It is with great interest BU read the decision handed down by the Fair Trading Commission to DENY the application by the Barbados Light & Power Company Limited (BL&P) to apply the results and costs of Fuel Hedging to the Fuel Clause Adjustment (FCA). Some will argue that this is a pyrrhic victory given a prior decision by Barbadians to surrender the BL&P -a strategic national asset- to the Canadian company EMERA.
We understand why a company like BL&P utilizes hedging to protect its revenue position given the volatility that exist in the oil market. What we do not understand is why BL&P would want to pass the cost of hedging and associated gains or losses onto the consumers of Barbados. Surely in the case of a company like BL&P hedging is considered a core strategy for managing the business. The application to pass the cost of hedging to the Barbadian consumer should be regarded as an insult to our level of intelligence.
Can one expect with BL&P’s application being declined that a fallback strategy will unfold? Many of us are acutely aware the Spring Garden generators are old as one example. We need our local INDEPENDENT analyst to share views on the state of the power supply and generation in Barbados. It is too important a matter to allow foreign interest to dictate.
On a tangential note we find the list of FTC Commissioners interesting read Andrew Willoughby and Kendrid Sargeant.
Here is the decision to deny the application of BL&P by the Fair Trading Commission of Barbados:
THE BARBADOS LIGHT & POWER COMPANY LIMITED’S
APPLICATION TO APPLY THE RESULTS AND COSTS OF FUEL HEDGING TO THE FCA
The Fair Trading Commission, having reviewed the Barbados Light & Power Company Limited’s (BL&P) Application to apply the results and costs of Fuel Hedging to the Fuel Clause Adjustment (FCA), has moved to deny said Application.
The Commission has determined that:
I. Due to the risks associated with fuel hedging, the BL&P should not be allowed to pass the cost of hedging and associated gains or losses onto the consumers of Barbados.
II. The Applicant has not provided enough evidence to suggest that the Barbadian public is willing to pay for the reduced volatility in fuel prices.
Following receipt of the Application on March 29, 2016, the Commission invited written submissions from interested parties, in accordance with Rule 37 of the Utilities Regulation (Procedural) Rules, 2003 (S.I. 2003 No. 104) (URPR). Five parties, who were granted intervenor status to participate in the process, considered the Application. Several issues of concern were raised by the intervenors, including hedging risk and strategy, related administrative costs and the efficiency of BL&P’s plant.
The Commission reviewed these submissions and also undertook a detailed analysis of the issues involved. This included a review of regional and international fuel hedging case studies, a simulation of fuel hedging within the local market and technical considerations related to the BL&P’s overall plant efficiency.
The findings illustrate that while the implementation of a hedging strategy could reduce the volatility of fuel prices, this potential reduction is often accompanied by a high risk of hedge losses. Also of concern to the Commission was BL&P’s lack of vital evidence to support its Application, such as a detailed hedging strategy and proof that the average Barbadian consumer would be willing to bear the costs associated with a reduction in volatility.
The Decision may be accessed here or obtained from the Fair Trading Commission, Good Hope, Green Hill, St. Michael, Monday to Friday, between 9:00 a.m. and 4:00 p.m.
December 29, 2016
Fair Trading Commission
Good Hope, Green Hill,