Barbados first experienced the wonders of electricity circa 1911, 12 years after the passing of the Electric Light and Power Act in 1899. The introduction to the act stated that it was “to facilitate and regulate the supply and use of electricity for lighting and other purposes and to confirm certain provisional orders made under the Electric Light and Power Act, 1899”.
Electricity may only be supplied by a local authority company or person pursuant to an act of Parliament or a provisional order granted under the 1899 Act. Section 5 allows the Minister responsible to grant the right, exclusive or otherwise, “to supply electricity for any public or private purposes within any area and for such period as the Minister may think proper” but subject to the confines of the provisions of the remainder of the act.
Exclusive rights may only be granted for a period of 42 years. Research indicates that the last such order was made in 1986 in favour of the Barbados Light & Power Company for the relevant 42-year period. Prior to the advent of the Fair Trading Commission in 2001, rate increases for this public utility would have been determined by the Public Utilities Board. Historically there has always been a correlation between the Barbados Light & Power Company seeking to expand or refurbish its plant, machinery or capacity and an application to the board for a rate increase in the rates payable for electricity consumption by the public.
The Fair Trading Commission not only determines the maximum rates which can be charged but also the basis for determining those rates and the standards of service to be provided by the utility company. The commission is also tasked with monitoring those rates and standards once set. In determining the rates, the commission is required by section 3(2)(b) of the Utilities Regulation Act, Chapter 282 to ensure “that an efficient service provider will be able to finance its functions by earning a reasonable return on capital”.
On the consumer side the commission is required to “protect the interests of consumers by ensuring that service providers supply to the public service that is safe, adequate, efficient and reasonable”. It says nothing about ensuring that the public is provided with an affordable service.
Section 15(3) of the Utilities Regulation Act requires the commission to conduct a public hearing in relation to the review of rates for public utilities and any domestic consumer or other interested person may appear and be heard at the public hearing. Such persons are known as “intervenors” and in accordance with the Utilities Regulation Procedural Rules they may also lead evidence and propose arguments as to why the rate or standard should remain unchanged.
In coming to its decision whether or not to allow for a rate increase (as far as I can see there are never any decreases) the commission must factor:
“(i) the rates being charged by competitors;
(ii) standards of service being offered;
(iii) the return on the rate base (how much the company has earned at the previous rate);
(v) “prospective increases in productivity by the service provider” amongst other things.
The justification must be provided by the utility company for the requested increase in rates. Obviously the vast majority of us know nothing about electricity other than whether the lights are or are not working and therefore the commission must, in accordance with the regulations, consider expert evidence on the matter.
This leads me to the legal basis for the fuel adjustment clause which was initially approved by the Public Utilities Board and in recent times has become the bane of customers of the electricity company. The formula is:
Cost of Fuel √∑ Electricity Usage (kWh sales) = Fuel adjustment charge
In keeping with their mandate to maintain standards of service, the electricity company is required to keep a certain amount of fuel in reserve which may have been obtained at a price higher than the current price of fuel.
Consider also that the Barbados National Oil Company has a monopoly on the provision of fuel in Barbados which is as anti-competitive as it can get but that is fodder for another article.