Government Policy, Rising Costs, and Business Impact: Examining Barbados Light & Power Rate Increase

There is no one in business who can deny that the cost of business has increased exponentially in the last decade. Several analyses have been done to show a variety of reasons for this, not least of which have been global supply disruptions, natural disasters and other exogenous shocks.

The one contributing factor that may be well within our grasp to control high costs is government policy and regulation. Whereas the government would wish to be disciplined with its fiscal policies and overall expenditure, the very nature of the interventionist role it plays in the economy suggests there are some risks and responsibilities it can take. This becomes even more relevant in a social democratic construct where the government inherently must protect and enfranchise the vulnerable sections of society.

It is against this backdrop that one must question the timing of the electricity rate increase approved by the Fair Trading Commission (FTC). The recent decision to allow the Barbados Light & Power Company (BLPC) to pass on rental and operating costs of temporary generators to consumers has understandably generated significant debate. This decision makes way for the BLPC to receive the cost associated with renting 11 megawatts of temporary Aggreko generator units through the fuel clause adjustment (FCA).

Most right-thinking persons may not question the efficacy of the business case for a rate increase, the last being given in 2010, but passing on the cost of rental equipment to consumers is extreme at best. Contextually, this is bad for business of any size and a further burden on consumers already suffering from austerity measures affecting the country.

Why weren’t the generators purchased instead of renting, or why didn’t the company absorb the rental costs?

Critics cited the fact that the fuel clause adjustment is traditionally used to manage uncontrollable fluctuations in fuel prices, not short-term infrastructure costs. Relying on diesel generators is also costly and inefficient.

The ruling by the FTC came four months after a significant event – the ICC Men’s Cricket World Cup –, raising questions about whether ongoing rental costs for generators, which were initially intended for temporary demand surges, should still be borne by consumers. The decision underscores a continued reliance on diesel generators which are known for their inefficiency and high operational costs. This reliance could lead to more frequent price increases in the future as fuel prices fluctuate.

Compounding this problem is the fact that in another few weeks, businesses will be looking to maximise on increased sales due to the Christmas season. Equally, consumers will be looking to increase expenditure in line with local traditions. This increase in electricity cost threatens to put a further strain on the purchasing power of consumers and the operational cost of firms.

Unlike Trinidad and Tobago and Guyana, there are no oil deposits to be discovered at this time to help reduce the high energy costs. While there are efforts to diversify to renewable energy, Barbados’ aim for a transition to 100 per cent renewable energy by 2030, which could eventually stabilise or reduce electricity prices, appears to be stalled, if at all possible.