BLPC boss grilled over refusal to pass on gains to customers

The chief executive of the island’s monopoly electricity company admitted on Thursday that it had no intention of returning certain financial gains to customers.

The confession was made by the Managing Director of the Barbados Light and Power Company (BLPC) Roger Blackman after he was recalled to give evidence before the Fair Trading Commission (FTC) in the hearing into the company’s application for a hike in basic electricity rates.

He was responding to questions from the chairman of the proceedings Dr Donley Carrington on the penultimate day of the hearing that was conducted in a hybrid format.

Dr Carrington prefaced his query by recalling that in 2019, BLPC requested from the FTC certain treatment of the excess amount of money the company would have in hand because taxes due could be paid sometime in the future.

That saving was made possible after the Government reduced the corporation tax from 5.5 per cent to one per cent.

“In response, the FTC ordered that the company confirm the final amount of the gain that would be your deferred tax liability and hold that amount in a regulatory account and then have that amount taken into account during the rate review through an adjustment to the revenue requirement. The commission stated that this approach would be a more efficient means to return the gains to the customer,” the tribunal chair stated.

“Is it correct that the Barbados Light and Power Company does not intend to return these gains to the customers on the basis that it is passed and current returns have been less than allowed in the last rate proceedings?” he asked Blackman.

“I would say generally, yes, but if you would allow me to give a little bit more context around it,” the managing director responded. “Over the period 2018 – 2021, we submitted information subsequent to the test year [2020]. There were a number of other expenses that would have gone up, and all in all, we were able to show that we didn’t over-earn and that we significantly under-earned over that period. So, in that context, the answer to your question is yes,” the witness said.

Blackman further told the commission that the power company did not currently have any money set aside in a regulatory account, pointing out that the issue was raised by the staff and the commission at the time.

“You should see subsequent correspondence where we had further discussions following that first bit of dialogue, and coming out of those further discussions, as we had indicated, there is no provision for setting up a regulatory account…. Provision for doing that didn’t exist,” he testified.

“So, in light of that and following those discussions, you would see in the correspondence we subsequently sent, we agreed that we would realise that amount in that one year and that is what we did, and as we presented the results for the following year we showed that we significantly under-earned. Over the entire period, in fact, we under-earned quite significantly.”

But the tribunal chair was not finished with the issue.

“So do you agree that the excess deferred tax liability [taxes owed can be paid another time] represents money that has been collected from rate-payers and has not, and will not be remitted to the Barbados Government?” Dr Carrington pressed.

“I believe so. The answer to that is yes because it represented a reduction in tax liability to the company based on changes in the tax regulations at that time,” the witness responded.

The chair of the hearing questioned him further.

“So is the return [payments from investments] to shareholders and providers of debt a function of simply applying a rate of return to the utility investment or is it based on the expenses incurred by the utility?” Dr Carrington enquired.

Blackman replied: “I believe it would be a function of the utility investment. The return on that investment would be impacted by the revenue and expenses that the business has. I don’t see it as an either-or statement because of the return itself.”

Under the chairman’s continued questioning, the BLPC executive agreed that the reduction in taxes should also result in an overall decline in expenses.

“So if the tax was reduced, should all of this go back to the shareholder or some go back to the ratepayers?” Dr Carrington probed.

“If we are over-earning I would agree it should go to the ratepayer. If we are under-earning because other expenses went the other direction, then in my opinion it should go to the shareholder,” the witness replied.

Dr Carrington asked the managing director if he believed that shareholders would be the source of funds that resulted from putting off the payment of taxes owed for a future time.

“No,” Blackman answered.

“So why should the shareholders be the recipient of a gain that is not related to their investment and plant?” the tribunal’s lead commissioner followed up.

The BLPC witness argued that taxes would be an expense that the business incurred.

“Depreciation, for example, is one that stands out because in the last 10 years – and certainly when we compared what our depreciation expenses would have been in the rate case, what was included in the last rate case in 2010 compared to what it actually is now, and what it would have been for most of the period – you see that we paid substantially more on depreciation expenses,” he added.

Blackman contended that from an overall point of view, the gains derived from things such as taxes, offset the reductions received from other expenses as well as revenue which may not materialise.

“All of those things together – the expense that went up, some that went down – we believe the way we treated to it was prudent and those gains that we have should accrue to the shareholders, simply because shareholders were only earning three per cent when what we determined at the time as reasonable was 12.5 per cent,” he added.

Blackman was also questioned by commissioner Dr Ankie Scott-Joseph about why Barbadian customers should have to foot a $252 000 bill for donations and sponsorships to charities that the company chose to support and

why the money was a necessary cost in the provision of electricity services.

Blackman was adamant that it was appropriate for the company to make such donations and sponsorships.

“Are you confirming that you believe it’s appropriate to charge consumers for charities that BLPC decides to support?” she asked.

“In some instances, yes. We haven’t done it for every contribution,” Blackman replied, adding that the Tourism Development Corporation (TDC) is one entity deserving of donations as it stands out as a non-profit catalyst for building the Barbados brand across the globe.

The rate hearing ends on Friday with the attorney for the BLPC Ramon Alleyne, King’s Counsel, making his closing submissions.

(emmanueljoseph@barbadostoday.bb)