BANGO, the lone Intervenor at the upcoming FTC hearing on the Application for a Depreciation Policy for the Barbados Light & Power Ltd has advised that they have successfully submitted its response – See BANGO’s Submission
Related Link – BANGO Is The Sole Intervenor At Barbados Light And Power Hearing
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ROK…..Merci beaucoup.
We heard the CEO on the news making the point that the company was about to apply for a rate increase after several years and the Depreciation Hearing was a precursor to doing so. ROK we don’t understand why your experts can’t make the link!
David
A promise of an application is not an application. I have also said that this is a pre-cursor too, but I have to wonder what will happen if the BL&P does not get what it wants.
Therefore, in the abundance of caution, I would not be so bold as to predict that a rate hearing will follow. I have also heard the FTC say that, so it may be a condition for the depreciation hearing before agreed to between the FTC & BL&P, but I am not privy to that information. I can’t therefore mislead Hopi.
or the Issues Conference, it is interesting to note that 7 out of the nine issues are concerns we raised in our submission.
See draft issues noted by the FTC:
http://www.igloo.org/bangoonline/download-nocache/blphearing/issuesconf
ROK we have updated:
Download the original attachment
Fair Trading Commission
Issues Conference
(Extract)
Issues Conference is set for Friday 16th January 2009 at 10 a.m. at the Commission’s Office
In preparation for the Issues Conference, each party should review the attached draft list of Issues in Appendix 1 and state whether:
It agrees with the Commission’s draft list of issues – in this case these matters will then be formally accepted as issues at the Issues Conference;
It does not agree with a particular issue that has been listed – in this case this matter will be placed as a contested issue for discussion at the Issues Conference;
It believes that additional issues that have not been listed should be considered – in this case parties should state the additional issues and these matters will be discussed at the issues conference.
Parties wishing to respond to the Commission’s draft list should do so no later than 2:00 p.m. on 15th January 2009 by way of e-mail and/or letter addressed to the Commission Secretary.
Following the Issues Conference after all of the proposed issues have been considered and settled, the Commission will issue Procedural Order No. 2 which will set out the list of the issues that will be dealt with during the Depreciation Hearing and any other matter dealt with at the Conference.
Appendix 1
The Applicant is seeking regulatory approval of the remaining lives and depreciation rates of the Depreciation Study 2006 prepared by American Appraisal Associates. Approval of this policy will result in convergence of the depreciation policy used for regulatory purposes and that used for financial reporting purposes.
The Commission has compiled the following Draft Issues list which identifies issues that would assist the commission in the conduct of the proceeding and would assist parties in participating more effectively in the hearing.
Draft Issues List
Elements of computing depreciation:
The method used for calculating depreciation rates – remaining life whole life (average service life)
The depreciation rate – New rates are proposed for all of the assets. Are these rates reflective of the expected useful economic life of the asset?
Valuation of the asset base
Expected residual value or net salvage value of assets.
Capital Recovery – Do the new depreciation rates lead to timely recovery of costs over the useful economic life of the asset?
Effect of new depreciation charges on end user tariffs – Indicate level of effect for actual impact dependant on other revenue requirement and tariff structure.
Effect of new depreciation rates on profitability of the company.
Presentation of Depreciation Study and confidence in the techniques used by BL&P consultant to derive new asset lives.
Stability of new depreciation rates:
How long will they be applicable
How often are depreciation studies revised to reflect the changes in the operation of the BL&P?
Should revision of depreciation rates be automatically reflected in tariffs?
Prudent investment in assets by the BL&P.
Treatment of difference in values of asset categories (e.g. net capital value, accumulated depreciation) that result from the use of the depreciation rates from depreciation studies since 1983 being applied in financial reporting instead of the Depreciation rates set by PUB.
Consideration of the depreciation policy separate to a rate hearing – What are the advantages and disadvantages?
Issues not contested
Depreciation Method – Straight Line method was used by PUB in 1983, is used in the 2006 study, and is commonly used internationally for accounting and regulatory purposes.
