The Barbados Light & Power Company Ltd Application for a Interim Rate Relief

• Jurisdiction: Barbados
• Court: Fair Trading Commission (Barbados)
• Judgment Date: 16 September 2022
• Docket Number: Document No.: FTC-01/2021-BL&P-RRA-IRRDEC

The Barbados Light & Power Company Limited Application for a Interim Rate Relief

Document No.: FTC-01/2021-BL&P-RRA-IRRDEC

FAIR TRADING COMMISSION

DECISION & ORDER

TABLE OF CONTENTS

Background	3
Applicant's reasons for Interim Rate Relief	4
Responses to Applicant	7
Review of Tricia Watson	7
Brea	8
Kenneth Went	9
Ministry of Energy and Business Development (MEBD) – Business Development Division	10
Ministry of Energy and Business Development (MEBD) – Energy Division	11
Responses to interrogatories	13
Responses to BREA's Interrogatories	13
Responses to Kenneth Went's Interrogatories	14
Responses to the Commission's Interrogatories	14
The issues	15
Power to set interim rates	15
General Approach to Interpreting Acts	15
Interpreting Utility Regulation Legislation	17
URA Framework	18
Framework of FTCA	20
Implied Power to Grant Interim Relief	22
Principles for granting interim relief	26
Time of decision	32
Separate application	32
The commission's analysis	33
The Proposed Rates	33
Deteriorating Cash Flow	36
Raise Debt and Attract Investment	37
Deteriorating Revenues, Profits, Rate of Return	38
Social and economic considerations	39
The rate of interim relief	40
The Determination	42

Background

1 On October 4, 2021, the Barbados Light & Power Company Limited (the “Applicant”) applied for a Review of Electricity Rates to the Fair Trading Commission (the “Commission”). The Application was submitted under Section 16 of the Utilities Regulations Act, Cap 282 of the Laws of Barbados (the “URA”) (the “Application”) which gives the Commission the power to review electricity rates on an application by a service provider.

2 In the Application, one of the orders the Applicant sought was for interim rate relief in the following terms:

“BL&P seeks the approval of the Commission for the following Orders, that: Interim rate relief, at the proposed rates, come into effect from November 1, 2021 and shall be applied to all bills from November 1, 2021 and that this remains in place until the Commission issues its final Decision on BL&P's Application. ………”

3 There was a public consultation on the application for interim rate relief, per section 4(4) of the Fair Trading Commission Act, Cap 326B. As part of that process, on 22 ^nd April 2022, the Commission issued a consultation paper on the Applicant's request for interim rate relief. The Commission invited responses to its consultation paper. Responses were received from Barbados Renewable Energy Association (BREA), Kenneth Went, Public Counsel on behalf of the Ministry of Energy, Small Business and Entrepreneurship (MESBE), the Ministy of Energy and Business Development (MEBD) and the Tricia Watson/David Simpson team.

4 The application for interim rate relief was heard on July 1, 2022. Three (3) intervenors participated in the oral hearing, namely, BREA, Ministry of Energy, Small Business and Entrepreneurship (MESBE) – Business Division and Ministry of Energy and Business Development (MEBD) – Energy Division.

Applicant's reasons for Interim Rate Relief

5 The Applicant has advanced several reasons for an interim rate increase. It states that its audited financial statements for 2021 show a significant deterioration in its earnings and cash flow position and that its realized rate of return before regulatory adjustments is 2.99%. Except for the years 2013 and 2018, in the time since the last rate review, it did not achieve its 10% approved rate of return. The rates of return for the years 2019 and 2020 were 8.13% and 3.90% respectively, with a projected rate of return of 1.54% for 2023. The Applicant states that the decline in the rates of return being obtained by the Applicant is unsustainable and does not constitute a reasonable return on capital within the meaning of sections 3(2)(b) and 10(b)(3) of the URA. 1

6 The Applicant added that its earnings have been on the decline since 2018 and that there is a projected negative cash flow position of $7 million in 2022, which is likely to worsen if the Applicant is unable to secure anticipated loans of $106 million in 2022 to finance its ongoing capital program. Its profits have been on the decline with profits of $53.4 million, $28.7 million and $24.5 million for the years 2019, 2020 and 2021 respectively. Its projected profits for 2022 and 2023 are $14.8 million and $2.5 million respectively. The Applicant reasoned that if interim rate relief is not granted to support its cash flow position, it would affect its ability to obtain debt financing at reasonable rates. 2

7 The Applicant also pointed to the 9.3% increase in inflation in Barbados between March 2021 and March 2022, which its states supports the grant of interim rate relief under section 10(b)(iv) of the URA. Further, the Applicant noted that the last rate adjustment was in 2010 and that the accumulated rate of inflation since then has exceeded 38%.

