Executive Summary

The Grand Bahama Port Authority, Limited (“GBPA”) wishes to advise the public that the Grand Bahama Power Company Limited (“GBPC”), in accordance with the Operating Protocol and Regulatory Framework (‘Regulatory Framework”), has filed its Rate Plan Proposal with GBPA, the regulatory authority with the responsibility for the power sector in Grand Bahama. 

Below, is an executive summary of the Final Rate Plan proposal submitted. In accordance with the Regulatory framework, the summary is posted on the GBPA website and the full application is available for viewing at GBPA’s headquarters during normal business hours by appointment only.  Appointments can be made via email to This email address is being protected from spambots. You need JavaScript enabled to view it.

GBPA & GBPC undertook an extensive consultation period totaling 120+ days which included meetings  with various stakeholders and civic groups. This 45 day consultative review period was completed on 15 January, 2016. The GBPA received feedback that included 6 formal letters, petitions and emails. A complete summary of specific feedback provided to the GBPA and the regulators response to each point, can be in Appendix A.  

As a result of the valuable feedback, GBPC revised their original rate application proposing additional changes resulting in all customers seeing a decrease in the amount of money they are paying for their total power bill. 

GBPC 2015 Rate Application Executive Summary 

The Regulatory Framework, agreed to in January 2013, requires the Grand Bahama Power Company (GBPC) to submit a full rate case to the Grand Bahama Port Authority (GBPA) in 2015 in order to apply for rates during 2016-2018.  As in other regulated businesses, GBPC has had to submit a number of studies and statistics in order to justify any change in rates.  These included a Cost of Service Study (which determines the actual cost to serve various classes of customers), a depreciation study, service level information and detailed financials laying out the operating costs and the justification for them. 

This application is in accordance with the Operating Protocol and Regulatory Framework Agreement (Regulatory Agreement) dated January 17, 2013 between GBPC and the GBPA. For some matters associated with this application, GBPC has consulted with the GBPA’s consultant in order to ensure agreement with certain principles used through the rate setting process.  

Despite national inflation, GBPC has been able to propose a rate submission for customers which results in no increase to the “All-in” price of electricity for 100% of all customers, regardless of customer category. That means that the All-in rate is not expected to increase from where it was in 2008. 

GBPC has demonstrated a reduction in operating costs through improvements such as: better generation heat rates, reductions in waste oil, workforce reduction and realignment, work planning improvements, and reductions in system losses to best in class levels. These cost reductions directly benefit customers as part of the rate calculations in this application. 

The final revised  application introduces a 4.5% base rate reduction for the first 350kWh of energy that is used by all residential customers, a 2.2% increase for the additional 450kWh used and a 4.2% increase for all kWh exceeding 800. Ninety percent (90%) of residential customers will see no increase to the base rate and 100% of residential customers will see a decrease to the “all-in” price of electricity (which includes fuel and base rate) when compared to the average “all-in” price for electricity in 2015. 

Commercial and General Service Large customers should expect a slight increase in the base tariff of approximately 1.5%; however, these customers actually see an average decrease of 7% and 9% respectively to their “all-in” price of electricity (including fuel and base rate) when compared to the average “all-in” price for electricity in 2015. 

As customers continue to use more energy and the system load increases, the utility is required to assess its ability to reliably meet the customer demand with its existing fleet of generators. GBPC has completed an Investment Review Plan (IRP) to aid in this analysis. The IRP guides GBPC in creating a long term strategy for its future investment decisions, at the lowest possible cost and allows for the development of an accurate 5 year capital program. The proposed strategy arising out of the GBPC IRP is to utilize technology and rate design to help avoid the next additional piece of generation required for the GBPC system. This avoided cost of generation is of benefit to all customers of Grand Bahama and has shaped the tariff design and GBPCs capital investment program going forward. 

GBPC has begun to lay the framework to introduce renewable and alternative energy solutions to the island which lessen its dependence on fossil fuels and continue to position it as a leader in new technologies resulting in improved operations. 

In 2011 with dependability of the power supply failing to meet the needs of customers, GBPA required GBPC to improve its system reliability. To date GBPA is pleased with the progress GBPC has made with the reduction in outage frequency and duration exceeding 55% compared to the past 5 years. As well, they are demonstrating the opportunity that exists within their facilities to improve plant efficiency by more than 25% (heat rate/engine efficiency). 

Highlights of the Submission 

GBPC seeks approval for the revenue requirement set out which enables GBPC to recover the reasonable costs of providing service to customers and to meet its financial obligations, including provision for a just and reasonable return. 

