BPL announces fuel charge drop, hedging

BPL announces fuel charge drop, hedging
BPL Clifton Pier plant (file photo)

NASSAU, BAHAMAS — Bahamas Power and Light’s (BPL) decision to drop its fuel charge to 10 cents and begin fuel hedging was welcomed yesterday.

However, some expressed skepticism as one Chamber of Commerce executive questioned, “what’s the catch?”

Debbie Deal, chair of the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) energy and environment division said: “It’s going to be good for consumers but what does this really mean?

“Oil prices are starting to go back up and so what is going to be the impact of hedging? They should have been doing this for the last 20 years. Why are they doing this now? Is there an ulterior motive for this that it’s going to be lower now? Should we be expecting higher fees? Is this to pacify us for something else to come?”

She added: “It’s a bit odd that they are doing this now. If they were doing this for the past 20 years I would be confident that this was in our best interest but I have to question why now when three to four months ago people were almost giving away fuel because prices were so low. Thank you very much, it’s great, it will probably lower my bill by $20 but I’m a bit skeptical. What’s the catch?”

Bahamas Power and Light (BPL) yesterday announced that the July 2020 fuel charge will drop to about 10 cents, with the goal being to hold fuel costs to that level going forward, now that the government has given the utility permission to begin hedging.

By comparison, the fuel charge was $0.17 kwk in July 2019.

According to BPL CEO Whitney the utility has “strategically built up its fuel reserves”.

“We now have the physical inventory in place to announce that beginning July 1, 2020, BPL fuel charge for customers will be about 10 cents.”

Heastie pointed out that the base- loading of the Wӓrtsilӓ Station A at Clifton Pier Power Station also puts downward pressure on the fuel cost to the customer.

He also noted that BPL’s request to begin hedging had been approved by the Cabinet of The Bahamas and tabled on Monday in the House of Assembly.

“BPL has now adopted the industry-standard practice of hedging. Hedging is a means of protection against price volatility,” he said. “Through hedging, BPL can now essentially “lock in” a fuel price for a set period of time, bringing unprecedented stability to electricity costs in The Bahamas. We are targeting that 10 cents range, hoping to hold the fuel cost there even when the hedged inventory enters the system in the second quarter of the fiscal year.”

Board Chairman Dr Donovan Moxey said, in the aftermath of the Cabinet confirmation, “It’s simple: the base rates for electricity have not changed in more than 10 years. The unpredictable swings in our electricity prices has been due almost exclusively to the wild swings in fuel prices on the open market.

“Once the hedged fuel costs kick in, the major determining factor for how much you pay for your electricity will be your usage. That means that once we lock in a price, you determine – by your usage – how much you pay for electricity.”

Over the years, volatility, unpredictability and uncertainty in the world market has kept BPL fuel costs unpredictable, veering – sometimes wildly – from low to high with no curve. With the ability to hedge, BPL can provide customers with predictability, certainty and stability in their fuel costs.

BPL has shared its hedging plan with the Utilities Regulation and Competition Authority (URCA).