BL&P called to account

The Barbados Light and Power (BL&P) must be held accountable regarding unfulfilled commitments for which it collected millions of dollars.

That is the view of attorney-at-law and regulatory expert Tricia Watson, who said the failure of the BL&P to retire its existing steam plant, which it had vowed to do since 2012, needed to be explained.

Watson, one of the intervenors in the upcoming BL&P rate review hearing before the Fair Trading Commission, made the comments on Friday on the Down to Brass Tacks call-in programme on 92.9 FM.

She said the BL&P had earned a rate increase 13 years ago on the basis that it was going to spend that money on replacements but had not done so.

As a result, Watson, who previously served as an advisor to Government on electricity matters, said it was necessary that the company account for those earnings.

“In 2009, the BL&P said quite a bit about the inefficiencies of the steam plant, quite a bit about the need to retire that steam plant, and they actually were quite explicit about the dangers that Barbados was facing from not retiring that steam plant. The BL&P went to the FTC [Fair Trading Commission] and said ‘we need X amount of dollars’ and in relation to the steam plant they said they were going to retire that and going to replace it with medium speed diesel engines and those would amount to about $150 million because they said they were going to install three of them,” Watson said.

“The FTC said ‘yes, we accept your forecast for how many sales you would have and how much equipment you need to deliver energy to these people that will be buying that energy’. In making that decision, the FTC said this is your revenue requirement, we approve that, we accept what you say as the components for that revenue requirement and we are going to let you have that revenue requirement which includes the money they say they need to deliver power to Barbadians and a return for themselves.

“So the issue with the steam plant is that if that steam plant was not retired, and it was not – it is still in service today, except for the fact that one of them is being used for spares for the other; if that steam plant is still in service and is scheduled to be retired next year, 2023, you have to ask yourself what is the impact of not retiring it, what is the impact of not purchasing and installing the new equipment that you said would replace the steam plant?” Watson further questioned.

Over the weekend, the BL&P said it had intended to invest in a new plant by 2012 but “with a rapidly changing business environment and a global and national thrust towards renewable energy”, it felt it prudent to delay the retirement of the steam plant and its planned installation of new fossil fuel plant.

That delay, the company said, gave it the opportunity to develop a “more informed investment plan in response to the new business environment”.

The BL&P said it had consulted with various stakeholders between 2012 and 2014 and developed an integrated resource plan (IRP), and on April 7, 2014 the FTC advised that it was satisfied with the approach and the assumptions made in preparing the IRP.

However, coupled with Government’s plan then to introduce waste-to-energy and biomass generation between 2016 and 2018, and the planned rapid grow the renewable energy sector, the utility company also argued that it felt it prudent “to further delay investments in new fossil fuel plant and to extend the life of its steam plant to avoid the possibility of stranded assets”

Watson also raised concern that the current mechanism used to determine electricity rates – the Cost of Service Model – was outdated and needed to be re-examined.

She said the BL&P was, however, pushing for this model to be embedded in its legal arrangements so that it would continue to be used for as long as they have a licence.

“The problem with that model is that the model does not fit well with the changing environment where energy is going to be produced differently. You have so much volatility in the market and there has always been a concern with that model that it encourages companies to over-invest so that they can recover on that investment because the rate of return is tied to the level of investment.

“A lot of regulators have started to move away from that by looking at other mechanisms for setting rates which require efficiencies, and to incentivise the company to be more efficient and to also work in elements that will allow any efficiencies and savings to be shared between the company and the consumer,” Watson said.

The lawyer said she was eager for the rate review hearings to commence and urged the FTC to move hastily in convening those meetings. randybennett@barbadostoday.bb