BEL says, “Maybe!”
The Belize Electricity Limited (BEL) today reacted to an initial decision issued on Thursday, January 12, by the Public Utilities Commission (PUC), calling for an average 6.1% reduction in tariffs, amounting to savings of roughly $6 for every $100 customers pay on their light bills.
This is nearly double what BEL had applied for when it submitted its rate review application back in December 2011 asking for a 3.4% decrease in rates, and today, the company issued a press release saying that it wants the PUC to revisit its decision.
The BEL position is remarkably contrary to the position of the Government, which has a supermajority stake in the company, and which has signaled its acceptance of the PUC decision and its expectation that light bills will go down as of next month. We note that the review of the PUC decision could drag out the process for months longer.
“On behalf of the Government and people of Belize I welcome that decision and treat it with applause and with jubilation,” Prime Minister and Minister of Finance Dean Barrow at the House of Representatives had said on Friday, when a statutory instrument was tabled enabling the PUC to bring the new rates into effect as soon as February 1.
Normally, the rates would take effect in July/August, and Prime Minister Barrow said the rate reduction is “the greatest New Year’s gift over which [the Barrow] administration is presiding,” giving consumers more money to spend and in some cases “to splurge.”
“For all intents and purposes that [new rate schedule] is now law and has become enforceable,” said PUC chairman John Avery, at a press conference held at the Radisson this afternoon.
However, if BEL and the PUC are unable to resolve their differences and an independent expert has to be engaged to make recommendations, as per law when the parties dispute over the rates, it will mean another three-month delay before implementation, Avery signaled this evening. That would mean a May implementation date for the new rates, well beyond the scheduled date for municipal elections, which some speculate could also be the date of early general elections.
“Consumers deserve their reduction as soon as possible,” said Avery.
He noted this afternoon that although there remain unresolved issues coming out of this initial rate decision, he hopes that BEL and the PUC can address them during the next annual review proceedings—not this one, so that the long-awaited rate reductions can be put into force within the next two weeks.
Specifically, Avery noted that BEL had requested an increase in fees and charges, as well as penalties for those who steal electricity, but he did not give the details.
The PUC chairman called this 2011-2012 rate review period “a bit extraordinary,” in that instead of covering the normal four years, it spans seven years, retroactive to July 2009 and running to June 30, 2016.
That is because since 2009, when a 15% rate reduction was to be effected, the PUC’s hands have been stayed by court order from doing anything to alter rates disputed back in 2008 by Fortis Inc. of Canada, which owned the company until the Barrow administration nationalized it last year.
Due to the protracted dispute between Fortis Inc. and the Public Utilities Commission over rates, nearly three years have passed and the PUC has been unable to set new rates, Avery said.
Barrow said of last Friday, when the electricity order was tabled in the National Assembly that, “Today is, therefore, the sweetest possible consummation and vindication of Belizean courage.”
He commented that “...the former owners of BEL were never going to give us any reduction [in rates]. In fact, they tied us up in court and got injunctions to block any possibility for lower rates. They were determined and demanding to increase our rates—and in a major punitive way.”
Barrow added that Fortis had “actually threatened to cut off power supply if Government did not buckle.”
Today, it was the Government-controlled BEL which expressed its reservations on the PUC’s new rate decision and the company’s ability to meet its financial obligations.
In a press release issued earlier today, the company quoted Chief Executive Officer Jeffrey Locke as saying that, “Lower rates to customers are possible and desirable. However, the final rates to customers must also ensure that we can sustain the company’s operations to deliver the quality service and carry out the system improvement initiatives outlined in our Business Plan, as well as meet our obligations to shareholders.”
BEL has signaled that it “will continue to work with the PUC as the Initial Decision is revisited.”
It added that, “It is critical for the Company to gain an understanding of the PUC’s premise for its Initial Decision. All efforts will be made to understand the PUC’s underlying assumptions and provide more information necessary to ensure all assumptions reflect the Company’s operational reality. Accordingly, BEL will be writing to the PUC to request a meeting.”
This evening, PUC chairman John Avery gave an extensive presentation to the media, spanning over an hour, detailing the PUC’s decision.
Avery said that the PUC has approved $119.7 million in investments for BEL.