Issues not for Depreciation Hearing
Revision of rate structure
Rate of return / Profitability of BL&P.
@ROK….. Sorry to burst your bubble but this ‘conspiracy theorist’ just felt a shockwave from the impending rate hikes that’s blowing in the air. Watch these codewords/phrases Profitability,frequency in revision of depreciation policy to reflect changes in operation of B L & P. I bet you that certain shareholders are a bit antsy.
When was the last time BL&P/the people had a rate increase?
Hopi,
You not bursting my bubble, you adding suds.
The last hearing for BL&P was 25 years ago under the PUB.
Give me some more of your thoughts.
@ROK… To avoid being fleeced Hopi is in the process of a getting a solar generator.
@Hopi
Let me in on that. I here trying to build one without much success.
@Give me a few days.
It is being repeated often that BL&P did not apply for a rate increase in 25 years.
Is this meant to justify an increase now?
Was BL&P operating at a loss for the past 25 years?
Did they absorb the cost when fuel prices went skyward?
BL&P estimates your consumption , sends you a bill which you duly pay, then, if your consumption is less when they get around to reading your meter, you only get a credit (i.e not cash).
How much interest/income do they make from the proceeds of infrequent meter readings and the over-estimation of customers consumption?
General
To us intervenors, it is not automatic to get an increase. Remember how we stayed an increase by C&W only to find that the Government let them through the backdoor, but we completed our mission successfully.
BL&P made profit of $58M last financial year (a 48% increase over the financial year before) and is expected to increase that profit margin in this current year.
The other point is that the rate could well come down if they are showing excess profits, way beyond the Statutory limit. Hence our reservation that they will apply for a rate hearing if they don’t get what they want here.
“Did they absorb the cost when fuel prices went skyward?”
The fuel adjustment clause and energy charges kept the rate relevant. Coinsumers absorbed the cost of the fuel, not BL&P.
Finally, that interim bill scenario was established as a means of maintaining a certain level of cash flow. I take your point.
None of these issues are set to be raised in the hearing, but it is good to discuss them now so that BU family can get the gist.
“The other point is that the rate could well come down if they are showing excess profits, way beyond the Statutory limit.”
Am I to assume then, that the changes to the depreciation policy along with revaluing, is an attempt to prevent the appearance of excessive profits?
What is the rate of return we have guaranteed BL&P?
The cost of fuel will not remain at current levels and I think BL&P is hoping to get an increase now that prices are low as it will be more tolerable. When prices begin to go back up they will be sitting pretty.
Notice they have basically said that with prices at this level alternative energy is now on the back burner.
Talk about vision!
“…….Government let them through the backdoor,……”
Lightning have been know to strike the same place twice.
Anonymous // January 14, 2009 at 8:38 pm
= General Lee
General
Sorry about the long break but I just came back from a meeting with our small team trying to determine if there were any additional issues to add. The deadline to add issues is 2:00 p.m. tomorrow 15-01-2009.
The very first issue you raised was up for discussion tonight. The accountant was saying just what you said, changes in the asset base would make it appear that the company is making less and hence a justification for a higher rate.
The Guaranteed (Statutory) profit is 12%.
Remember that the fuel costs has nothing to do with the rate as this cost is passed directly to the consumer.
Again we discussed this question of individuals selling excess electricity to the BL&P. From the figures, it benefits them tremendously to do this, since that excess seems to be coming in at a cheaper rate than they can produce at.
Apparently lightning can strike the same place twice because I am hearing that the Price Cap fits them too. Lord help us if that happens. We need to start a strong lobby from now.
@ROK: “…because I am hearing that the Price Cap fits them too.
LOL! ROK and “The Accountant” — I greatly enjoyed our time this evening. There’s nothing quite like real-time verbal debate, is there?
For the record, I would like to say to you and all that (IMHO) the PCM is a beautiful equation. Immensely powerful software.
