The COVID-19 virus has struck at the electricity rate hearing on Monday forcing all of the intervenors, the lead attorney for Barbados Light and Power Company (BLPC) Ramon Alleyne, KC, and some senior members of staff to go online for the session.
They joined the proceedings via Zoom after the Fair Trading Commission (FTC), which is hearing the BLPC’s application for a basic rate increase, agreed to conduct the case using a hybrid format. The decision to go online came after several intervenors tested positive for the virus.
Before taking evidence today, Dr Donley Carrington, who is chairing the hearing, issued a statement informing all parties that the commission had received information this morning which indicated that “certain persons had requested to be able to join this hearing in a virtual format”.
“The commission,” Dr Carrington added, “has decided that today we will be having this meeting in a hybrid format so that persons who would feel more comfortable joining online are able to do so using the Zoom link that has been provided.”
Without making any reference to the COVID-19 situation affecting some parties, he then read out the virtual hearing oral etiquette for those joining online. He also said that the same hybrid format will continue on Tuesday when the hearing resumes.
Those present today in-person included the commissioners, the BLPC’s director of finance Ricaido Jennings and some staff members of the FTC.
The hearing today heard that a study conducted in support of the rate hike for the BLPC found that investors face less risk today than in 2019, just prior to the test year of 2020 on which the company based its application.
This was disclosed by BLPC’s expert witness on investment risk and capital structure Dr Bente Villadsen in her testimony given via Zoom.
Kenneth ‘Rickey’ Went (second from right) in earlier discussion with fellow intervenors.
Intervenor Kenneth “Ricky” Went suggested to the witness in his cross-examination that the spread between debt and equity for the company, given the improving performances in all the metrics for Barbados, should have been less now than in 2010 when the BLPC received its last rate hike.
“No, because in 2010, Barbados was an investment-grade country. It became non-investment grade in 2012, which is after the decision was made,” the expert, who carried out the study, told the commission.
Went pressed the witness further asking if the company should still be pursuing equity of 12.5 per cent, which the study recommended, even after BLPC was able to raise $57 million at 2.25 per cent and $76.9 at 2.05 per cent.
“The debt market has changed dramatically because of mostly the monetary policy of the federal banks around the globe. That’s the reason interest rates have fallen so dramatically since 2010. They are now starting to rise again because of Federal policy mostly.
“Back in the day, Barbados was an investment-grade country and therefore equity investors did not face the kind of risk they face today.
“Admittedly, equity investors face less risk than they did before 2019, when Barbados was even lower graded,” she responded.
“…My difficulty, I must tell you…you are saying to me that back then that Barbados was not the best investment grade and the debt was higher…equity was higher. Now that the debt is much
lower I am still being faced with the same charge. I am not understanding,” Went insisted.
Dr Villadsen further explained: “As the market declined, the market was premium increases. So over this period of time, especially at a time when the Federal government in the US,
the (Central) Bank of Barbados, the Bank of Canada…everybody did a lot to lower interest rates to keep investment going. During that time, all interest rates declined. At the same time, also what has happened is that electric utilities, at least in the western world, had become relatively more risky,” she replied.
Went also queried whether Dr Villaden was aware of any utility company that was seeking to derive the best from the distribution of its debt and equity by paying more dividends.
“I wouldn’t say they are moving toward an optimal capital structure. I am aware of companies trying to manage their capital structure by either retaining earnings or issuing dividends as the case might be,” the expert witness stated.
She was also crossed-examined by intervenor Lieutenant Colonel Trevor Browne, chairman of the Coalition of Cooperatives and Concerned Citizens. The witness confirmed Browne’s suggestion that the risks she assessed in her study primarily focused on investors.
Browne asked Dr Villadsen if fairness in her assessment also included other stakeholders in the company and she replied: “What we are attempting to do is to estimate the lowest cost of equity or cost of capital that would grant you the same premium as is available in other similar risk investments. You should not, for example, acquire something that is higher than that. That would not be fair to customers,” the company witness pointed out during her evidence.
The intervenor also asked the witness if accumulated earnings belonged to the investors even though, over the past 10 years, customers would have paid about $6 billion into the
BLPC’s coffers while during that same period investors contributed nothing.
“Yes, because that is presumably generated by the return on equity and whether the company decides to pay it out to the equity investors or not is a different question,” Dr Villadsen declared.
The expert witness along with Jennings was also examined by the BLPC’s lead attorney Alleyne, and cross-examined by intervenors, Tricia Watson, attorney, Stephen Worme, acting Public Counsel, Sharon Deane and members of the panel of commissioners.
When the hearing resumes on Tuesday at 9 am at the Accra Beach Hotel and Spa the company’s asset management team will give evidence before the commission.
emmanueljoseph@barbadostoday.bb
