How and why did the Governor respond to the request?
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Introduction
In 2018, Fortis applied to the Governor Dr. John Feeman for an increase of an average rate of 6.8%. Fortis justification for the increase was due to the financial impact of $42m that the company experienced because of Hurricanes Irma and Maria. They also claimed that they had spent $21m on capital projects. The Governor at that time denied the request and an independent arbitrator was appointed who supported the increase. As a result in 2020, an increase to Fortis was granted.
Now six years after the requested increase and four years later when the actual increase took place, in 2024, Fortis has applied to Governor Dileeni Daniel-Selvaratnam for another increase of 6%, and again it was denied by the Governor.
Why do Fortis say they have to increase the rates?
According to a press release from Fortis, the reason for the request for the increase in rates is to expand and to provide reliable electricity services to the growing demand of the customers. Fortis also stated that the inflation rate and the high interest rates are reasons for the increase too.
Who has the authority to approve Fortis’ application?
Fortis cannot increase the utility rate unless they get an approval from the Governor. I am not sure why the ordinance has given authority to the Governor and not the Government. Here is an excerpt from the Electricity Ordinance.
“Section 40 (1) Subject to subsection (2), a public supplier to whom regulations under subsection (1) of section 38 prescribing a tariff of rates apply, may by notice in writing served on the Governor, request the Governor to make regulations varying that tariff in accordance with such proposals as shall be specified in the notice. (2) A public supplier shall not make a request under subsection (1) on more than one =occasion in any period of twelve months. (3) The Governor shall, within the six weeks of a notice under subsection (1) by a public supplier, serve a notice on the public supplier giving his decision on the request made by the public supplier under that subsection. (4) where a public supplier on whom a notice under subsection (3) has been served is not satisfied with the decision by the Governor in that notice he may, within the twenty one days next following the the date of service of that notice, by a further notice in writing served on the Governor, request the Governor to appoint a person to hold an inquiry into the reasonableness.”
How does it work?
In a statement issued in early March by the Energy and Utilities Department, the Department stated that it has been reviewing Fortis application for the past three weeks. The Governor did not make the decision on her own.
It is my understanding that after The Energy and Utilities Department reviewed the application, they made a recommendation to the Governor to deny the rate. It was then discussed and agreed in cabinet to deny the rate.
Of course, the way the ordinance is written, the Governor can make the decision on her or his own but that is not how it works. The office of the Governor does not have the expertise to review the application and so the office relied on the Energy and Utilities Department.
This is the same process that was done in 2018. I am not sure there was a Energy and Utilities Department at that time but rather it was done through the Ministry of Infrastructure.
Does Fortis have a case for an increase in rate?
Obviously, Fortis believes there is justification for the increase in the rate. On the other hand, the Governor, through advice from the Energy and Utilities Department and Cabinet, does not think there is justification and hence the application was denied.
While I agree that there is inflation which is affecting all of us, there is also a significant increase in tourists and residents. It is obvious from the congestion at the airport and the restrictions imposed by the Water company. Wouldn’t the increase in demand mean there is more volume and consumption of electricity and if there is more volume, wouldn’t this mean that the revenue for Fortis would increase. If the revenue increase is there a need to increase the rate? What if there was a recession and the prices go down, will Fortis reduce their rates?
The public does not have a view of the financial statements of Fortis TCI. However, the writer assumes that Fortis is not making a loss as Fortis has not indicated any loss in their press release. If Fortis is not making a loss, then why is the need to increase the rate. Is it to maintain the same rate of return as in previous years?
If that is the case, Fortis needs to review its cost structure. Perhaps their cost structure is too high and needs to be reduced rather than increasing the rate.
If Fortis gets the increase, what can you do.
If the arbitrator approves the increase, then there is nothing as consumers we can do about the rate increase. However, you can reduce your bill by conserving energy and reducing your consumption. You can also consider investing in a solar or wind system. After all, it is legal. “Section 9 (1) Subject to subsection (2), a person shall not use, or cause or permit to be used, any electrical plant for the purpose of supplying himself or any person with electricity except under and in accordance with the terms of a licence granted under section 10. (2) Subsection (1) shall not apply to the use of any electrical plant which – (a) is powered only by wind; (b) is used only for the photovoltaic generation of electricity.”
The only thing is if more people use solar or wind, this may reduce the number of customers and Fortis may say they need to increase the rate.
Conclusion
Even though 6% may sound low, for some people 6% can be high. I must admit I do like the fact though that Fortis cannot increase the rate without authorization. I wish there were some other sectors in the country that cannot increase their rates unless there is authorization.
Finally, I think the Government should amend the ordinance whereby the supplier requests permission from the Government and not the Governor. If you read the Governor’s statement, the way it is written as if the decision was made just by the Governor as the press release made no mention of cabinet or the Energy and Utilities Department even though they were involved in the decision-making process.