GBPC seeks approval for: 

  • Adjustments to the rates & charges, as described in the application
  • A new tariff classification called Large Industrial, as described in the Application
  • Development of a Renewable Energy Rider, on a pilot basis
  • A non-fuel revenue requirement including base revenue of $70 million
  • A decreased revenue requirement of $2,800,000 from 2014
  • A reduction on Return on Rate Base from 10% to 8.8%
  • A Hurricane Self Insurance Fund, which allows GBPC to have money put aside, on behalf of customers, in advance of a hurricane event. This is a proactive approach to begin to provide rate protection for customers from an immediate tariff increase, if a hurricane causes significant damage. The charge will be $0.003 per kWh that would go into effect January 2017 and collect about $1 million per year  

In support of their request GBPC has submitted the following studies and reports: 

  1. An Investment Review Plan (IRP) which looks at the customer load forecast and compares it against GBPC’s current generation availability. The IRP helps to create a long term plan that guides the utility in its future investment decisions at the lowest possible cost and allows the utility to develop an accurate 5 year capital program.   
  2. A Cost of Service Study (COSS) which accurately reflects how GBPC’s actual costs are allocated to serving the different classes of customers
  3. GBPC’s depreciation review of the assets from the T&D and Generating operations, which has confirmed that GBPC is depreciating its equipment properly. This analysis demonstrates that GBPCs assets are properly accounted for (and depreciated) when completing the tariff design.  
  4. The Capital Structure which shows the Weighted Average Cost of Capital (WACC) which has been updated from the previous WACC study of 2010.  
  5. GBPC Hurricane Vulnerability Review, which is designed to aid Grand Bahama Power Company (GBPC) in their contingency planning of the potential vulnerability with regard to their Uninsured Transmission & Distribution (T&D) assets – specifically; poles, accessories and overhead cables - to Tropical Cyclone force events.   
  6. Various Revenue Requirement Schedules that comprehensively outline what is required for Fuel, O&M Depreciation and Amortization Summary for the applied period.   
  7. GBPC Performance information that demonstrate the annual improvements to various Key Performance Indicators (KPI’s)  
  8. A 5 year capital plan based on expenditures that focus on: i) the deferral of future generation, ii) reduction of system peak demand, and iii) reliability improvements (generation and T&D). The plan includes LED light change-out, Automated Metering Infrastructure (AMI), a storage system for frequency regulation, and potentially solar generation.   
  9. The East and West End Agreements mandate that any increases in tariffs should not exceed the rate of inflation since the date of the agreements. The rate of inflation, since the date of each agreement, has increased by 46.7% and during this same period the West End rates increased by 15.3% and the East End Rates increased by 22.6%.  

Base Revenue Requirement 

The Revenue Requirement for GBPC reflects the reduction in WACC from 10% to 8.8%. In spite of increases in the rate base due to investments in capital projects, all other costs have been kept at 2014 levels in order to minimize the impact to customer rates.

Rate Design 

A Cost of Service Study (COSS) has been completed which reflects how GBPC’s actual costs are allocated to serving the different classes of customers. The COSS has allowed GBPC to assess how much revenue is attributable to each customer class and review that against what the COSS model predicts should be recovered from each customer class. This application provides revised tariffs to move closer to the ideal COSS allocation.  

Figure 1 below provides a breakdown of the proposed factors which comprise the average Base Rate and Fuel Charge.   

While rate rebalancing is necessary to ensure that the Company can offer competitive rates to customers without cross-subsidies, only partial rate rebalancing is being proposed at this time to avoid “rate shock” to certain customer classes. 

GBPC seeks to update its rate design to better reflect customers’ use of the system. GBPC has proposed several rate design modifications. The last change in electricity rates was granted in 2012; however, this was a rebalancing of the base rate, where the “All-In” rate (inclusive of base rate and fuel charge) was designed to remain the same or lower. The proposed tariff for 2016 to 2018, results in a slight increase to some base rate classes, with a significant decrease in the fuel charge that results in a lower “All-in” rate for customers until 2019. The fuel hedging program that is in place, allows for portions of fuel to be locked in over the next four years; this strategy allows GBPC to take advantage of the historical low prices for oil and buy future year requirements at quite low pricing. This strategy allows GBPC to better predict the future price for oil that they will consume, and better safeguard customers from the volatility of world oil markets due to uncontrollable situations or crisis that can cause oil to hit future high prices. Figure 2 shows the “All-in” Cost/kWh for 2011 to 2018. 

