Frequently Asked Questions
1. Why a rate increase now during an economic downturn/recession?
BL&P is a regulated Company and we have to go through a very involved process in order to get approval to revise our base rates. The current rate review process has taken about three years from the first phase of research, through preparation and now to the Hearing. When we began this process, the economy was in better shape.
However, this rate adjustment is necessary for us to invest in new plant and equipment in order for us to maintain a reliable and efficient electricity supply and to be adequately prepared as we come out of the recession. We cannot put the application on hold now and still have the infrastructure in place when it is required. The rate adjustment is also necessary to address some inadequacies in our current rate structure.
2. The Company has never made a loss since 1983 but still feels the need to apply for a rate increase, why?
The cost of one medium speed generator is more than three times the Company’s total profit for 2008. Over the next five years we need to replace 3 generators. To do this we will need to raise funds and lenders will only lend if we can prove, through the adequacy of our rates, that we can repay the loans. Our present rates do not provide an adequate return to give them this comfort.
3. BL&P survived for 26 years without increasing rates, can’t the Company just continue to improve its efficiency to achieve revenue gains?
For the last 26 years the Company has been able to avoid applying for a rate increase because of its efficiency improvements and load growth. Unfortunately, these are no longer enough to allow the Company to make the investments required to satisfy customers and meet the needs of our developing nation.
4. I have heard that the Company has not managed its expenses well as evidenced by the large increases between 2005 and 2008. Is this the reason for the proposed increase in rates?
In 2005, the Company installed two new Low Speed Diesel generators which, since installation, has been saving in excess of $5 million per month in fuel cost which is passed directly back to consumers through the fuel clause adjustment. This saving is way in excess of the increase in maintenance costs due to the operation of these generators.
The application for a rate increase is not because of poor management but quite the opposite, it is a result of our commitment to long term planning to meet the needs of our customers.
5. Why does the Company have to replace the steam plant?
The plant is a 1972 model and has been running since 1976 and is due for retirement. The Company works hard to maintain the equipment but our analysis has identified that it would be make economic sense to retire the steam plant and replace it with modern more efficient diesel units.
6. You promised us a reduction in prices as a result of the new low speed diesel plant that went into operation in 2005, yet the prices still keep going up, how can you explain that?
The low speed diesel plant installed in 2005 has been saving in excess of $5 million a month since its installation.
When it was put into operation, the price of fuel was increasing rapidly and, even though customers at the time would not have seen significant reductions in their bills at that time, these would have been much higher without the plant in operation. Soon after installation, savings in fuel costs were estimated at 10% of customers’ electricity bills. These savings were all passed directly on to the consumer through the Fuel Clause Adjustment. We continue to be among the countries with the lowest electricity prices in the Caribbean and we expect this to be so even with the proposed increase in base rates.
7. Won’t the new rate structure result in exorbitant price increases?
While most customers will see an increase in their bills there are some business customers who will actually pay less for electricity. Under the proposed structure, manufacturers and others will have incentives to manage their energy demand more efficiently and thereby may reduce their electricity bills.
Over 90% of residential customers use less than 500 kWh per month and they will see increases ranging from $3.45 at the lowest usage level to $11.04 at 500 kWh.
We are also committed to working with customers on energy efficiency and this could further mitigate the impact of the increase.
8. Doesn’t the Company consider that it would be reasonable to provide a special rate for charitable organizations?
The Company has proposed a ‘social’ rate in its residential tariff by using an inclining block rate structure in such a way that would allow us to keep the price increase to a minimum for customers using less than 100kWh of electricity.
A similar proposal has been made within the General Services block, which would apply to many small users such as small churches and small charitable organizations.
9. How will my electricity bill change with the proposed rate adjustment?
The impact would vary depending on your usage level. Based on the rates being proposed, if a residential customer uses less than 100 kWh your increase will range between $3.45 and $3.50. This includes VAT.
If you use between 100 and 200 kWh, the proposed increase will vary between $3.50 and $8.83, including VAT. Almost 50% of our residential customers use less than 200 kWh.
If you use between 200 and 500 kWh, the proposed increase will vary between $8.83 and $11.04. Approximately 90% of our customers use less than 500 kWh.
10. When will the increase take effect?
This will be decided by the Fair Trading Commission and will be announced when the decision on rates is given. However, we anticipate that any new rate will take effect from early 2010.
11. Natural gas is available in Barbados. Why doesn’t the Company use local natural gas?
NPC currently supplies about 1 million cubic feet per day (mmcfd) of natural gas from local sources and does not have large reserves. Barbados Light & Power by comparison, would need 25 mmcfd of natural gas to power only 50% of the electricity demand and this is not available form the local resources.
12. Why has Light & Power had so many outages in recent times?
In just over a year we have had four island-wide outages. While this is more than in years gone by, the Company has still achieved an overall reliability of 99.9%. We are, however, continuing to work assiduously to improve on this.
13. Why doesn’t BL&P have a share offer to raise funds for the new plant rather than seeking an increase in rates?
A share offer would be a more expensive option because equity is a much more expensive source of capital than debt, within the context of our agreed capital structure, as investors would require a higher rate of return than would have to be paid in interest to lenders. Also, since the equipment BL&P requires would have to be purchased from overseas in foreign currency, if funds were raised through issuing of shares, which would be in local dollars, it would be necessary for the Central Bank to obtain the foreign funds required for this purchase from an external source. It would therefore be preferable for the Company to raise the required capital through borrowing of foreign currency rather than through selling of shares.
14. Doesn’t the decision to use 2008 as a Test Year mean that the Company’s performance is distorted by the high costs associated with massive increases in the cost of fuel?
The price of fuel has no impact on the Company’s profitability as reported in the financial statements used during the hearing. This is so because under the arrangement with the Fuel Clause Adjustment the money received for fuel is a “pass through” and is not included in the Company’s profit and loss statements.
15. Has BL& P been paying corporation tax since the last hearing in 1983?
BL&P has paid $124 million in corporation tax between 1984 and 2006. It did not pay corporation tax for, 2007 and 2008 because of tax credits related to the construction of the low speed diesel plant in 2005.