Cooperative Coalition Shocked at FTC Ruling

The following is a Press Release from the Coalition of Co-operatives Coalition of Co-operatives and Concerned Citizens in relation to the recent FTC ruling – Blogmaster

Coalition of Concerned Co-operatives and Citizens
PRESS RELEASE

17 September 2022

The Coalition of Concerned Cooperatives is shocked at the decision by the Fair Trading Commission to grant an interim rate increase to the Barbados Light & Power Company three days before the substantive two-week Rate Hearing is due to commence.

In addition to the unfortunate message that this decision sends to the general public, and to intervenors in the substantive Hearings, about the Commission’s seeming predisposition towards the Company’s application, we are also particularly displeased that the Commission has dismissed, without comment, the position raised by the Coalition in writing to the Fair Trading Commission, that the Laws of Barbados – via the Utilities Regulations Act Chapter 282, in Section 15 (3) specifically directs that:

(3) The Commission shall not grant a request for a review by the same service provider
more than once in any year.

In our opinion, this clear stipulation in the Law restricts the BLPC from submitting an additional Interim rate application within the same year, after having submitted their substantive application. Surely, the acceptance of the BLPC ‘interim rate review’ therefore breaches the Act.

We continue to await a suitable explanation from the Commission as to how they could have ignored this clear stipulation in our Law.

We are furthermore concerned that, whereas the Act makes no provision for any special category of Rate Hearing such as an ‘Interim Rate Increase’, the Commission in its ruling, went to long, rambling, lengths, to accommodate this request from the Company, citing overseas precedents that would have been based on completely different laws.

At the same time, the Commission has completely ignored and dismissed our position which is a direct and unambiguous extract from the Laws of Barbados that apply directly to these Rate Hearings.

Additionally, the decision to arbitrarily award 50% of BLPC’s request, appears to be based solely on subjective information provided by the Company. It clearly lacks the kind of scrutiny that is mandated by the Act, and which will apply in the substantive Rate Hearing scheduled to commence on Wednesday.

The records show that whereas BLPC paid less than $10 million per year in dividends to shareholders before the last rate increase, this increased to nearly $50 Million annually since Emera took control of the company. As a result, some $538 Million have been extracted from BLPC since the last rate hearing.

How this company can now claim ‘cash flow difficulties’ and be accommodated with an ‘interim rate increase’ on consumers, is difficult to assimilate from the decision given by the FTC. We fully expect that Emera will simply increase their annual dividends extractions accordingly, since this matter has not been addressed in the ruling.

Also, to the extent that this so-called ‘Interim Rate’ has not been back dated, we are concerned that its only impact will be to prejudice the substantive Hearing with the preconception that the Company’s case is already being supported by the FTC.

The wisdom of the stipulation in our Law that only one rate application be entertained in any single year becomes quite apparent.

The Coalition calls on the FTC to urgently reconsider this flawed decision, and we reserve our rights in the matter.