Just because the PCM can be (empirically) mis-programmed by those who don’t actually understand it (or, perhaps, actually do) doesn’t mean the software can’t be applied correctly. (“Correctly” here is defined to mean to the benefit of the Consumer.)
It’s been done successfully elsewhere, after all. With empirical data to support the argument of its performance.
@BWWR: We had a few legal questions during the meeting. We’ve had to make inferences… Please forgive us if we make mistakes….
@Chris
Don’t let’s go over this because I agree whole-heartedly with you… but would you give a 3 yr old all the ingredients to cook a meal and expect to get a meal?
We were better off without the price cap. I am dealing with facts. Without the PCM, today all Barbadians would still be paying $28 for their telephones. That is the bottom line.
Not only that, the Price Cap allowed what cannot be accepted by law and if as we hear, the PCM was not set up to usurp the regulatory environment, then what was allowed under it, was illegal.
Today, C&W is earning far in excess (about 3 times more) of the statutory provision. In contrast, it is my humble View that the telecommunications sector is contributing substiantially to the ate of inflation as these elevated costs will affect businesses, which must recoup costs and additionally burden householders.
Under the circumstances, I, personally, will continue to appose the PCM until the time comes when they get it right or that we can attract the resources to take them to court and make them get it right.
While the grass growing, the horse starving.
@ROK… (smile)
OK, let’s let this one lie. For the moment….
@Chris
I am glad you brought it up because we need to fully brief consumers on what is going on. Let them realise that it is the lack of political will that is causing the PCM not to work.
We already know that it is the way to go as it is going in other jurisdictions. We just have to get it right.
Sorry guys,
A family emergency has cropped up and I have been dealing with it. I will try to get around to reading everything and will get back to you later today, I hope.
Chris, glad to see you joining this.
BWWR
Glad to hear you. Thought we had lost you there for a while.
Maybe you missed it but I did announce from the beginning that Chris is on BANGO’s team. As a matter of fact he will be making the presentation for BANGO on 27th when the hearing opens.
The Issues Conference for the BL&P Hearing gets underway this morning; Friday 16th January 2009. We have learned that the BL&P has contested a number of issues on the FTC’s list.
Do you think their objection to these specific issues give an idea of how they are thinking and what they want?
ISSUES CONTESTED BY BL&P:
1c. Valuation of the asset base
3. Effect of new depreciation charges on end user tariffs – Indicate level of effect for actual impact dependent on other revenue requirement and tariff structure.
4. Effect of new depreciation rates on profitability of the company.
6c. Should revision of depreciation rates be automatically reflected in tariffs?
7. Prudent investment in assets by the BL&P.
9. Consideration of the depreciation policy separate to a rate hearing – What are the advantages and disadvantages?
Compare this with the full list in an earlier post above.
Comments/observations (ever so small) would be appreciated before the Issues Conference begins at 10:00 a.m.
ROK
I am delighted Chris is with you. He is a very bright person of great wit and charm. That is an important move.
If you need any direct input, you can e-mail, I suppose initially by e-mailing David at Barbados Underground and asking him to provide you my e-mail address or forwarding your e-mail to me. I have been sending him articles and documents off my e-mail address so he has it. David, please give ROK my e-mail if he asks as this is too important a matter to be allowed to just sit.
Have you ever noticed that the old saying is true….it never rains, but it pours. However, we do what we can.
The issues are appropriate and, I believe, correct. They need to be considered, however, and it is no good saying this unless you propose to give them FULL consideration, which means all sides.
There is no doubt in my mind that the role that BU has played in this is pivotal. By keeping this issue at the forefront of his blog, David has effectively served notice on all that the public will be kept fully informed, so no amount of aftermath PR efforts by BL&P and those MPs they may have lobbied will assist to fool the Bajan public. Everyone is watching, even if they are saying nothing – however, please say something, BU readers.
Well, it was not a ding-dong battle at the Issues Conference after all. Those issues which the BP&P disagreed with were amicably resolved, when the FTC agreed that they will be part of the rate hearing.
