Belco is taking legal action against the Regulatory Authority, claiming that the electricity sector watchdog failed to consider rate-setting factors when refusing a price increase sought by the utility.

The RA cut Belco’s recommendation for a 16 per cent increase in part of its bills — the base rates request, which excludes fuel — by a little more than half. The RA disagreed with Belco’s submitted rate case and instead allowed for a 7.5 per cent increase.

Belco is appealing under sections 9 to 96 of the Regulatory Authority Act 2011, arguing that the RA’s decision in the 2022-2023 rate review on the basis of what it claims are errors of law.

Francis Tregear, KC, a British-based barrister, and Kyle Masters, of Carey Olsen, are representing Belco, while Mark Diel and Ronald Myers, of Marshall Diel & Myers, are representing the RA in the case that opened in the civil court yesterday. The case is being presided over by Puisne Judge Larry Mussenden.

Mr Tregear said that if Belco is successful in its case, then new information can be used during the next retail tariff review — a process that determines how the RA calculates and sets fees that Belco is allowed to pass on to the consumer.

According to the Electricity Act 2016, the tariff methodology should seek to enable Belco to make a “reasonable return on investment that is commensurate with the return on investments in business undertakings with comparable risks, and that is sufficient to attract needed capital”.

Mr Tregear outlined several grounds of appeal.

The first was "a failure [by the RA] to allow a reasonable return commensurate with businesses with similar undertakings.“

Mr Tregear said another ground deals with “the RA's determination of market risk premium [the additional return an investor expects from holding a high-risk market portfolio] based on analysis of GDP — so the wider economy as opposed to the S&P 500 derived expected growth in common stock dividends”.

S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on US stock exchanges.

He added that there was also "a failure in the decision-making process that arrived at a return that met the capital attraction standard“, a return sufficient to attract future investment.

Mr Tregear made the case that, as a result, the RA failed to promote the reliability of Bermuda’s electricity supply.

Finally, Mr Tregear said the RA failed to consider four out of five retail tariff methodologies that can form a “range of evidence” from which a price can be derived while other grounds dealt with “procedural unfairness of the process”.

He said the regulator conducted matters unfairly.

The retail tariff methodology combines elements of incentive regulation (ie, prior-to-cost forecasts) and some elements of rate-of-return regulation (cost pass-through allowances).

Mr Tregear alsomade the case that Belco needed more time and information to assess the RA’s decision-making process and determination. It was heard that Wayne Caines, the president of Belco and parent company Liberty Bermuda, who was present in the courtroom, wrote to the RA requesting further dialogue and “workshops” to discuss outstanding issues, but the request was denied.

Mr Tregear’s opening arguments took up 2½ hours, so Mr Myles gave a brief reply that sought to communicate the RA’s “glaring disagreement” with Belco’s claim that it did not take into consideration other retail tariff methodologies.

Mr Diel also asserted that it was not agreed that utilities in the United States should be used as a benchmark for Belco’s calculations for its tariff recommendation to the RA.

He said: “The main flaws with the benchmarking presented by the appellant is that it is restricted to US utilities and doesn’t attempt to expand to other jurisdictions operating with similar regulatory regimes or other jurisdictions operating under similar circumstances, eg, small island nations.”

Jose Barbosa, Liberty Bermuda’s senior director of finance, was cross-examined by Mr Diel. Mr Barbosa said that the rate determined by the RA was “heading towards the extreme” where consumers might end up paying for an unreliable electricity service.

Mr Diel also said that the RA has different factors to consider than Belco, including the protection of the consumer. He said Belco’s main responsibility was to ensure a return on investment.

He added that the RA had already given Belco extensions to submit further filings as part of the review and that Belco said it had submitted its final filing.

Mr Barbosa said that if Belco was going to “take it on the chin financially”, it needed to properly understand the “huge chasm of disparity” between what it had recommended and the RA’s final decision.