THE HOYOS FILE: Crying all the way to the bank
It is quite touching, I find, the concern of Sir Neville Nicholls at the public outcry over electricity rates.
The chairman of the Fair Trading Commission (FTC), the agency which saw nothing wrong with guaranteeing the local electricity semi-monopoly a full ten per cent return on assets employed without having to worry about losing one red cent from increasing fuel prices, seems however, more interested in setting the record straight than in consoling the average consumer in his or her time of economic crisis.
Sir Neville, if I understand it correctly, wants the FTC to undertake a campaign to justify its decision to award that ten per cent return on assets (ROA) by ensuring that people understand it was not a ten per cent increase in prices which the FTC awarded.
No, it wasn’t. It has turned out to be 40 per cent. In 18 months.
The fact is that according to an ad published recently by the company itself, the Barbados Light & Power Co. is today charging abut 40 per cent more for the same 300 kilowatts of electricity than it did 18 months ago.
This is partly because of the price increase allowed to the company, and partly due to the fuel surcharges, a price increase by another name, and fully allowed by the FTC.
As we noted in this space last week, for the same amount of electricity used in January 2010, a user of 300 kilowatts of electricity paid $147.03 for the energy plus the fuel surcharge and $22.06 in VAT.
In July 2011 the bill for the same 300 kilowatt hours was $200.33.
So the average cost for running electricity in your home has gone up by around 36 per cent. It is higher if your usage can be deemed “heavy” – say, for example you run a business or a 24/7 enterprise.
When it mounts its campaign, the FTC could perhaps explain to the public why it continues to allow the electricity supplier and telephone landline supplier to enjoy sweetheart contracts more suited to the early modern development of Barbados, not the present-day highly profitable economic circumstances they are in (despite the recession all around them).
Guaranteed rates of return. Why? Do you think they might up and leave?
As I understand it, “back in the day”, Barbados had utility services in woeful need of capital investment. I was told that in the electricity crisis of the mid-1950s, Grantley Adams, then premier, threatened to nationalize BL&P (then privately owned) if they did not do something to improve service. You see, electricity to Bridgetown was being cut off for a couple of hours around noon each day, and you were warned not to find yourself on elevators at that time.
Too much demand, it seems.
But in order to get what was at the time a very large investment in upgrades, both for electricity and telephone service, the then Public Utilities Board developed a benchmark for regulating prices which said essentially, “Prove to us how much money you have had to spend on those assets you purchased to operate your service, and we will guarantee you a fair return.”
Sort of like a minimum return on your savings deposit. But it sounds fair, doesn’t it?
The problem is that we have come far past that development stage, but we still build in return on assets employed into our price regulations, for both LIME and BL&P, even though they are mightily profitable nowadays.
However, having attended many of the sessions for the last LIME (then Cable & Wireless, mid-2000s) hearing, I can tell you that I had never heard grown men “cry” until I listened to the testimony that the executives rolled out for the occasion.
There was no need to go home and watch Days Of Our Lives. The drama, the emotion, the hardship, yes, the struggle to earn a mediocre profit, oh, it was all there, and could bring tears to your eyes.
Not being a cynical journalist, I almost succumbed many a time.
The tough issue facing the FTC then and now (only one of the tough ones, I should say), is how to agree on the costs of operating such services in order to arrive at the final destination, which is giving the utility a fair return on its assets.
I came to the conclusion that the notion of fair return on assets did not meet a modern standard for a much faster-paced market where the consumer should be far more in charge and where more risk should be borne by the semi-monopoly because their gains are so much greater.
So instead of just educating us in how to accept the inevitable scenario in which we now find ourselves, under which the FTC’s own pricing system has logically priced electricity out of the reach of most people in this country, maybe Sir Neville could start outlining reform-minded legislation that would make the BL&P (and LIME) work harder for their guaranteed returns on investment.
Or is the FTC happy with watching BL&P earn even more profits as many of their customers go broke trying to pay their light bills? It can be tough crying all the way to the bank.