However, can we be guaranteed that there will be a rate hearing? Our contention was that once the company got what it wants now, it need not apply for a rate hearing.
There was no definite yes to an application. The FTC declared that they would not get engaged without getting married (to my mind a side-step), while the BL&P CEO did not commit the company to a time when the application would come.
When we consider the issues of impact on the tariff and the proposed Depreciation Adjustment Clause, it is important that we implement the DAC ASAP.
The effect of this agreement is that there are less issues to contend with in this hearing, but we have put certain other adjustments on the back-burner.
There is but one small cartroad that can lead to the inclusion of a DAC at 6b, which was agreed would remain on the issues list.
@All… Very explicitly: this is *my* *opinion* based on what *I* have observed and understand.
IMHO, there *will* be a rate hearing for BL&P sometime in the near future. (Defined as no longer than 18 months, more likely within twelve.)
If the Company doesn’t ask for it, the Commission should.
There are serious matters to consider; the environment has changed. There are opportunities for optimization and development. To the benefit of all.
Let us please consider these matters soon.
Not now (read: the 27th), but soon.
@BWWR… Thank you for your kind words.
One should do what one can.
I am honoured to be working with those I find myself beside. And those I find myself “against”…
I think great things can come from honest dialogue.
Time will tell.
This is looking better.
OK this is cool.
@ROK
Have you considered the possibility that BL&P are really NOT interested in a rate hearing to achieve a rate increase?
Suppose the Company is really just trying to achieve a structural change in the depreciation method and to ‘give the impression’ that they are seeking a review?
Considering that they have not had a rate adjustment for 25 years; made profits EVERY year since that time, AND made record profits as recently as last year why would they require a rate increase?
It is interesting that they have been also able to create a holding company which has financed other entities including insurance and Tele Barbados. They have also managed to keep paying salaries to numerous top executives for years after their retirement through this holding company. This is a company with money to burn…
Why would this be the case?
BL&P is guaranteed a return on investment of 12%.
They are protected from competition
NO ONE QUESTIONS OR INSPECTS THEIR DECISIONS
Before his untimely death, Wendell Mc Clean described the last PUB decision on BL&P rates as a huge mistake which would result in the company OVER RECOVERING from the rates set.
Obviously Mc Clean was right.
It would have been very easy for the BL&P to cover up their excess income from rates by creating high ‘expenses’ which could be manipulated to result in what appeared to be conservative levels of profit. Who independently questions this company’s expenses? It would be interesting to look at their capital expenses and ‘consultant’ fees over the years.
For example, having a ‘holding company’ is very convenient for making large transfers of funds as ‘consulting fees’, management fees, professional fees etc.
Significant levels of funds can also be exported through foreign expertise brought in to complete ‘specialized’ tasks in technical areas.
So then if the Company had been overcharging over the past 25 years, since no one questions their operations, all they needed to do is manipulate their ‘expenses’ every year so as to end up with reasonable profits. Of course the expenses incurred would have been filtered to convenient sources.
Who ensures that funds are spent as efficiently as possible in the interest of consumers?
In the absence of open competition, a monopoly’s operations MUST be transparent and open to independent SCRUTINY to ensure that their guaranteed 12% profit is not achieved on an inflated, inefficient or false expense base.
Why are they not compared to a suitable benchmark company with respect to expenses for equipment and consultants?
Why are they seeking a hearing now?
Because it would be suspicious to Barbadians, if after a quarter century of no need for increases, and now going into a period of economic turmoil, the BL&P could continue to be profitable with 25 year-old-rates.
In fact, BL&P do not need new rates, however if they get the depreciation change that they are seeking, they will be in a position to further manipulate their ‘expenses’ to their benefit for the immediate future.
