BPL confirms new agreement to hedge additional 15 percent of its fuel

BPL confirms new agreement to hedge additional 15 percent of its fuel
Bahamas Power and Light.

NASSAU, BAHAMAS — Bahamas Power and Light (BPL) said yesterday that approximately 56 percent of its fuel used for power generation is hedged, with the company in the process of implementing a new agreement that will hedge an additional 15 percent.

The company issued a statement yesterday in response to recent criticisms of its fuel hedging strategy, asserting that signing a new fuel hedge agreement in 2022 was considered ‘bad timing.’

Opposition leader Michael Pintard has repeatedly contended that failing to execute those hedges has resulted in higher fuel costs for Bahamian consumers.

“The purpose of fuel hedging is to stabilize the overall cost of the fuel and, at this time, more than half  (approximately 56 percent) of the fuel used for power generation is hedged. Further, BPL is in the process of implementing a new agreement that will hedge an additional 15 percent of its acquired fuel,” BPL said in a statement.

The company said that it is confident in its decision to negotiate a fuel hedging contract at this time based on several mitigating factors. According to BPL, signing a hedging agreement in 2022 was considered bad timing. It noted that in February 2022, the cost of Brent Crude was approximately $120 per barrel.

BPL said: “Executing an agreement when the cost of brent crude was at a peak – brought on by the Russia/Ukraine War – would have resulted in less favorable fuel hedging prices. Today, Brent Crude is trading at approximately $90  per barrel with projections of further declines.”

The company noted that signing a new fuel hedging contract in early 2022 was not fiscally prudent.

“BPL was in the middle of negotiating two multi-million-dollar loan agreements to mitigate pre-existing obligations. The execution of a new fuel hedging agreement during those negotiations may have derailed or, at the very least, delayed BPL’s ability to finalize both loans at a time when that financing was critical to covering necessary operational expenses,” the company said.

The company asserted that the impact of signing a fuel hedging contract in 2022, as opposed to 2023, is materially negligible.

“The cost variance between placing a hedge at that time and not placing a hedge works out to about half a penny per kilowatt hour of energy consumed. The customer would not have seen many benefits on their bills. Therefore, BPL considers its decision to pursue a new hedging contract now, far more prudent. Not only  have fuel prices declined to a point where hedging gains are far more favorable, but the organization’s finances have stabilized due to the successful completion of both loan agreements and the  implementation of the glide path fuel cost recovery scheme.”

The company noted that regardless of when the hedge was executed, BPL faced certain realities in 2021 and into 2022. Among other things,  despite fuel hedging, BPL’s fuel bill was increasing. Both Administrations made a conscious decision, permitted in the law, to cap the fuel charge per kilowatt hour at 10.5 cents to protect consumers from additional hardships during the pandemic.

“With the pandemic over and a slow recovery underway, a glide path strategy was implemented to recover the amount spent on fuel during the pandemic. The incremental increase in the monthly fuel charge is considered a far more palatable approach to recovering the money, while at the same time allowing BPL to put in place effective strategies to drive down fuel consumption in electricity production,” the company noted.

According to the company, on average, the fuel charge works out to be about 20 cents per kilowatt hour during the projected glide path recovery period. While significantly higher than the 10.5 cents customers paid (either when fuel prices were extremely low or when the Administrations agreed to the temporary cap)  it is still lower compared to utilities of similar size and characteristics in our region.

1 comments

Fuel hedging when crude oil’s at its peak is foolish, of course it will hurt the consumer.
Russia/Ukraine and corona seems to be the excuse for every blunder now days, no mention of the shut down of oil dredging and refinery by the green climate cult or the carbon taxes and environmental penalties and fees by government agencies.
This clown said its better for us consumers to pay higher power bills because they invested in oil when the markets was high now the markets fell so they will lose millions but charge us more to make up for their loss Pintard is a fool playing us like fools.🤦🏿

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