

Making the case that its revised base tariff will result in an almost-negligible increase to households’ electricity bills, GB Power told this newspaper that “the average residential customer” would see a $3.50 increase in their monthly energy costs. And 42 percent will see a rise of “less than $1 per month”.

The utility said the Grand Bahama Port Authority’s (GBPA) decision, as its regulator, to grant an average base rate increase of 3.3 percent, as opposed to the 6.3 percent hike originally sought, will cause short-term issues when it comes to generating sufficient cash flow that will allow it to reinvest in upgrading its network assets.

“The rate review process was rigorous and pushed us hard to examine ways in which we could reduce costs,” GB Power told Tribune Business. “The reduction to 3.3 percent by the regulator will cause a significant cash flow constraint, particularly in 2022, that will have to be managed through operational and capital cost reductions.”

GB Power had initially been seeking a near-$5m increase in its annual base revenue to $66.5m, asserting that this was needed to cover both increased insurance premiums and recover costs associated with restoring its transmission and distribution network following Hurricane Matthew in 2016.

In a presentation posted on the GBPA’s website to support the original 6.3 percent application, GB Power said it needed to recover a $2.3m increase in insurance costs stemming from claims submitted over the damage inflicted by hurricanes Matthew and Dorian.

Taking 2018 as a benchmark, GB Power’s presentation showed insurance premium costs rising from $2m in that year to $4.3m in what it described as “a test year”. Also included in the $5m was the $2.2m “amortisation of regulatory assets”, which is the utility’s recovery - spread out over time - of costs associated with restoring its transmission and distribution network after Matthew.

GB Power yesterday said the 47 percent reduction in the average tariff rate increase had been achieved by lowering this recovery of Matthew-related restoration costs. “The reduction has been achieved by reducing the amortisation of regulatory assets. These are expenses which have been made in the past by GB Power and not yet recovered through rates,” it added.

“These reductions reduce the cash available to the utility, and therefore will slow down reinvestments in line with available cash flow.” However, GB Power said the impact will be lessened via the late 2021 debt refinancing carried out with support from its 100 percent owner, the Canadian utility giant, Emera.

“GB Power, with support from Emera, was able to refinance debt at the end of 2021 which reduced our revenue requirement,” it said. It did not provide details on how much debt was refinanced, and on what terms, or how much this had lessened its “revenue requirement” before press time, despite Tribune Business posing the question.

Suggesting that the lower-than-desired base rate increase will have the greatest impact in the short-term, GB Power added: “While we may be slowed down in the short-term due to reduced cash flow, as long as we see a rebound in sales to pre-COVID levels we are still on track for our planned $80m investment in the longer term.

“This will be spent on plant maintenance, transmission and distribution (T&D) system upgrades to enhance reliability, solar plant and battery storage and AMI (automated metering infrastructure). We know no one wants to see rates increase, but this adjustment is necessary for us to be able to continue to invest in our operations and to maintain safe, reliable and increasingly renewable electricity service for customers for years to come.”

Pledging to “continue to deliver a robust energy efficiency programme to guide customers in managing electricity use and minimising monthly energy costs”, GB Power suggested that the approved base rate increase would have minimal impact across all residential customer categories, implying that fears about its impact on hard-pressed consumers are overblown.

“A new tier has been established for customers consuming zero to 200 kWh, representing about 20 percent of the residential customer base,” GB Power explained. “For those customers, there will be no increase in their rate. Additionally, residential customers consuming 201-350 kWh will see an increase of 1 percent or less.

“Therefore, 42 percent of residential customers will experience a total bill [increase] of 1 percent or less. That translates to less than $1 per month. Total monthly energy bills across all classes will increase by 2 percent to 2.5 percent depending on consumption levels. For the average residential customer, this represents about $3.50 per month.”

The creation of the under 200 kWh tier was approved by the GBPA as part of the base tariff increase. “GB Power’s monthly bills encompass base rate and fuel charge rate,” said Nikita Mullings, its chief operating officer.

“The total monthly energy bills will increase by 2 percent to 2.5 percent depending on consumption levels. For the average residential customer, this represents about $3.50 per month. Those residential customers who consume up to 200 kWh per month – those who fall in the new Efficient User tier – will see no increase in their rate.”

GB Power, though, did not break down the impact of the approved base rate increase on its business customer categories despite being asked to by Tribune Business.

“We looked carefully at all financial and operational areas, and put into place several cost-savings initiatives, including refinancing debt and further curbing operational and capital expenses, to enable us to develop a revised, more balanced rate adjustment than initially sought,” said Ms Mullings in a statement.

“A key goal in our proposed filing was to minimise, to the extent possible, the impact on vulnerable customers in our communities. We’re pleased that about one-fifth of our customers will not experience a rate increase. For others, including residential, commercial, and industrial customers, the all-in increase will be less than 3 percent.”

GB Power said it has so far installed 5,000 smart meters and related infrastructure, and aims to extend this to 75 percent of its customer base by late 2022. “With the GBPA’s approval, we can continue to make critical investments in operations that will allow us to support the country’s National Energy Policy and deliver on our commitment of enabling about 15 percent of our generation from renewable sources by 2026,” said Ms Mullings.

“These investments set the stage for a cleaner and more independent energy future for Grand Bahama, and that will translate to future cost savings for customers and a reduction in our carbon footprint.”

The Government, meanwhile, hailed as its victory the fact that GB Power had only been approved for an average 3.3 percent base tariff increase as opposed to the originally-sought 6.3 percent hike. Its statement, though, effectively acknowledges that it had to rely on moral suasion to make its case, as it had no legislative or regulatory powers over the parties involved.]

Ginger Moxey, minister of Grand Bahama, referring to the Cabinet sub-committee that met with the GBPA and GB Power on the issue, said it had “advocated for the residents and businesses of Grand Bahama at a time when the impact of Hurricane Dorian and COVID-19 is still evident”.

“From the outset, the committee issued a strong response to the initial filing of the application and clearly stated that the Davis administration does not support any rate increase on any portion of the customer base on Grand Bahama,” she added.

“Since this time, the committee met with both GBPA and GB Power and emphatically reiterated the Government’s position that this is not the time for an increase in power rates, especially [given] that residents and businesses are still trying to rebuild.

“The committee was successful in persuading GB Power to revise their proposal, which resulted in a decrease from 6.3 percent to 3.3 percent, by almost 50 percent. The committee reiterates its position that any increase is difficult for the many residents and businesses still struggling to survive,” Mrs Moxey continued.

“The Government continues to call for compassionate leadership during a time when social consciousness should be an integral part of the restoration of the Grand Bahama community and economy.”