The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Bahama Port Authority's (GBPA) regulatory functions must be "separated" from its assets to prevent it self-regulating businesses owned by its shareholders, a Freeport hotelier urged yesterday.

Magnus Alnebeck, the Pelican Bay resort's general manager, told Tribune Business this was especially needed in the case of assets that were monopolies such as Grand Bahama Utility Company (GBUC), the island's water supplier, so that businesses and residential consumers could have confidence future tariff increases were only approved after a fair and transparent process.

Speaking after the GBPA approved its affiliate's rate hike application this week, he said Pelican Bay - likely one of GB Utility's largest customers - would be "greatly" assisted if it could use its own well water to irrigate its grounds. However, he argued that it is prevented from doing this by GB Utility's "monopoly" and will thus have to suffer the full impact of the increase.

Asked by this newspaper if he knew what the full financial effect will be from June onwards, Mr Alnebeck replied: "Only that it will increase our losses. I haven't actually sat down and truly analysed it. If we were allowed to use a well for our irrigation that would help greatly, but that is part of GB Utility's monopoly. We cannot use well water for irrigation. There's nothing I can do about it. There's no alternative.

"I'm not the right person to analyse if the increase is valid or not," he added, "but the principle that the regulatory body is owned by the same people that own the water company is just wrong. I think moving forward the Government has to do whatever they can to separate the regulatory function from the assets so the owners of the utility company that has a monopoly cannot self-regulate themselves.

"I see the thing that URCA (The Utilities Regulation and Competition Authority) doesn't regulate water elsewhere in The Bahamas, but it cannot be a private company that self-regulates the water rates. There needs to be a separation of that."

The GBPA is effectively regulating itself since GB Utility is directly owned by its affiliate, Port Group Ltd. Both the GBPA and Port Group Ltd have common shareholders, namely the Hayward and St George families, and multiple parties have pointed to the obvious conflict of interest this represents without an independent third party to review GB Utility's rate rise application and confirm it is justified.

However, any government intervention in the GB Utility water rate increases is complicated by Freeport's founding treaty, the Hawksbill Creek Agreement. This gives regulatory authority for all utilities in the Port area to the GBPA, including for water, electricity and communications. This has caused numerous difficulties and legal battles over the years.

And while a clause in the Hawksbill Creek Agreement allows for the GBPA's quasi-governmental powers to be devolved to a local government authority if 75 percent of its licensees vote in favour, this mechanism has never been acted on.

Tribune Business, though, revealed earlier this week that Grand Bahama's new water regulatory regime appeared to have been implemented almost two weeks before GB Utility's customers were warned of imminent rate hikes.

GB Utility's new regulatory regime, which is posted on the GBPA's website, states at page two that "this operating and regulatory framework agreement [is] made effective as of the 2nd day of April, 2023". That appears to confirm that the regime took effect almost two weeks before the water supplier's customers were first informed of the impending rate increases, and new tariff structure, and one month before the GBPA gave its approval for the hikes.

The agreement, which was signed by Ian Rolle, the GBPA's president, and Philcher Grant-Adderley, for GB Utility in her capacity as the latter's chief operating officer, also refers to the water supplier's Board of Directors passing a March 30, 2023, resolution in relation to the new regulatory framework on the page carrying their signatures. It is not totally clear when the agreement was signed, but it appears to have been between March 30 and April 2, 2023.

"It seems as if the utility's Board approved of it before they even sent it out for consultation," Mr Alnebeck said yesterday, adding that the rate increases seemed to have largely been motivated by GB Utility's desire to recover its post-Dorian investment in reverse osmosis systems.

The water supplier has argued that this will provide greater sustainability, and resilience against natural disasters, after Hurricane Dorian's storm surge contaminated its wellfields. "It's all driven by the cost of producing reverse osmosis water," Mr Alnebeck said. "But everyone knows for the last 50 years they pumped water straight out of the ground and sold it and distributed it.

"That was different from Nassau, which has always had a water shortage and had to barge supplies in from Andros until it went to reverse osmosis. In Grand Bahama it was always pumped out because we had plenty of water underground and that kept the cost low for many, many years. Then the hurricane happens and, oops, the cost is no longer low so we need to do something about it."

GB Utility, seeking to justify the recovery of at least some of its $15m Hurricane Dorian restoration costs from its customers, said that while the $5m investment in a reverse osmosis system will provide extra supply resilience and sustainability in the future this has come at a significant increase in operating costs and “a financial loss”.

“Reverse osmosis systems are extremely expensive to operate in comparison to well water plants, adding an additional $2.5m to the utility’s annual operating costs from 2021 at a financial loss to the utility. This additional operating cost, to date, will not be recouped in rates retroactively,” GB Utility said in a presentation.

“GB Utility also experienced $3m in Hurricane Dorian-related infrastructure storm damage. In addition, there was approximately $2m in uninsurable losses associated with Hurricane Dorian including over $500,000 in costs to operate the free water depots for residents and 25 percent discounts given to residents for water usage.

“These costs were at a financial loss to the utility and will not be recouped in rates..... GB Utility deferred the rate case for two years, at a significant financial burden and cost to the utility. To defer any longer will result in higher cost accumulation and consequently rates, and jeopardises the utility’s ability to maintain and produce potable water and remain functional.”