 

 Proposed Tariffs and Sample Bills for Residential and Commercial Customers 

With the proposed tariff structure for the residential class, 100% of GBPCs Residential customers, , will see their total (All-In) bill decrease by $14 to $49 per month depending on consumption. 

100% of Commercial customers will see their total (All-in) bill amount decrease by 7%.  

Figure 5 shows the impact on total costs for the residential and commercial class of customers with various consumption levels. As shown, there are savings for all customer classes and consumption levels on Fuel charge. 

Noted improvements 

GBPC’s submission notes that for the period 2012 – 2015, the utility has progressed steadily towards achieving its three–point plan established in early 2011. This plan was established after it was made very clear what the customers of Grand Bahama required from their power utility: improve the reliability of service, stabilize rates for customers, and lessen the utility’s dependence on fossil fuels.   

Specific progress includes: 

  • Reduction in operating costs due to significant reductions in waste oil/sludge, and reductions in System Losses - See Figures 6, 7 respectively
  • Implementation of a fuel hedging program to better control fuel costs and provide long term stability and predictability to customers
  • Continued Capital Upgrades to both Generation and Transmission & Distribution (T&D) infrastructure, to enable more efficient generation and more reliable power delivery for customers
  • Improvements of more than 55% in system reliability for the supply of electricity (less outages, shorter duration) - See Figure 8 and 9
  • Improvements of more than 25% for generating plant Heat Rates which reduces the amount of fuel burned thereby reducing the fuel charge – See Figure 10
  • Fuel Charge Trend and future stability compared to previous years – See Figure 11
  • Creation of a Customer Survey  to begin tracking customer satisfaction - See Figures 12 - 14
  • New Vegetation Management Program  

Renewable and Alternative Energy 

GBPC is undertaking an innovative approach to lowering its system peak demand and deferring future fossil-based generation investments as indicated in Figure 15. The proposed plan includes: 

  • The change out of all night lighting to LED technology: The new lights will replace high pressure sodium (HPS) lamps in a move designed to decrease the amount of energy consumed by street lighting on the island. This move is in keeping GBPC’s plan for improving energy efficiency, reducing carbon emissions and the use of fossil fuels.  
  • The introduction of Solar PV technology: GBPC recognizes that the use of solar provides benefit to customers, partly by enabling the deferral of future capital investment in fossil fuel generation assets. Solar, when combined with a cost effective energy storage system to capture the sun’s daytime energy, can be successful on Grand Bahama, where we have the ability to release the stored energy during the night when the island’s energy demand is at its highest. Areas being investigated include the East End of Grand Bahama and the Industrial area.
  • Provide customers throughout Grand Bahama with the ability to generate/sell electricity to the grid, using renewable sources of energy, through the development of GBPC’s new Renewable Energy Rider rate. This rate allows for customers to supply energy generated from energy sources such as Solar PV, Wind turbine or other forms of renewable energy to the grid.  
  • GBPC has introduced biofuel as a source of energy with the utilization of biofuel in GBPC’s diesel vehicles in January 2016. Initially a 20% biofuel, 80% petroleum blend will be used. Biodiesel will also be used in GBPC’s generation equipment at lower concentrations as the volume of biodiesel produced permits in 2016.   

 