Then there are all the corrections that have to be applied to effectively give consumers tens of millions back in rebate, $2.6 million for the period February to June 2012, and $6 to $7 million a year after, up until the year 2016. The total corrections listed in the data presented amount to $30.2 million.
The PUC also reported that $7.13 million in net corrections have been applied for June 2008 to June 2011, which is derived from $4.4 mil in favor of BEL and $11.5 million in favor of consumers.
Although the tariff decision spans 2009 to 2016, Avery explained that the corrections are factored into the new rates going forward.
We asked Avery what is the probability of the new rate reduction holding for the 4-year period remaining (2012 to 2016), and he said that would depend largely on what will be the cost of power, which is largely driven by world market prices for fuel.
Avery spoke today of “imprudent expenditures” which he said the former management of BEL made, and we asked him to cite them; he spoke of $7 million the former management spent in legal fees to foreign attorneys to fight the PUC in court.
Avery said that customers will not be asked to bear the penalty for that kind of spending, and so those costs won’t be passed on to customers on their light bills; rather, he suggested, that’s something that the government may want to consider in settling compensation with Fortis, the former owners.
We also asked the PUC chairman why it is that, according to the schedule to the PUC decision, a lower amount of revenues is approved for BEL than the previous year. He said that he expects changes in the company’s tax rate. He told us that prior to April 2010, BEL paid 1.75% business tax. That was increased 6.5%, but Avery said he expects Government will reduce the tax rate in April this year, at the time of the new budget.
Former BEL CEO, Lynn Young, told us today that, “BEL had applied for a reduction of approx 5.8% in 2009 after the PUC ordered 15% reduction, on condition that the PUC rescind the bad decision. The PUC refused and instead, the Government increased BEL’s taxes by roughly the amount of the reduction that BEL had offered. One week after the GOB expropriation of BEL, the PUC rescinded the 2009 decision.”
Avery told us that the 5% savings from the Mexican state-owned company, Comisión Federal de Electridad (CFE) are being passed on to consumers; however, the PUC is encouraging BEL to purchase from the cheapest sources of power to help it to be more cost effective.
CFE, he said, accounts for 40% of the energy Belize uses, and the rest of power comes from local sources, particularly the Fortis-owned hydro facilities run by the Belize Electric Company Limited (BECOL)—Mollejon, Chalillo and Vaca, a three-dam scheme, and Belize Aquaculture Limited, independent power suppliers to BEL. The PUC is encouraging BEL to replace some of CFE’s fossil fuel- based power with local sources, such as renewable hydro, to help save money on payments to power suppliers.
Avery said that now that BEL is majority government-owned, if it cannot raise funds via the markets in debentures or commercial loans, it may be able to benefit from a government guarantee or other government facilitation to obtain concessionary financing from multinational lenders. He also said that when the series 1 debentures end in 2012, he expects that BEL will seek to resell them on the market to raise more funds.
Whereas BEL expressed concerns as to whether it can adequately sustain its operations with the 6% rate reduction, Prime Minister Barrow said Friday that, “This slashing of electricity bills to all consumers is an unprecedented, historical achievement—the jewel in the crown in Government’s sparkling initiatives of pro-people initiatives.”
He said that, “Every sector of the economy will benefit—residential, industrial and commercial...”
He also said “the PUC’s decision adds over 1,000 persons to the list of those that pay only at social rate for their electricity consumption.” The category would be expanded, he said, from 7,000 persons to about 8,000 persons.
Barrow said that the new electricity rates, as contained in the PUC’s initial decision, will result in $12 million dollars in annual savings to the consumer.
“It is one hell of a stimulus package,” he commented.
He added that, “The only bill that does not go down is Government’s bill for street lighting. We, the Government of Belize, will continue to pay at a whopping 55 cents per kilowatt-hour.”
This is well above the average of 44.1 cents per kilowatt hour contained in the PUC decision. Barrow said that Government pays almost $600 a year for one lamp, but that is what is necessary to offset the rock-bottom social rate to poor Belizeans, which is 20-odd cents per kilowatt hour.
Whereas Barrow noted that the statutory instrument tabled Friday brings the new rates into force on February 1, 2012, the PUC has noted that any serious objection to its decision could delay the implementation as many as three months. This notwithstanding, Barrow has signaled his expectation that “...as from next month’s light bill, every person in this country will realize savings.”