How does the BL&P maintain this advantageous position while appearing to be open to rate review? – Easy!! Appear to be applying for a rate review, start with a relatively mundane issue like depreciation, then either drop the substantive application, or quietly ‘lose’ the case and have the ‘old’ status quo retained. As long as the BL&P retains a situation where their operational details continue to be hidden, and there is no competition, the shareholders, managers and ‘consultants’ will continue to exploit the PUB error made 25 years ago.
We keep hearing about this holding company which BL&P uses to direct its resources. What do we know? This is a listed company on the BSE, shouldn’t we therefore have transparency with the financials?
@David… It’s not a secret.
Barbados “Light & Power Holdings Ltd.” (LPH.)
All shareholders (and others) have access to the financials, and the AGMs.
Question for BL&P
Thanks for this contribution. Very enlightening.
You think that the aim is to retain a situation where their operational details continue to be hidden….?
There are a few things which I am going to throw back at you to draw your response.
In terms of regulatory accounts, any funds syphoned off in that way would not be legitimate expenses in the regulatory equation. Shareholders, dividends, consultants, Holdings company, the investment in other businesses would not hide the profit, and are not permissible deductions from profit in rate setting.
Once a rate is set, this gives the company a legitimate rate to charge consumers. If somehow, as seen with C&W, the company is able to shuffle its position and create savings, it is still allowed to charge the rate set until a new one is set.
There is therefore no need to cover up. You think it pricks their conscience the amount of money they are making?
“There is therefore no need to cover up. You think it pricks their conscience the amount of money they are making?”
ROK,
Are you saying that BL&P is guaranteed 12% and if they were to make 112%, this would be acceptable?
Who determines when profits are excessive and does the FTC have the power to reduce rates if profits are deemed to be?
“legitimate expenses in the regulatory equation”
Are fees paid to consultants not a legitimate business expense?
General
Let me explain that some more. 12% is a guaranteed minimum. However, 12% is considered reasonable and therefore in setting the rate, a rate not less that 12% is acceptable.
If conditions change and the company is now making 112%, then it would be the duty of the FTC to call in the company. Usually it is that, inflation and/or general price in creases would erode the rate and hence reduce the profit, whereby the company would apply for an increase.
I am afraid that “Question for BL&P” has raised some questions that is going to take me back to the PUB hearings, especially to try to discover why Wendell McClean was of the opinion that the then PUB decision would cause the company to “over-recover”?
It could very well be the case that the rate was set high because amortisation was large. Hence, if you allow the rate to be set high to recover cost in what may be considered a reasonable time, then when the amortisation is completed the rate remains the same, but the company is not obligated to apply for a rate reduction.
hmmmmm… So 25 years later the rate still prime… but that assumes that the company has not had to do a re-investment in equipment, etc. or that increases in the operations costs has not eroded the rate.
I think we need to be wary of that self-insurance fund. That needs to be very transparent.
General
Certainly fees paid to consultants that are doing work not directly related to the generation of electricity, could not be claimed. A consultant working on explaining a fault in the system yes, like the blackout; or in preparation for a hearing, then yes… but not if the consultant is employed to find the best investment for the company.
I should provide some references to support this, but I will need to look for them. Give me a bit of time. They are called “allowable expenses.”
Remember that the customer base would have increased substantially over those 25 years.
Now that demand is set to increase again (new housing developments), this should be considered when looking at future earnings.
The value of assests and their replacement cost is determined by the company. Then you add the coverage the company needs for any number of risks, real or imagined and you have a potential bottomless pit.
I am sceptical of this self-insurance.
@Question for BL&P
While Chris seems more confident that we will get a rate hearing, I am not so optimistic this time. I concur with you.
@ General
In terms of the self-insurance, I am seeing a possibility of the company benefitting twice from one incident/event. Are there any other possible manouvres in this scenario?
@Chris
Our question was rhetorical even though we sense that a few commenters have hinted at some mysterious workings of the BL&P Holding company.
The annual reports of Light & Power Holdings (including their audited financial statements) are available on the company’s website at http://www.blpc.com.bb.