Appendix A - Consultation Feedback and Response


Item # Comments Received GBPA's view Conclusion
1 The consultation period was not sufficient The consultation period met the requirements of the Regulatory Protocol.  It began in September with stakeholder groups and was then extended another 45 days to provide an acceptable timeframe for customers to review, provide feedback and meet with GBPA. The feedback has been incorporated into the final submission.
2 Approval of the rate application would add further burden to an already depressed economy, especially since the implementation of Value Added Tax (VAT). GBPA understands the need to do everything possible to help improve the economy.  That is why GBPA encourged GBPC to find every possible method to stabilize or reduce rates.  The final application proposes a 7%-12% savings for ALL of its customers. Customers will see the total cost of electricity decrease when compared to 2015. We are confident that several of the initiatives in the GBPC rate application will promote future business expansion plans, economic growth and job creation.
3 GBPC should allow the use of solar by customers and put renewable energy into their energy mix. GBPA recognizes that the use of renewable energy  can benefit  GBPC's customers, is good for the environment and reduces our dependence on foreign fossil fuel.  GBPC's rate application contains a number of initiatives that introduce renewables to the energy mix; one of which allows for the use of solar PV by customers with the ability to sell excess power generated by renewables back to the grid. Additionally GBPC will be building their own solar and introducing biodiesel as an alternate fuel.   With future environmental stability built in, GBPC’s proposed plan aligns with the Government's Energy Policy which mandates an energy mix of 30% renewables by 2030.  
4 The base rate components are "filled" with profit. GBPC/Emera is a monopoly driven by profit and will charge whatever it can provided the Regulator allows. Electric monopolies are common throughout the world. With proper regulation, utilities deliver safe, reliable service to all customers, irrespective of profitability, within their region or country. Under the regulatory rate structure established by the GBPA, electricity rates include both a base rate and fuel charge mechanism (FCM). The base rate reflects GBPC’s operating expenses, depreciation of capital assets and a return on capital investment which the GBPA believe have been well controlled, are not increasing and are tied to a well thought out, long term business plan.  The FCM, which is the actual cost of fuel used to generate electricity, is a full pass-through mechanism which generates no profit to the utility. The GBPA requires the principles of cost of service be applied to the rate design to ensure consistency and equity across different customer classes. As with any responsible business, GBPC must recover its investment and have the ability to fund future investment so that it can continue to meet the  needs of customers. It also must balance customers’ needs with those of its investors which include substantial Bahamian interests. Without an allowable – not guaranteed – rate of return, no company will invest the required money needed to electrify a nation. Based on audited financial statements, GBPC  made a profit in the last two years only, which has been returned in part to local shareholders through the issuance of a dividend.
5 Hotels and Tourism sector should be given the same opportunity as the large industrials customers to understand the rate structure and design associated with their rate. GBPC conducted a Cost of Service Study for all customer classes, which was submitted as part of this rate filing. GBPC proposes to move rates gradually in the correct direction which promotes the elimination of  cross-subsidies between classes in a gradual manner and does not cause “rate shock” to any one particular class, in the short-term. The hotels have since been provided additional information in relation to their business which helped them to better understand the rate filing information. The extension of the consultation period to 45 days also provided an improved understanding of Hotel and Tourism sector business model and future opportunities and the impact of the price of electricity to their operation. 
6 Hedging should be looked at and to the extent it is underwater, the GBPA should determine who should rightly bear these costs GBPCs hedging program was put in place to protect customers from swings in fuel prices and provide for long term price stability. As such, over a long period of time, there will be periods when fuel prices are less than the hedged price and there will be periods when fuel prices are higher than the hedged price. GBPC does not benefit financially from hedging, the costs are part of the fuel charge and the sole purpose is to provide long term price stability to customers. While fuel recovery is not part of the filing under review, the regulator monitors the fuel charge in relation to being "in or out" of market, and will consider options to mitigate any negative impacts. The long  term stability has a significant positive impact for industrials and commercials who can price their products and services appropriately.
7 GBPCs rate and fuel charge should be on par with BEC It is difficult to compare GBPC to state owned utilities as the customer revenue is often below the actual cost to provide service, as they are subsidized by government through either government debt issuances or other tax revenues.  BECs base rates are lower than GBPCs; however, we do know the following: GBPC has standard regulatory and best in class reporting for reliability, environment, safety, Generation and T&D asset management, finance, training and development, etc. The organization is built on transparency and is aligned with the expectations contained in the Regulatory Framework. Until such processes and metrics for BEC are provided, an equitable comparison cannot be done between the two organizations since we cannot say what the BEC base rate and fuel charge are based on. It has been released that BEC is operating at an annual loss of at least $30M and that at least $400M needs to be invested to upgrade their assets, due to the reported reliability issues associated with their system; add to this an unknown environmental liability and one realizes that additional base rate costs, under a regulated environment, need to take place in the future. This supports the notion that the existing rate is artificially lower than it should be.
8 Rate levels are deterring investment and expansion on Grand Bahama. The GBPC application proposes a 7%-12% savings for ALL of its customers. The customer's total (All-in) power bill is comprised of both the base rate and fuel charge. Customers will see the total cost of electricity significantly decrease when compared to 2015. We believe that this new application creates future price stability and predictability, with focus on innovative new rate structures providing economic incentive, including the continuation of the Economic Development Rate. A new Large Industrial Rate is also proposed that we are confident will also promote future expansion plans, economic growth and job creation in the industrial sector, while saving customers from a rate increase.
