Sunday 8 December, 2019

Light & Power disappointed with FTC decision

The goal of the Fuel Hedging application was not for profit or company gain.

Asserting such, despite the outcome of the Barbados Light & Power Company’s application for Fuel Hedging submitted to the Fair Trading Commission (FTC), they have pledged to remain committed to their customers.

In a statement, the Barbados Light & Power Company said that they have reviewed the Fair Trading Commission’s decision and “we have accepted the decision.

“We have also taken note of the concerns raised by the Fair Trading Commission and naturally, we are disappointed by the outcome, not for ourselves, but for our customers.

“We believe that hedging is a useful tool to provide our customers with the opportunity for more stable electricity bills.”

Seeking to demystify hedging in the statement the utility company explained that “hedging is a tool to reduce customers’ exposure to extreme fuel price movements and to reduce the risk of price increases to our customers. Hedging is different from speculation, which involves taking risks or gambling to make a profit.”

And they stressed that, “At no time was Light & Power contemplating speculating on fuel prices as reported in some areas of the press. We were simply seeking to reduce the risks of fuel price increases to our customers.”

With many still unsure about the Fuel Clause Adjustment mechanism, Light & Power insisted that it does not profit in any way from the adjustment and “neither would we have benefitted financially from the proposed fuel hedging program.

“The Fuel Clause Adjustment is a ‘pass through’ charge which recovers all fuel related costs used in the generation of electricity. And these costs are reviewed monthly by the FTC. Similarly, it was contemplated that costs associated with the administration of hedging, would also be a direct pass through.”

The company posited that the objective of their fuel hedging application was “to provide customers with greater ‘bill stability’ by locking in fuel prices.

“By locking in fuel prices for a period for a portion of our fuel purchases we would have been able to provide customers with greater bill certainty. We would be reducing customers’ exposure to the risks associated with significant increases in international oil prices.”

However they acknowledged that though hedging would have provided customers greater predictability relating to their bills from month to month, the chance that international oil prices may fall below the price at which they locked into their fuel purchases could occur.

“If this happens and the price falls, while our customers would still enjoy the security of having a predictable bill, they however would not be able to experience these lower prices.

On the other hand, if oil prices increased above the price, which was locked in, customers would have benefitted from not only a predictable bill but also lower monthly bills.

At the time of making the application in March 2016, the international price of oil was around US $37 a barrel and the company said that they felt it would have been prudent to lock in their fuel purchases at those lower prices because there was a higher probability of prices raising considerably as opposed to falling much lower in the future.

Barbados Light & Power feels “justified in applying to the regulator to implement a fuel hedging program especially since oil prices have moved from US $37 a barrel at the time of our application in March 2016 to over US $50 a barrel, an increase of over 40% in just a few months. Had we been able to lock in those lower prices, rather than resulting in higher electricity bills, our customers would currently be experiencing lower bills under the proposed hedging program.”

In the future, Light & Power pledged to continue to look for opportunities that can benefit customers and they urged that they will re-engage with stakeholders and customers.

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