8 The Applicant submits that the Commission must consider its financial viability when considering the application for interim rate relief and that denying interim rate relief would be to deny it the chance to be financially viable.

9 The Applicant relies on the time that elapsed since the last hearing and the delay between the application and final determination. The delays have impacted its financial position. The Applicant further noted that the rate-making process is complex and lengthy and given the Applicant's current financial position, it will suffer financial distress while awaiting a final decision of the Commission.

10 A factor which the Applicant states the Commission should consider is the protection available to customers. It stated that the Commission has the power to order a refund were it to be found that the interim rate relief was not justified.

11 The Applicant explained the impact of the proposed interim rate increase on bills as follows: 3

“The proposed interim rates would reflect a 7% or $12 bill increase for the typical residential customer serviced under the Domestic Service tariff at the April, 2022 fuel clause adjustment (FCA) of $0.45. This expected bill increase for the typical residential customer will reduce to 3% or $5.00 when the customer takes advantage of the 10% early payment discount1 that the BLPC continues to offer its customers. Furthermore, rather than a bill increase, a net bill decrease in the typical residential customer's bill of 4% or $8.00 is anticipated should the FTC grant the proposed interim rates, due to expected fuel savings following the commissioning of the new Clean Energy Bridge Plant in May, 2022.”

12 In its written submissions, the Applicant summarized the reasons for an interim rate increase case as follows, identifying the paragraphs in the affidavits of Roger Blackman where the evidence in support was located: 4

• “(a) An interim rate is crucial for viability of the BLPC; ……..

• (b) Without the interim rate relief the Applicant: (i) would be unable to fund its planned investments to meet customer requirements; (ii) would not have sufficient resources to attract capital; and (iii) would be without the financial resources to respond to financial, economic or environmental shock. ……..

• (c) The ability of the BLPC to obtain debt financing are reasonable rates will likely be compromised in the absence of interim rate relief. ………

• (d) The delay and/or denial of the interim rate places significant financial risk on the BLPC that can have unintended negative implications to its customers, including irretrievable loss of revenue. ……………..

• (e) There has been a significant deterioration in earnings and cash-flow over the past two financial years, with a negative cash flow position for 2022, increased rate of inflation since 2010 and a declining trend of rate of return on the rate base.” ……

13 The Applicant contended that the Commission, in exercising its rate-making powers, should not deprive the Applicant of a reasonable return on the fair value of its property being used for public purpose. It further contended that rates which do not allow the utility a reasonable rate of return could be regarded as confiscatory. It pointed to the fact that revenue lost during the period of regulatory lag would be irretrievable and expressed the view that such loss would likely be significant.

14 The Applicant relied on FPC v. Hope Natural Gas, 5 for the test for determining the reasonableness of utility rates. That case suggests that there should be

sufficient revenue for both operating expenses and the capital costs of the business. The latter includes revenue to service debt and dividends on shares. That case also suggested that the rate of return should be commensurate with returns on investments in other enterprises with similar risks and inspire confidence in the utility's financial integrity

15 The Applicant argued that “financial distress” is not the test for deciding whether interim rate relief should be granted. Further, a utility does not have to prove that it is “… irretrievably destined for receivership or bankruptcy proceedings before it would be entitled to interim relief.” 6 The Applicant submitted that a utility must be allowed to earn a rate of return sufficient to cover its operating and debt expenses and to pay dividends on investment. It also contended that its application for an interim payment must be evaluated on the factors set out in section 10 of the URA.

Responses to Applicant

Review of Tricia Watson

16 The intervenor team of Ms Tricia Watson and Mr David Simpson (“Watson Simpson Team”) objected to the Applicant's request for interim...