Too much power in BL&P’s hands

Last week, I proposed that the electricity bill could be reduced by (1) lowering the VAT rate; (2) revising the rate of return in the face of excessive profits, thereby lowering the average prices; (3) reading meters on a monthly basis and/or encouraging customers’ readings; and (4) investigating the fuel adjustment clause.
It is time to take seriously the cries of households and businesses with respect to the extraordinary increases in their electricity bills. To do otherwise is to show a lack of understanding of the pressure that is depressing these economic agents and in turn their impact or lack of impact on the economy.
The pressure is the coming together of rising utility bills, higher food prices and declining incomes of households and businesses.
In an attempt to justify higher electricity prices, an argument for conservation was used without regard to a practical understanding of the nature of the demand for electricity. In fact, during the hearing for a rate increase in 2009 it was noted that “it is extremely difficult to understand why the hundred and first kilowatt of electricity used will be charged 17.6 cents, 2.6 cents more than the hundredth kilowatt of electricity used”.
On the basis of cost, it is impossible to show that the hundred and first kilowatt of electricity costs the company more to produce than the hundredth kilowatt. Unable to win the argument, the company put forward the explanation that the reason for the increase was the promotion of energy efficiency; and it worked. Furthermore, it was stressed that it was energy efficiency and not economic efficiency that was being encouraged.
With the company having spent most of its time arguing that the price of electricity should reflect the cost of service across and among the various classes of users, the rate design was inverted so that as cost declined the price rose. This was done under the guise of protecting the low-income users.
Having argued the way it did, the company should have used a declining rate structure. The fixed charge should have been graduated to reflect higher usage that is increasing the fixed charge in direct relation to electricity usage. In this way, the fixed charge would have acted as the penalty to encourage conservation.
Since time is longer than twine, the evidence is clear that the increases are having damaging effects on the customers, regardless of the class. It is time for us to know what the real figures are showing. This is not difficult, as one of the rulings of the Fair Trading Commission (FTC) was that “the applicant shall continue to provide annual regulatory reports to the commission on or before May 31 each year”.    
Concerning billing, the FTC accepted the company’s proposal to use a rolling 12-month average for billing purposes. This explains the chart on the monthly bill and supports the contention that an unusual use of electricity over a given period may continue to influence the estimated bills several months later. It is time for meters to be read every month!
It ought to be evident to all and sundry that the profitability of the Barbados Light & Power is real, not imagined. The reality is shared by the FTC – “the shares of the applicant’s holding company are generally in high demand and, to the commission’s knowledge, it has never had difficulty with a share issue since investment in the holding company is seen as safe and secure.”  
If investment was safe and secure prior to the decisions of the FTC, imagine what it is now that the profitability has skyrocketed in the last year. It is time to consider the economic efficiency of the new rate design, not its energy efficiency alone.
The composite effect of higher electricity bills, water bills, fuel cost, food cost, insurance cost, health cost and transport cost, among others, on households and businesses has already been taken lightly. Unfortunately, it is now being suggested that a boom follows a bust, so be patient in the face of poor policy choices.
Furthermore, it is not the end of the world. But is it the end of an era?
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email clydemascoll@gmail.com