9 GBPC should recoup investment over longer time periods to mitigate rate impacts. After the feedback, GBPA did ask that some of the amortized costs will be recovered over a longer period of time.  GBPC submitted a Depreciation Review as part of this filing which provides detailed information on its asset base, the time period used for depreciating particular assets and the remaining useful life of such assets. GBPA as the regulator of GBPC ensures that generally accepted accounting principals are applied to all accounting practices including Return On Investment (ROI) & depreciation. 
10 There should be a decrease in revenue requirement that GBPC is approved to receive. The final submission has GBPC seeking approval for a decreased revenue requirement of $2,800,000 from the 2014 historical test year and a reduction on Return on Rate Base from 10% to 8.8%.GBPCs revenue requirement for a regulated electric utility is based on ROI, Operating cost,  Depreciation and Amortization. 
11 GBPC rates should be adjusted proportionally across all classes GBPC conducted a Cost of Service Study (COSS) which accurately reflects how GBPC’s actual costs are allocated to serving the different classes of customers. This study was reviewed for accuracy to ensure costs were properly recorded and allocated across its customer base. 
12 Hotels being a large sector should be given due consideration similar to the industrials Refer to response #5
13 HIF should be funded as a percent of GBPC profits rather than a separate surcharge. The insurance fund that GBPC proposes is common practice for utilities in the Caribbean region as well as in the south-eastern United States that are prone to tropical storm and hurricane activity. These funds smooth out the cost impacts of storm events and are always funded by customers who are the primary beneficiaries of the fund. GBPA will look at the level and timing of the GBPC, but the basic structure of what is being proposed is considered to be a standard best practice.
14 Base rate being charged by GBPC/Emera is the highest in the Bahamas and a violation of Agreement. Refer to Response #4.                                                                                                                                                                                           The Agreement has been reviewed in detail and GBPC is compliant with all aspects. In addition, the Regulatory Framework provides the the mechanism for what is considered a reasonable return and ensures the West and East End Franchise Agreements are complied with.
15 GBPC rates 30% higher than their Caribbean Average It is difficult to compare GBPC, to state owned utilities as the customer revenue is often below the actual cost to provide service, because they are subsidized by government through either government debt issuances or other tax revenues. While GBPC rates are  high when compared to large continental based utilities that do not face challenges such as : 1) Having to build redundancies into their system to achieve the reliability that customers deserve. As there are no alternative energy suppliers on the island, this comes at a cost that has to be shared by the relatively small customer base, 2) The lack of economic alternative fuel options which make relatively small generation units the best available option; 3) No available interconnections with other larger electric systems as with continental utilities; 4) A system that peaks in the evening when solar does not produce power thereby impeding the economics of this renewable resource GBPC costs are in the bottom third of price when compared to other investor owned island based electric utilities in the region.  
16 GBPC profits in fuel surcharge. Why is the fuel surcharge higher than BEC's which purchases duty paid diesel? GBPC's fuel charge is not higher than BEC's and GBPC makes no profit on it.  Under the regulatory rate structure, electricity rates include a base rate and fuel charge. The base rate reflects GBPC’s operating expenses, depreciation of capital assets, and a return on capital investment.  The fuel charge is the actual cost of fuel used to generate electricity; this is a full pass-through mechanism which generates no profit to the utility. We are unaware whether BEC purchases duty paid diesel or not. Under a regulated environment, this would be an item that would be transparent and auditable in  order to understand its treatment.
17 GBPC must be the only power company in a western democracy that charges the customer a high rate if you use more power. GBPC is not the only power company that charges more for higher consumption.  GBPC costs are typical when compared to other investor owned island based electric utilities in the region.  GBPC uses standard utility practice that tiers its price by consumption.  For residential customers it is common to have a tiered approach where the higher tiers are priced to provide an incentive to encourage conservation—which is the cleanest, cheapest and simplest way to meet growing electricity demand. Another factor that is considered in Grand Bahama for this approach is to provide a benefit to our lower income residential customers.
18 Electric bill is in excess of the payroll. Makes it prohibitive for new investment by hotel sector on the island. Tourism being a large sector should be given due consideration similar to the industrials. We believe that this new application creates future price stability and predictability, with focus on innovative new rate structures for economic incentive including the continuation of the Economic Development Rate. A new Large Industrial Rate is proposed that we are confident  will promote future expansion plans, economic growth and job creation in the industrial sector, while saving customers from a rate increase. Commercial customers will benefit from an average 8% decrease yielding clear savings for the hotels that fall within the "Commercial" class. 
19 Best way to attack lowering electricity costs to low income is to get the government to roll back VAT on the first 1000 kwh of residential and the first 2000 kwh of commercial this will give an additional 7.5% reduction to customers GBPA supports the lowering of bills to low income residential and commercials. The greatest savings for the new rate structures will be seen by low income residents, with both a base and all-in decrease, totalling 12% savings. Residential Customers will see annual savings amount between $150 and $500, depending on consumption. Government taxes are not under the control of the GBPA or GBPC.

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