Bahamas Power and Light (BPL) is having difficulty placing a $600 million rate reduction bond, according to an unnamed placement agent, and the inability of the utility to raise the base rate for electricity appears to be the main barrier, particularly in the absence of continued government subventions. The Christie administration last week put the kibosh on BPL's proposed rate hike for those using more than 400 kilowatt hours (kWh) per month.

That according to Deputy Leader of the Free National Movement and Shadow Finance Minister Peter Turnquest, who reported that the placement agents believe there is too much risk based on the history of the Bahamas Electricity Corporation (BEC) and on BPL's projections with the current rate. Turnquest said BPL "as a private, going concern, has to be able to protect its bottom line". He said the company must be able to meet its commitments, because the government has refused to give the utility any more subventions.

"And if they're not going to give subventions, there are only two other choices. One is financing, and if you do financing, you have to be assured that you could pay it back and that it is done with a view to reducing your overall cost. Or you're going to have to increase the rates. This is not magic," he said.

"BEC was able to get away with a lower base rate because of subventions from the government. That is not the way that operation ought to be run. It is what has led it into the mess that it is in, in terms of not only running deficits, but not being able to maintain its equipment as well as replace it on a schedule that it ought to be," he added.

"And of course, when you're not renewing your equipment and it's becoming obsolete and you're burning the cheapest, dirtiest fuel you can find, you're going to cause problems."

So, is a rate hike therefore inevitable?

"People don't like to hear it, but based upon our current circumstance, I believe it is inevitable," Turnquest said.

"Now there are ways in which we can avoid that, and that is -- as I suggested -- going with a power purchase agreement, putting the onus on an independent third party provider to put in the infrastructure and sell power back to the grid, or to BPL. That may be a way to go," he said, adding that changing the fuel mix is also an option.

"The reality is that we're going to have to bite the bullet sooner or later," Turnquest said.

Some estimates say retrofitting the present system to use alternative fuels could cost as much as $200 million. For reference, BEC had in hand in 2013 a quote for an entirely new power plant at a cost of $187 million.

Inside
BPL CEO Pamela Hill recently penned a letter to BPL customers outlining some reasons for which an increase is, in her view, necessary. Among those reasons are needed investments in equipment, infrastructure and personnel. Hill spoke to a "modest increase" in the base rate for those who use more than 400 kWh per month.

A perusal of the usage -- in kWh -- at a three-bedroom home with split air condition units in two rooms shows even in the month in which the usage was the closest to 400 kWh since July 2013, it was 414 kWh. A straw poll shows similar results for a two bedroom home, a condominium and three-bedroom apartment. Still, it is understood that the banks will not lend BPL the money unless the utility stops losing money, and that is not possible without the rate hike, BPL insiders say.

"The rate adjustment would have stopped the hemorrhaging," one person said.

Tough decisions
Questioned on whether the FNM would -- as a government -- support an upward adjustment in the BPL base rate, Turnquest said, "We're going to have to make some hard decisions."

"There's no more free lunch. We've run out of good will, and now its time to pay the bill. To say that we are prepared to increase rates? I would not be able to say that at this point, What I do know is that we need to find alternative ways to produce energy.

"We need to not be so insular in terms of how we thing about these kinds of utilities, in terms of whether its a state asset and we can't give away control... This is not about sovereignty. This is about the future. This is about making utility costs affordable and reliable for the Bahamian people. So we're going to have to look at alternative energies. We're going to have to look at bringing people to the table who have the knowledge, the expertise and the finances to help us with this problem, and get the best deal for the Bahamian people.

"So, I am not prepared to say we are going to increase rates. I am not prepared to say that, because I think that the rates are already very high. They're high for a reason, because we've been kicking that can, but I am not prepared to say that is the answer," Turnquest said.

Interim
He suggested that there are options "out there" that could bring the price of electricity down in the interim while the critical work of retooling the utility is done.

"Like, for instance, promoting solar. And putting in place programs that would help average Bahamians invest in solar. One of the things that disappointed me in the last budget... is that rather than eliminating duty on solar equipment, they brought it down to 10 percent and said they did something. If you're serious about that, you should eliminate it completely, and fix the (grid tie) structure so that you can sell back to the grid. These are the kinds of things that are going to help in the short term while we figure out the long term," Turnquest said.

A perusal of the fiscal measures attached to the 2016/2017 budget shows no further reduction in duty on solar equipment.

K. Quincy Parker, Guardian Business Editor

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