We’ve heard a lot about the Cost of Power Rate Stabilization Account (CPRSA), which the Belize Electricity Limited (BEL) claims, had a $24 million balance only a month ago, and could reach an additional $10 million by July 1. In years past, there was also the multi-million-dollar Hurricane Rate Stabilization Account (HRSA).
Under that account, consumers were billed for costs BEL incurred in restoring power after hurricanes such as Hurricane Iris. That HRSA was abolished last year, but a new creature has taken its place – the Force Majeure Cost Rate Stabilization Account (FMCRSA), which the PUC instituted under its Friday, May 2 decision.
The concept of “force majeure” is alien to most Belizean consumers, and the range of what it covers is amazing. The recent rate setting methodology document released by new PUC chairman, John Avery, explains that “force majeure” means any circumstance – including but not limited to war, acts of warfare, hostilities, invasions, incursion by armed forces, acts of a hostile army, nation or enemy, riot, civil commotion, insurrection, flood, fire, storm, lightning, and other Acts of God.
The PUC allows BEL to “…make proposals for the recovery of costs incurred in the restoration of electricity services after a force majeure event.”
The HRSA, introduced under the Musa administration, was a type of FMCRSA.
The PUC rate setting document goes on to say that, “On the occurrence of a hurricane or some other force majeure event, the cost of rehabilitating the system may be high, and may not be reasonably recovered from consumers in one year. The Commission in 2001 approved establishing an account to hold such extra ordinary costs, and consumers would pay a small amount monthly to pay down the FMCRSA.”
Fortunately, Avery told us that the FMCRSA now has a zero balance, but if unforeseen disaster strikes BEL, it may not remain that way.
The PUC chairman explained that certain expenses are really outside BEL’s control, but BEL would not be able to charge just anything against the account. The PUC has to approve any charges written in the account. The PUC gives consideration to the fact that electricity is essential, and having the system up and running is vital.
Of note is that BEL does not have insurance for its electricity network. Avery said that BEL was supposed to establish a self-insurance scheme, where it should set aside half-a-million dollars in an account each year, but the PUC questions whether that has really worked, since the company has at times in recent years reported a zero cash balance, he went on to explain.
No one would insure BEL’s entire system; the costs would be too prohibitive, he said, adding that in the event of something such as an earthquake that takes down BEL’s system, they would be allowed to bill customers for certain costs incurred in restoring services.
It’s a form of insurance [for BEL] in case something bad happens, said Avery.
On the upside, Avery confirmed that the PUC has allocated a credit of $4.8 million to the Cost of Power Rate Stabilization – charges he says the PUC has determined were charged to customers in the Hurricane Rate Stabilization Account that should really not have been billed to customers.
For its part, BEL has informed us that it will challenge the PUC’s decision, and the PUC is now in the process of short-listing consultants to review its May 2 decision before it makes things final.
Even though the $4.8 million charged under the HRSA was used to reduce the CPRSA, the account still stands at a whopping $20 million – money BEL has on its books as owing from customers.
Avery said that the CPRSA is “dangerous and unfair” to consumers, because for one, BEL always estimates cost of power using forecasts that are low, and they charge customers 12% interest on the debt accrued for cost of power. More than that, consumers who try to conserve will end up paying the high costs incurred by those who don’t conserve, but who drive up national consumption, and when the day comes to pay off the account balance, some of those said people might not be around to pay their share.
In addition to reducing the CPRSA balance, the PUC made two other major adjustments to BEL’s numbers. Whereas BEL last reported that it was collecting 10% rate of return on its asset value, the lower end of the 10% to 15% range allowed by a statutory instrument, the PUC has scaled that down to 8.5%.
Avery said that the principal piece of legislation, the Electricity Act, which merely says the PUC shall allow the company a “reasonable” rate of return, trumps the SI, and so even though they expect BEL to challenge this point as well, they are comfortable with their interpretation of the law.
On April 2, the Belize Electricity Limited submitted its application for a 13.4% rate increase under the Annual Review Proceedings. A month later, the PUC issued an initial decision.
The essence of the PUC’s decision is as follows: BEL had requested an increase in the reference cost of power (the portion of the charge that goes towards paying for power purchases) from 25.3 cents to 28.7 cents for each kilowatt-hour a customer is billed for. The PUC approved a higher rate than BEL had requested, amounting to 30.7 cents per kilowatt-hour, or an increase of 3.4 cents.
BEL had also requested an increase in recovery of the Rate Stabilization Account (the portion of revenues that goes into paying back consumers’ debt to BEL) from 2 cents to 4.5 cents per kilowatt-hour. The PUC approved a slightly lower figure of 4 cents per kilowatt-hour.
The PUC reduced the value added delivery component from 16.8 cents to 13 cents – a 3.8 cents reduction. BEL had requested that the figure remain the same.
The PUC’s decision is not final, and won’t be next month, June, after it receives the report and recommendations from the independent expert.
We point out that the Barrow administration came to power promising that it would lower electricity (and all other utility) rates—not to keep them the same. We know that even as the cost of power continues to rise, the Government’s position is that new internal power sources due to come on-stream in 2009 should allow them to bring down the size of electricity bills.
In defending his decision to shave back BEL’s numbers, the PUC chairman asserts that even after BEL pays over $100 million for the cost of power during the next tariff period beginning July 1, 2008 and ending June 30, 2009, it will have $55 million to pay its operating costs and its shareholders.