The Barbados Light & Power Company Ltd v Barbados Renewable Energy Association

• Jurisdiction: Barbados
• Court: Fair Trading Commission (Barbados)
• Judge: Dr. Donley Carrington,Dr. Ankie Scott-Joseph,Ms. Ruan Martinez,Mr. Samuel Wallerson,Mr. John Griffith
• Judgment Date: 15 February 2023
• Docket Number: No. 01/2023

In the Matter of the Fair Trading Commission Act, Cap.326B of the Laws of Barbados;

And in the Matter of the Utilities Regulation Act, Cap. 282 of the Laws of Barbados;

And in the Matter of the Utilities Regulation (Procedural) Rules, 2003 and the Utilities Regulation (Procedural) (Amendment) Rules, 2009;

And in the Matter of an Application by the Barbados Light and Power Company Limited for a Review of Electricity Rates pursuant to Section 16 of the Utilities Regulation Act, Cap. 282 of the Laws of Barbados;

The Barbados Light & Power Company Limited

Applicant

and

Barbados Renewable Energy Association

Energy Division: The Ministry of Energy and Business Development

Mr. Kenneth Went

The Cooperative Society Ltd

Ms. Tricia Watson and Mr. David Simpson

Business Development Division: The Ministry of Energy and Business Development

The Barbados Association of Retired Persons

Intervenors

Before:

Dr. Donley Carrington Hearing Chairman

Dr. Ankie Scott-Joseph Commissioner

Ms. Ruan Martinez Commissioner

Mr. Samuel Wallerson Commissioner

Mr. John Griffith Commissioner

No. 01/2023

FAIR TRADING COMMISSION

DECISION AND ORDER

List of Abbreviations

ACRONYMN	ABBREVIATIONS
ADIT	Accumulated Deferred Income Taxes
A&G	Administrative and General
BARP	Barbados Association of Retired Persons
BLPC	Barbados Light & Power Company Limited
BNEP	Barbados National Energy Policy
BREA	Barbados Renewable Energy Association
CAPM	Capital Asset Pricing Model
CEB	Clean Energy Bridge
CETR	Clean Energy Transition Rider
COSS	Cost of Service Study
CRP	Country Risk Premium
CWIP	Capital Work in Progress
DCF	Discounted Cash Flow
ECAPM	Empirical Capital Asset Pricing Model
ECI	Emera (Caribbean) Incorporated
ESD	Energy Storage Device
FTCA	Fair Trading Commission Act CAP. 326B of the Laws of Barbados
FCA	Fuel Clause Adjustment
FERC	Federal Energy Regulatory Commission
GDP	Gross Domestic Product
HPS	High-Pressure Sodium
IAS	International Accounting Standards
IASB	International Accounting Standards Board
IFRS	International Financial Reporting Standards
LSD	Low-Speed Diesel
NARUC	National Association of Regulatory Utility Commissioners
O&M	Operations and Maintenance
ROE	Return on Equity
RPPA	Renewable Purchased Power Adjustment
SIF	Self-Insurance Fund
T&D	Transmission and Distribution
URA	Utilities Regulation Act CAP. 282 of the Laws of Barbados
URPR	Utilities Regulation (Procedural) Rules, 2003
WACC	Weight Average Cost of Capital

TABLE OF CONTENTS

List of Abbreviations	2
The Application	5
Legislative Framework	6
Burden & Standard of Proof	9
Review Process	9
Regulatory Financial Reporting	12
Discussion of the Commission's Findings on the Application	14
Section 2 – Test Year	16
Section 3 – Rate Base	18
Prudence and Reasonableness of the Fixed Assets	20
Construction Work in Progress	24
Working Capital	25
Accumulated Depreciation	29
Section 4 – Test Year Revenues and Expenses	32
Test Year Revenues	32
Test Year Expenses	36
Section 5 — Depreciation Expense	39
Section 6 – Accountability/Clawback Mechanism	55
Section 8 – Self-Insurance Fund	73
Section 9 – Rate of Return	81
Capital Structure	82
Return on Equity	84
Cost of Debt and Cost of Other Components of Regulatory Capital Structure	92
Rate of Return	93
Section 10 – Dividend Policy	94
Section 11 – Financial Forecasting	96
Section 12 – Cost of Service Study	98
Property Insurance	99
Meter Reading Expense	99
Labor-Related Administrative and General Expense	100
BLPC's Proposed Assignment of Certain Expense and Investment as Customer-Related	101
Section 13 – Rate Design	106
General Analysis	108
Employee Rate Class	109
Section 14 — Renewable Purchase Power Adjustment and Fuel Clause Adjustment	112
Section 15 — Service Charges	114
Section 16 — Compliance Filing	115
Attachment A	125
Attachment B	126
Attachment C	127

Section 1 – Background

The Application

1 On October 4 ^th, 2021, the Barbados Light & Power Company Limited (“BLPC”) filed with the Fair Trading Commission (the “Commission”) its Review of Electricity Rates Application pursuant to Section 16 of the Utilities Regulation Act Chapter 282 of the Laws of Barbados (the “URA”) 1 and Rule 60 of the Utilities Regulation (Procedural) Rules, 2003 (the “URPR”) 2 (the “Application”).