Trevor Browne
Chairman
Coalition of Concerned Cooperatives


107 comments

  • Prudent
    $110m payout BL&P boss defends millions in dividend payments

    ABOUT $110 MILLION in dividends, which Barbados Light & Power Company Limited (BL& P) paid out in separate circumstances over the last seven years to its Canadian owner Emera, have been called “prudent” and “very reasonable” by BL& P managing director Roger Blackman.
    The payments made in 2015 and 2021, as well as the utility company’s overall dividends policy, was the subject of extensive questioning by co-intervenors chartered accountant David
    Simpson and attorney Tricia Watson yesterday in the post-lunch session of the electricity rate hearing at the Accra Beach Hotel.
    Blackman, who is the company’s first witness, was quizzed on the company’s payment of dividends to its parent company in the context of its current request for higher electricity rates on day four of the hearing.
    In 1993, BL& P established a self-insurance fund, capitalised by $2.5 million from shareholders, because at that time it was unable to purchase third-party insurance at a reasonable price to cover its transmission and distribution assets.
    However, by 2015 Emera
    was the lone shareholder, and Blackman said the parent entity was paid dividends of about $85 million after the fund was deemed overcapitalised following an assessment by insurance entity CGM Gallagher and BL& P’s internal assessors.
    Simpson asked Blackman if, in BL& P’s quest to be financially viable and to be able to “provide an ongoing supply of safe and consistent electricity supply”, this payment to Emera was prudent, and the managing director said ‘yes’.
    Simpson also asked Blackman if any consideration was given to making a smaller dividend payment to Emera “so that the [BL& PC] could have easier met any obligations for operations, upgrades, [or] anything during that period of time”.
    Blackman responded: “I believe those considerations would have been made at that time and . . . so we are here seven years later, so that speaks, I think, for itself as well.
    “The business was able to manage over the last seven years since that transaction and, as we always do, we manage costs and expenses in the business to avoid having to come back and request rates until it is an absolute necessity as it is at this point in time.”
    The BL& P boss was also questioned on his company’s dividend policy and the reasons why it did not pay Emera a dividend in 2020 when BL& P’s net income was $28.72 million, but paid out $25 million in 2021, when the net profit was $24.58 million.
    Blackman explained that based on the $550 million in equity invested in BL& P, and the 12.5 per cent return on equity criteria used, the dividend paid in 2021 should have been $70 million, but “$25 million was paid instead of $70 million in an effort to balance [various] factors”.
    “The Barbados Light & Power Company does not have a formal dividend policy. While we don’t have a formal dividend policy, there are some criteria that govern how dividends and decisions around dividends are made,” the managing director said.
    Prevailing conditions
    “Those are threefold: one is the solvency of the business and the ability to pay, another is the prevailing economic conditions at the time, and the third would be seeking to manage our capital structure as a business,” he noted.
    Simpson further questioned Blackman on BL& P’s dividends payments in the context of its financial viability and cash flow, and also vis-à-vis its application for a rate increase.
    Blackman said the “primary drivers” of the rate application were “the increased cost of operation, including depreciation, lower sales, . . . clean energy transition investments that were made in the last 12 years and that we anticipate we will continue to need to make, as well as meeting Government’s mandates for the electricity sector”.
    However, he added: “The challenge that the company has in relation to cash flow is that if we aren’t granted adequate rates, we won’t be able to meet our commitments – cash flow will be a problem.”
    “So we have recently gotten a decision from the Fair Trading Commission for partial interim relief, which eases some of the pressure, but certainly doesn’t address the gaps that we have identified in our application, and what is necessary for the sustainability of the business over the long term,” he said.
    (SC)

