The Belize Electricity Limited (BEL) and the Public Utilities Commission (PUC) have been involved in several legal battles over the past several months — the main issue of contention being the PUC’s 2008 Annual Rate Review.
Yesterday, the PUC secured a major victory in the Supreme Court when Justice Minnet Hafiz dismissed BEL’s 13 grounds of appeal to the PUC’s final decision on rates made on June 26, 2008. She issued her judgment in an 80+ page document which, in 17 points, summarized the grounds for denying BEL’s appeal against what it referred to as the PUC’s “retroactive ratemaking”.
Amandala spoke to the PUC’s Chairman, John Avery, who explained that, while BEL, in this particular case, claimed that the PUC had not been fair in their judgment for the 2008 Rate Review, the PUC in fact attempts to be fair to all parties concerned, while protecting the interests of the public.
Avery maintains that BEL’s push for the raising of rates is not necessary, because “BEL’s financial position over the last two years [from 2008] has been better than any other time in its history”.
Avery told us that because the 2008 decision had not gone into effect, BEL owes the consumers a ballpark figure of about $50 million. He said that this $50 million overcharge is due to Supreme Court injunctions which blocked the PUC’s decision for 2008, and its amendment in 2009 for rates change. The public is owed this money and it must be returned somehow, Avery said.
He said that although this was a major win, the money will not be returned to the public in the short-term, but will be passed on to consumers in the long-term when the PUC looks to future ratemaking and rate reviews, and makes the necessary adjustments in the new rates to reflect this figure. The PUC will try to accomplish this without “retroactively” setting the rates, said Avery.
Lynn Young, BEL’s Chief Executive Officer, spoke to Amandala a couple of weeks ago in an attempt to provide the backdrop for this legal battle. He stated that if Justice Hafiz Bertram ruled in the PUC’s favor, the company would go into financial crisis, which it has been trying to avoid since 2008 when it couldn’t make any payments and thus was in debt, with no foreseeable way of recovering its losses.
He told us that back in 2007, oil prices were approximately about $60 US per barrel (The fluctuation of oil prices is crucial to this dispute because Young said that, until recently, BEL produced the majority of its energy with the use of gas turbines and diesel engines, and the price of power from Mexico is indexed to oil prices.), but by January 2008, prices had shot up to almost $100+ US per barrel. It finally peaked at $140+ US in July 2008.
Young said that electricity rates increase in tandem with the rise in oil prices to meet the cost of production. He said that at the time that oil prices were going up, BEL was already buying electricity from Comisión Federal de Electricidad (CFE) in Mexico, and the price of the electricity was indexed to the price of oil at the time. At that time, said Young, the price that CFE was charging the company was even higher than what BEL was charging Belizeans for electricity. The company started going into debt, paying CFE and other power suppliers more than it was earning, and as a result, they went to the newly elected Government of Belize (GOB), our current government, and the PUC, for a rate increase as is allowed under the electricity laws.
According to Young, the current GOB had already promised that electricity rates were to be lowered, just after elections.
By the time BEL approached GOB and the PUC, claims Young, the company had already run out of money and owed its creditors, suppliers, and the CFE. He said also that the company had loans that were due, and it had no money to pay them.
Young also claimed that during the rate review, a new commission for the PUC had been appointed; he said that this new commission changed the entire rate setting procedures and methodology. Under this methodology, the PUC gave itself the power to review past rates allowances, make changes, and then approach the company, saying that these monies from past rates were too high, and that they needed to be refunded to the Belizean public.
The PUC realized that BEL was entitled to a reasonable rate increase under the law, and did grant BEL its rate increase, but it also went back, reviewed past rates, and then came forward saying that the rates from back then were too high for them to agree with, said Young.
According to the PUC, BEL was supposed to reimburse Belizeans $36 million.
At the end of that discussion, the revenue from the rate increase roughly cancelled the new amount that BEL was supposed to pay back to the public, which effectively did nothing to help BEL’s increasing debt, Young said.
Young further went on to say that CFE threatened to stop supplying electricity to Belize because BEL had not been paying its bill for about 3-4 months, and suppliers who shipped in equipment and material, including street lights, lamp posts and transformers, stopped providing these for BEL.
At that point, said Young, GOB met with CFE and negotiated to allow BEL 6 months to catch up with its payments. GOB also had to step in and pay some of the company’s outstanding loan payments. This was what enabled BEL to make it through 2008, according to Young.
Young said that oil prices went down eventually and the company started to recover, but the PUC then ordered a 15% reduction in rates effective January 2009. He said that BEL was just making it at that point and this reduction would have put the company right back where it had started in 2008.
He said that BEL thus went to the Supreme Court and asked for an injunction to put a stop to the PUC. He said that the court upheld that injunction that nothing was to change until the court reviewed the decisions that the PUC made when BEL had applied for the rate increase.
Since 2008, BEL has recovered, but if the company is forced to pay this money, it will go back into financial crisis, because there is no way that the company can absorb this loss at this current time, maintained Young.
If the judgment had been in BEL’s favor, then the PUC would have had to do an alternative rate review. This would have had to be done independently of any of the actions in the past reviews that led to the final decision, against which the injunction was granted.
In Young’s view, while the PUC is the guardian of the people’s interests, it must also ensure that the utility company does not experience losses that jeopardize its operations. He also believes it is not beneficial to have GOB rescue BEL from its debts because in the end, Belizean taxpayers will still have to absorb the cost of keeping the company running, since it’s their money that will be used.
He said that the immediate effect of that injunction was the recovery from Hurricane Richard; BEL was able to get power back up in a short time. If that injunction had not been there, BEL would not have been able to respond with immediacy, Young said.