2 The BLPC seeks approval for the following Orders, that:

• (a) Interim Rate Relief at the proposed rates, to come into effect from November 1, 2021, to apply to all bills from that date, remaining in effect until the Commission issues its final decision on the Application;

• (b) The Proposed Tariffs to come into effect from April 1, 2022;

• (c) The Rate Base as computed by the BLPC and calculated to be $825,891,134 be approved.

• (d) The capital structure of Debt of 35% and Equity of 65% used by the BLPC in the determination of its Rate of Return be approved.

• (e) The Rate of Return of 8.79% be approved;

• (f) The Revenue Requirement of $440,240,372 be approved.

• (g) The Existing Tariffs and Riders will be replaced by the Proposed Tariffs and Riders, details of which are described at Schedules K1 – K11 of the Application;

• (h) The current Fuel Clause Adjustment (“FCA”) formula be modified to only recover fossil fuel related costs;

• (i) The renewable energy purchased power and the energy storage device (ESD) be removed from the FCA. The renewable energy purchased power be recovered through the establishment of a “Renewable Purchased Power Adjustment” (RPPA) and the ESD be included in rate base;

• (j) The existing Standards of Service be retained; and

• (k) Such further Orders or other relief as may be warranted.

3 The Application was supported by the Affidavits of Mr. Roger Blackman, Mr. Ricaido Jennings, Mr. Rohan Seale, Mr. Johann Greaves, Dr. Adrian Carter, Dr. Philip Hanser (expert witness), Dr. Bente Villadsen (expert witness) and Mr. Peter Huck (expert witness).

4 Electricity rates for BLPC were last reviewed by the Commission following an application by BLPC dated May 8 ^th, 2009, which was heard in 2009. The Commission's determination in that regard is contained in its Decision and Order dated January 25 ^th, 2010 (the “2010 Decision”) 3.

Legislative Framework

5 By virtue of Section 4(3)(a) of the Fair Trading Commission Act, Chapter 326B of the Laws of Barbados (the “FTCA”) 4, the Commission is responsible for establishing principles for arriving at the rates to be charged by service providers and setting maximum rates to be charged by service providers. The Commission is also given similar responsibilities under Section 3(1) (a) of the URA, which states:

“The functions of the Commission under this Act are, in relation to service providers, to

• (a) establish principles for arriving at the rates to be charged.

• (b) set the maximum rates to be charged;

• (c) monitor the rates charged to ensure compliance;

• (f) carry out periodic reviews of the rates and principles for setting rates and standards of service.”

6 Moreover, Section 3(2) of the URA stipulates that when arriving at the rates to be charged, the Commission must take into account certain principles as follows:

“In establishing the principles referred to in subsection 1(a) the Commission shall have regard to:

• a) the promotion of efficiency on the part of service providers;

• b) ensuring that an efficient service provider will be able to finance its functions by earning a reasonable return on capital; and

• c) such other matters as the Commission may consider appropriate.”

7 Section 2 of the Fair Trading Commission (FTC) ( Amendment) Act 2020 and the Utilities Regulation ( Amendment) Act 2020 defines “principles” to mean the formula, methodology or framework for determining a rate for a utility service.

8 Additionally, Section 2 of the URA defines “rates” broadly to include:

• “a) Every rate, fare, toll, charge, rental or other compensation of a service provider or renewable energy producer;

• b) A rule, practice, measurement, classification or contract of a service provider or renewable energy producer relating to a rate; and

• c) A schedule or tariff respecting a rate;”

9 By virtue of Section 16 of the URA, where the Commission has not fixed a period of time in accordance with Section 15(1), the Commission may, on its own initiative or upon an Application by a service provider or consumer, review the rates, principles and Standards of Service for the supply of a utility service.

10 The BLPC submitted the Application to the Commission pursuant to Section 16 of the URA and the Utilities Regulation (Procedural) Rules, 2003 as amended (the “URPR”). In light of this provision, the BLPC correctly filed an Application with the Commission for a review of electricity rates. Therefore, the provisions of the URA and URPR governed the hearing of the Application which was held during the period September 21 ^st to October 7 ^th, 2022 and October 13 ^th and 14 ^th 2022 (the “Hearing”).

11 By virtue of Section 5 of the FTCA, and Section 6(1) of the URA, the Commission exercised its power to sit, hear and determine this Application and in accordance with Rule 4 of the URPR, the Commission issued six (6) Procedural Directions which governed the conduct of the proceedings.

12 The Commission also exercised its powers pursuant to Rule 19(1) of the URPR to hear expert witnesses during the Hearing.

13 Under the rate of return methodology, rate making involves three distinct steps:

• (a) The determination of a utility company's annual revenue requirement (i.e the...