    Source: Nation

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  • BL&P’s test year comes under fire
    The 2020 test year on which the Barbados Light & Power Company (BL& P) based its 2021 application for a rate hike came under heavy scrutiny on Day 8 of the rate hearing before the Fair Trading Commission (FTC).
    It was a second day of gruelling questions for director of finance Ricaido Jennings, who was forced to defend the company’s decision not to make changes to the pro forma adjustment, based on the recognition that 2020 was an anomalously low year for sales.
    Jennings also faced a barrage of questions surrounding the company’s capital structure, namely its desired debt-toequity ratio of 65-35.
    Intervenors harped on the testimony that in order for BL& P to get to this ratio it was necessary to pay substantial dividends in some years.
    In her crossexamination of Jennings, commissioner Dr Ankie Scott-Joseph asked for clarification on projections based on the test year. She pointed out that there was an overall decrease of about 6.1 per cent in 2020 from 2019, while 2022 has recorded a five per cent increase from the test year. The test year coincided with the height of the COVID-19 pandemic.
    During this period the country’s hospitality sector, including hotels, was closed temporarily, so she queried how using this test year could be justified in the recovery of sales being shown in the company’s application.
    Sales
    “We discussed the level of sales that occurred during 2020 and I believe everyone agreed that sales were abnormal in 2020, yet the company has not proposed any adjustments to sales.
    Let’s have a look at interrogatories eight, the total sales equal 932.296375 (million) kwh for the period ending June 30, 2022.
    This is compared to 889.94723 million kwh in 2020. Would you agree that level of sales for the period has increased
    by five per cent over levels in the BL& P’s test year?” Scott-Joseph asked.
    She added: “In the application, BL& P forecast sales of 931.1 gigawatt hour in 2022. In 2023, the year the rates will be implemented if approved, it shows 941.1 gigawatt hours while in 2019 sales were 947.7 gigawatt hours.”
    In response, Jennings said looking at sales in isolation would not be representative of the company’s revenue requirement. He noted that the utility company was running the risk of the rate of return being too low, given that the application was based on a 2020 test year.
    “Based on our forecast it does not appear that the level of sales will be exactly the same as what would have occurred in 2020.
    I don’t want to jump ahead with the line of questioning, but I think that similar has to be said with the level of expenses and the level of depreciation as well. I don’t think that looking at sales in isolation is appropriate and I think that you need to make sure that you look at sales and expenses.
    This is to ensure that what you land with as a revenue requirement leaves enough reasonable return,” he said He told the panel that in a scenario where sales increase and expenses decrease, it is embedded within the regulatory compact for the rate to be adjusted downward.
    “It is justified in my view because once we recover in accordance to the forecast, so too do the expenses increase, so too does the depreciation. There are also other things to be done relative to managing the grid. So I have observed the same phenomenon that you have, but to look at it in isolation would be to do a disservice. It is a reasonable ask and it will lead to a reasonable return. I believe that what we ask for allows us to attract the type of investment we need and to accomplish the things we need.”
    Earlier, Jennings was cross-examined by intervenor Lieutenant Colonel Trevor Browne, who contended that customers’ interest was not being best represented
    in the company’s working capital split. Browne said his group was concerned that 86 per cent of the company’s retained earnings were going towards dividend payments instead of infrastructural development. He argued that since the last rate hearing 12 years ago, $538 million had been paid in dividends at a rate of 24 per cent per year based on $200 million in share capital.
    He asked Jennings if there were assurances in the BL& P’s application which guaranteed that a hike in rates would not result in even more dividend payment to investors.
    Jennings said there were none. “We are concerned that a large per cent of the earnings that are supposed to go towards ensuring that we have a robust electrical infrastructure is instead used to equalise this 65-35 debt-to-equityratio,” Browne said.
    Debt-to-equity ratio is used to evaluate a company’s financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity. It is a measure of the degree to which a company is financing its operations with debt rather than its own resources. (CLM)

