The Barbados Light and Power (BL&P) has advised the Fair Trading Commission (FTC) that they will be submitting a rate review request in the form of a formal rate application in the second quarter of 2019. This rate review request signals that a rate increase for electricity may be coming in the near future. This is not a surprising development, for several reasons.
One, is that the last rate review request was in 2009 and the BL&P was awarded its rate increases in 2010. Nine years have passed and there have been many changes in Barbados’ energy sector. The second, is that there have been price fluctuations in other areas of the sector, namely gas, diesel and natural gas, which mirror fluctuations occurring on the world market; and it is not unusual that the BL&P would seek to protect itself and its interests against them.
Role of the Fair Trading Commission
Whilst the FTC has been ghosting on several critical issues that affect the Barbadian public, they have remained very committed to the regulation of utilities in the country. The FTC came into being in 2001 with the aim of regulating utility services in the island, namely electricity, telecom services and water. The commission is responsible for reviewing and establishing the principles which can be used by the utility service providers to set rates for their services.
Very importantly, as it pertains to this latest rate review request, the FTC must consult the Barbadian public before any decisions are made on utility regulation. In other words, the FTC must let us know what’s going on and how’s it going down, before any decisions are made.
Rate Review Terms of Reference
On the heels of the BL&P’s notice, the FTC issued a call for consultants who will be tasked with assisting in the review of the forthcoming BL&P Rate Application; researching the request and drafting a decision on the matter. The call was initiated via a Terms of Reference for the “Engagement of Technical Assistance for the Review of the Barbados Light & Power Co. Ltd. Rate Application.”
This document contains quite a bit of information and outlines the scope of the technical assistance and some of the issues that should be considered.
The Terms of Reference includes an introduction that explains why this document has been issued and explains the objectives of the technical assistance request. It also contains a background of the parties involved in the process – the Fair Trading Commission and its responsibilities under the Fair Trading Act CAP. 326B; a brief biography of the BL&P including its regulation, services and capabilities; and an outlook for Barbados’ energy sector.
Issues to Be Raised
According to the FTC’s Terms of Reference, the Barbados Light and Power has already advised that it will be seeking to have the following matters considered:
- “The adoption of a forecasted test year;
- Full recovery of costs associated with the provision of service;
- A rate of return sufficient to provide the Utility with the opportunity to maintain its financial integrity and attract capital;
- A flexible rate mechanism (i.e. cost trackers) that would facilitate the timely recovery of costs associated with the transition to its 100% renewable energy/ 100% electrification vision;
- A review of the BL&P’s existing tariff structure and riders and investigate new structures that would improve the efficiency of cost recovery.
- Consider the establishment of riders and cost trackers;
- Consideration of performance based incentives/earnings sharing mechanisms; and
- Establishment of community solar programmes.”
Role of the Consultants
The consultants who are procured for the rate review hearing, should have relevant professional and technical knowledge that would allow for a fair assessment of the application. If their applications are successful, they will be granted intervenor status.
Consultants must be guided by the Staff Analysis, which requires several detailed reviews. Of great importance are reviews of the BL&P’s accounting systems; its revenues, expenditures and earnings; the reasonableness and prudence of expenses incurred and if expenses have been allocated fairly; calculations of the rate of return on assets; methods of calculating energy adjustment charges; and calculations of proposed rates to see if they will meet the service provider’s revenue requirements.
Consultants will have to:
- Review the depreciation study
- Conduct a regulatory audit before the hearing begins
- Review the rate application and analyse all issues that have been identified
- Research matters that could affect the application
- Prepare interrogatories
- Make recommendations
At the end of the process, they will have to submit several reports which thoroughly assess the BL&P’s application and provide information that can be used to determine whether or not the application will be successful.
In the 2009 hearing, the consultants were the Barbados Small Business Association (BSBA); the Barbados Association of Retired Persons (BARP); the Barbados Consumer Research Organisation, Inc. (BARCRO); Canbar Technical Services Ltd.; the Barbados Association of Non Governmental Organisations (BANGO); Mr. Douglas Trotman; Dr. Roland Clarke and Mr. Errol Niles.
Role of the BL&P
The BL&P has to present a sound case for why the matters that they have raised should be addressed and why a rate increase is necessary at this time. They will have to present proposals, case studies and other forms of evidence to support their requests.
In the previous rate review hearing in 2009, the BL&P’s application was accompanied by affidavits from employees and expert witnesses. The BL&P was represented at the 2009 hearings by a huddle of attorneys, namely Sir Henry Forde, Mr. Ramon Alleyne, Ms. Debbie Fraser, Mrs. Nicola Berry; and legal assistants, Ms. Sabrina Maynard and Ms. Richelle Connell.
How Will the BL&P’s Potential Rate Increase Impact You?
There are several potential impacts that could manifest if the BL&P is granted its rate increase. Although it is too early to quantify exactly how you will be impacted by any proposed changes to electricity rates, you should be prepared for the possibility that both businesses and customers will have to spend more money across the board.
This is because the increase being sought by the BL&P must allow them to recover all of the costs associated with providing their energy services, and allow for the implementation of a rate of return that will allow them to “maintain their financial integrity, and attract capital”.
There are several ways in which this impending rise in electricity rates will affect us, including the three noted below:
- It will impact the cost of business operations. When rates increase, businesses will be paying more for electricity, which will impact the price of goods and services. Therefore, customers will essentially have to pay more.
- Businesses could become less competitive from a pricing perspective. An increase in electricity means that it becomes more expensive to produce, thus making products more pricey. On the regional and international export market where competition is fierce, there is the risk that locally made goods will find it even more difficult to compete with other foreign products.
- In a country that thrives on tourism, and one that is still coming to terms with recently implemented taxes and fees, an increase in electricity can impact hotel costs. In turn, room rates may increase, thus creating a pricier vacation package for visitors.
Although there are several negative impacts of the possible rate increase, there are a few opportunities:
- With an increase in electricity rates, consumers are more likely to invest in renewable energy technologies and products, such as wind turbines and solar panels for their homes. This potential increase in demand augurs well for companies in the renewable energy industry and will encourage growth in sector.
- An increased demand for renewable energy products could encourage businesses to create new jobs and hence hire more staff. This could create a ripple effect through the manufacturing industry, especially if renewable systems inputs can be manufactured locally.
- There is the possibility that consumers will be more willing to conserve electricity in the event of higher electricity bills. Consumers can cut back on their electricity consumption by using simple methods. Some examples are turning off lights when leaving rooms; unplugging electric appliances when not in use; and hanging laundry on lines.
If one only takes a bit of time room to analyse the various sectors in our economy, a broader picture can be derived about what could happen if this increase is granted. We have to remember that the BL&P is like any other company and their ultimate goal is to make a profit.
That’s why this process is very important to you, and why you need to be informed. It’s your responsibility to understand what may happen and how it will affect you, your family and the country.