BLPC under-earning

The Barbados Light and Power Company’s Director of Finance has suggested that it is likely to go back to the regulators for a new rate hike if it is unable to get the 12.5 per cent increase being sought now.

Ricaido Jennings put this position to the Fair Trading Commission’s rate hearing on day eight of the proceedings which are considering a request from his company for an increase in electricity rates.

Jennings was testifying on Friday when he defended the possibility of seeking another hike. He said even if the current application is successful, the BLPC will still be challenged with how it is going to earn its returns.

He said the company was under-earning with a rate of return on investment of eight per cent – excluding the impact of a tax in 2018 – and in light of the 10 per cent that was approved by the FTC previously. He identified a number of factors that would have contributed to the BLPC not achieving the 10 per cent to justify the request for an increase.

“If you exclude the impact of the tax in 2018, the rate of return is near eight per cent. In 2019 you are under 10 for sure. By then in 2019, we entered construction of a clean energy bridge which is a significant amount of investment and you are not able to earn your return in 2019 even without the clean energy bridge.

“You then add the impact of the clean energy bridge, that pushes you even further. Even with the dip in 2020, the inflationary pressures that you were facing [and] the growth in expenses…you are at that stage,” the witness testified.

The finance chief agreed with intervenor Worme that even if the company were to be granted the rates for which it applied, it would

be under-earning again in the first year after receiving the hike.

“So my question is if eight per cent or 10 per cent is too low, having

gotten this rate, you are expected to come back to have another

increase?” Worme queried.

“You are right, we are in a similar type position. It is something we are going to have to continue to look at and assess and find what’s the right construct. But, you are right,” Jennings replied. “This application is based on a test year of 2020. 2021 has passed…we know that we were well under five per cent. So that is a significant challenge. We are near the end of 2022 and for all intents and purposes, it does look to me like we are going to head around that same four per cent.

“We did get an interim relief decision which gives us some relief for the remainder of this year,” the finance director told the hearing.

“Even if we are successful with this application which I am hopeful we will be, because I think we made a pretty strong case for it, we still are going to have challenges with how we are going to earn our returns,” Jennings stated.

Under cross-examination by intervenor David Simpson, the witness suggested making a fresh bid for an increase was a possibility.

“There is quite a bit that is changing in the industry now. With the changing times and changes in what’s happening, it is going to have to be evaluated as it unfolds. I am not able to sit down here and testify to say that you are not going to end up right back here. I am going to say you are going to try and manage as best as you could as we have always done.

“Seeking a rate increase is always the last thing that we are looking to do,” Jennings declared. However, he told the commission that the

company must ensure it is able to recover its costs once there are

“prudently” incurred, and when that happens, “the determination made, gets done.”

Also in Friday’s session, the tribunal hearing the rate request was told that the agency which conducted a study into the status of the BLPC’s self-insurance fund, was also a beneficiary of the value of any adjustment.

This information was revealed by intervenor Stephen Worme while he was cross-examining the company’s finance director as he gave evidence before the hearing.

“Last night we received a document in response to the queries about the self-insurance fund and the value of what it was. And what struck me was that that study was done by the same company that was the beneficiary of any adjustment.”

Noting that he was not ascribing any motives regarding the discovery, Worme, a former BLPC employee, said “I think these are companies that have high integrity and I actually know one of the persons that did the report and he is very much above board.”

Worme told the commissioners. “My question to you is, from an optics point of view, is that reasonable?…Here you have a company that is going to be receiving the benefits of any recommendations or maybe costs, [and] are the ones to have actually done the study to determine what that should be?” the intervenor asked Jennings.

“I think the more important piece is whether the people who’ve

done the study are adequately qualified to do it and whether the study itself is robust and whether the study is reasonable,” the finance director responded.

The hearing resumes on Monday at 9 am at the Accra Beach Hotel and Spa.

emmanueljoseph@barbadostoday.bb