    Source: Nation

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  • BLPC under-earning

    FINANCE HEAD SUGGESTS COMPANY MAY MAKE ANOTHER REQUEST FOR AN INCREASE
    By Emmanuel Joseph

    The Barbados Light and Power Company’s Director of Finance has suggested that it is likely to go back to the regulators for a new rate hike if it is unable to get the 12.5 per cent increase being sought now.
    Ricaido Jennings put this position to the Fair Trading Commission’s rate hearing on day eight of the proceedings which are considering a request from his company for an increase in electricity rates.
    Jennings was testifying on Friday when he defended the possibility of seeking another hike. He said even if the current application is successful, the BLPC will still be challenged with how it is going to earn its returns.
    He said the company was under-earning with a rate of return on investment of eight per cent – excluding the impact of a tax in 2018 – and in light of the 10 per cent that was approved by the FTC previously. He identified a number of factors that would have contributed to the BLPC not achieving the 10 per cent to justify the request for an increase.
    “If you exclude the impact of the tax in 2018, the rate of return is near eight per cent. In 2019 you are under 10 for sure. By then in 2019, we entered construction of a clean energy bridge which is a significant amount of investment and you are not able to earn your return in 2019 even without the clean energy bridge.
    “You then add the impact of the clean energy bridge, that pushes you even further.
    Even with the dip in 2020, the inflationary pressures that you were facing [and] the growth in expenses…you are at that stage,” the witness testified.
    The finance chief agreed with intervenor Worme that even if the company were to be granted the rates for which it applied, it would be under-earning again in the first year after receiving the hike.
    “So my question is if eight per cent or 10 per cent is too low, having gotten this rate, you are expected to come back to have another increase?” Worme queried.
    “You are right, we are in a similar type position. It is something we are going to have to continue to look at and assess and find what’s the right construct. But, you are right,” Jennings replied. “This application is based on a test year of 2020. 2021 has passed…we know that we were well under five per cent. So that is a significant challenge. We are near the end of 2022 and for all intents and purposes, it does look to me like we are going to head around that same four per cent.
    “We did get an interim relief decision which gives us some relief for the remainder of this year,” the finance director told the hearing.
    “Even if we are successful with this application which I am hopeful we will be, because I think we made a pretty strong case for it, we still are going to have challenges with how we are going to earn our returns,” Jennings stated.
    Under cross-examination by intervenor David Simpson, the witness suggested making a fresh bid for an increase was a possibility.
    “There is quite a bit that is changing in the industry now. With the changing times and changes in what’s happening, it is going to have to be evaluated as it unfolds.
    I am not able to sit down here and testify to say that you are not going to end up right back here. I am going to say you are going to try and manage as best as you could as we have always done.
    “Seeking a rate increase is always the last thing that we are looking to do,”
    Jennings declared. However, he told the commission that the company must ensure it is able to recover its costs once there are “prudently” incurred, and when that happens, “the determination made, gets done.”
    Also in Friday’s session, the tribunal hearing the rate request was told that the agency which conducted a study into the status of the BLPC’s self-insurance fund, was also a beneficiary of the value of any adjustment.
    This information was revealed by intervenor Stephen Worme while he was cross-examining the company’s finance director as he gave evidence before the hearing.
    “Last night we received a document in response to the queries about the selfinsurance fund and the value of what it was. And what struck me was that that study was done by the same company that was the beneficiary of any adjustment.”
    Noting that he was not ascribing any motives regarding the discovery, Worme, a former BLPC employee, said “I think these are companies that have high integrity and I actually know one of the persons that did the report and he is very much above board.”
    Worme told the commissioners. “My question to you is, from an optics point of view, is that reasonable?…Here you have a company that is going to be receiving the benefits of any recommendations or maybe costs, [and] are the ones to have actually done the study to determine what that should be?” the intervenor asked Jennings.
    “I think the more important piece is whether the people who’ve done the study are adequately qualified to do it and whether the study itself is robust and whether the study is reasonable,” the finance director responded.
    The hearing resumes on Monday at 9 am at the Accra Beach Hotel and Spa.

    emmanueljoseph@barbadostoday.bb

    Source:BT

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  • How are you doing Barbados?
    I haven’t asked you that for a little while now. I heard this song and began to feel a little homesick. I miss you. I love you. I wish you well.

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  • And this is for the old geezers like myself. Just play it next to the old girl and make certain that she listens.
    Have a great day. I am out.

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  • https://barbadostoday.bb/2022/10/01/interim-hike-now-included-in-bills/
    “At the same time, the company, which is currently engaged in a rate hearing as it seeks an 11.9 per cent increase, is giving the assurance that should it receive a rate hike that is lower than the interim rate of 5.95 per cent, customers would be reimbursed.”

    BLPC mathematics made simple
    Lesson (1) Give the BLPC a lower amount than requested.
    Footnote1: This signal they will get an increase. It also takes the sting out of a large one time increase.

    Lesson (2) Give them an additional increase but the two increases do not add to the requested amount.
    Footnote 2: When the second increase of 2.95% is given several things will happen
    –(a) The FTC will say it protected the the citizens of Barbados and gave only an increase that could be justified
    –(b) BLPC cries fowl and claims they will have to come again for an increase(NB: If the FTC had given twice as much as requested, you would have seen these jokers before the FTC in the future. That is Rule 1 of the silly game.)
    –(c) The 2.95% increase is now all you hear of. The Barbadian public forgot the initial 5.95% that was already given and you will hear the FTC only gave them 8..95 percent instead of 11.9

    (Please note that the total increase will be 8.925%.. It would not surprise me if this is rounded to 9%)

    Next!

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  • I missed this gem
    NO
    “Seems to have been much talk, and correctly so, about the repatriation of profits, a.k.a dividends.
    People seem less aware these are not $BDD. So an entity which doesn’t earn Fx, but spends plenty of it, for its primary input (oil), then gets to convert its profits ($BDD) to Fx, and export them.
    This is the perennial dilemma of having a currency, which has no value beyond the island’s shores”

    On this contribution his classification has changed from lightweight to super-lightweight 🙂

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