I would love to have my charges reduced, but let us be realistic, can you see this happening? The cards are not in our favour, but count me in to fight this lot, they are making abnormal profits due to reductions in the price of oil, yet we do not see similar reductions in the rate we pay
JTB:
“they are making abnormal profits ” –
Not according to their published accounts, they are set up as to make a loss and paid no tax for each of the last 10 years.
IANA, someone more qualified please tell me if I’ve misread the accounts.
Straight talk, lets be clear here, any company that can make a loss for ten years and still remain in business is taking the proverbial piss. Why are they still in business. What a joke!
@Johnnie Too Bad
That is not an open and shut case. It is quite possible that the rate could come down, if the company is making a huge profit. It is also possible that the rate may not change.
Let me say though that a rate hearing is not just about rates, but moreso the fact that it is a time when the company can be subjected to scrutiny.
In checking what “Question for BL&P” post above, it is suggesting that the company is into “over-recovery”. If this is so, then it will be a good case for a reduction in the rate.
Straight Talk
I would like you to articulate your angle a bit more. That is a puzzle. How could they have made $58M if they were set up to show a loss? What kind of taxes we talking about? Direct us to that information you are analysing.
@ROK……Haven’t forgotten you. Still working on it (actually my daughter, not me). Over here we can’t get any juice fr the sun. Want to bring it home. Once its effective I’ll let you know.
Wow Hopi, I am impressed. Look forward to your daughter’s and your contribution, because I know you will have your say in-between. LOL!
Yeah, we need the technology here. Send it and let me try it down here. We have nuff sun for juice here.
All the records of the PUB are in the library/archives at the FTC. It means making an appointment to peruse them.
Since they are a part of the public record, we should be able to get photocopies. It will mean spending a day or the large part of a day at the FTC.
ROK:
From L&P Holdings last report:-
c) Tax losses
The Group has tax losses of $33.3 million (2006 $28.6 million) available to be carried forward and applied
against future taxable income.
The losses are as computed by the Group in its tax returns and have not been confirmed nor disputed by the Commissioner of Inland Revenue.
The losses and their expiry dates are as follows:
Income Amount
Year $000’s Expiry date
1999 28 2008
2000 15 2009
2001 11 2010
2002 9 2011
2003 9 2012
2004 13 2013
2005 7,582 2014
2006 20,912 2015
2007 4,755 2016
TOTAL 33,334
Notes to the Consolidated Financial Statements
•34
@ROK
You have a charming way of asking questions which you then go on to answer very well.
“BL&P are allowed a minimum rate of return. They can make more. However, the FTC can convene a hearing should they find profits to be excessive and FTC could make corrections.”
Do you expect that BL&P would ever show ‘excessive profits’ in their published accounts?
The only way this whole affair makes any sense is the following scenario:
Here is the BL&P’s dilemma;
– You got an unexpected windfall deal from the PUB back in 1983.
– You cannot show huge bottom line profits
– You wish to avoid the scrutiny of a hearing and a possible review.
– You realize that 25 year-old rates are suspicious in the current environment
– You value more than anything, the lack of scrutiny of your operations, even though protected from competition and guaranteed a profit.
Obviously the financial statements are not helpful to us in this scenario. It is easy to show any desired bottom line if you can freely decide to buy or not buy expensive spares, consultants, equipment and technology.
(Should projected profits by midyear look to be 10 million too high, you just need to buy a spare engine or trucks- along with some high priced consultants or exotic “staff training”.
This will quickly bring year end profits back in line)
To deflect suspicion about the 25 year-old rates, you would appear to be pursuing a review – at least publicly. Even better, you start with an innocuous depreciation exercise which limits scrutiny, and win or lose – PR mission accomplished.
The good side effect is that the company obviously used some of the ‘over-recovered’ funds to ensure a very reliable service and good customer relations. It may well be prudent to allow them to continue to effectively recover this ‘quality premium’ on their rates, but should that not be a transparent decision?
The blogmaster invites you to join the discussion.