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Regulator defeats Belco in rate case

Belco (File photograph)

The Regulatory Authority has achieved a resounding victory over Belco in a case regarding the rejection of a rate increase request.

Last week, Chief Justice Larry Mussenden handed down the 85-page judgment in a case heard in the civil court last May, dismissing all of Belco’s eight arguments against the regulator.

At issue in the case was the RA’s rejection of Belco’s recommendation for a 16 per cent increase in the base rate. The RA disagreed with Belco’s submitted rate case and instead allowed for a 7.5 per cent increase.

Belco appealed under sections 9 to 96 of the Regulatory Authority Act 2011, arguing that the RA’s decision in the 2022-23 rate review was on the basis of what it claimed were errors of law.

Grounds one to five of Belco’s appeal were taken together as an attack on the regulator’s decision.

Mr Justice Mussenden said: “I am obliged to accept that the duties of the RA were to assess highly technical information as supported by expert evidence provided to both Belco and the RA.

“I am also guided by the case law as set out above about the intention of Parliament when appointing statutory bodies such as the RA.

“Further, in my view the rate setting exercise involved a process of evaluative analysis and judgment in relation to issues of technical scientific, economic and financial complexity.

“It also involved an exercise where there are no single right answers but where there was a range of outcomes which could be arrived at with equal proprietary as demonstrated by the expert evidence in this case.”

Mr Justice Mussenden said the court could have been drawn into a “technical analysis of complex issues” reserved for expert consideration but added that it is “not equipped procedurally or substantively to do so”.

He found: “In my view, upon the full consideration of the abundance of evidence in this case including the complex expert evidence, I would dismiss grounds one to five on the basis that this court should give deference to the RA in the evaluative process and in the absence of any actions by the RA that were plainly wrong.”

Belco claimed that the RA erred in law by failing to provide adequate reasons for the decision.

It said the RA refused to provide a figure for its rate base, the value of property on which a regulated public utility is permitted to earn a specified rate of return.

Mr Justice Mussenden highlighted that despite Belco’s claim of a lack of transparency on the regulator’s part and “principals of reasoned decision-making”, the experts had been able to calculate the figure of $442,276,760 for 2022 and $470,250,383 for 2023.

The RA said that as the rate base was “easily calculable from the information provided”, there was no substantial prejudice.

Mr Justice Mussenden said: “It became clear that the figures provided generally and specifically for the rate base were provided by Belco to the RA.”

Belco also claimed the RA erred in law by failing to act in a reasonable, proportionate and consistent manner, failing to operate transparently, and failing to engage in reasoned decision-making on the record.

Belco said there was a lack of transparency around the disclosure of a revised rationale in March 2022.

The judgment said: “Belco submits that it appeared that the RA had not reached a fixed conclusion by March 18, 2022, and if that was so, then it was subjecting Belco to a compressed timetable to provide information but it was itself rushing the process in an unsatisfactory manner.”

The RA submitted that “there was a significant distinction between an obligation to have due regard to a regulatory principle of operating transparently to the full extent possible and a direct duty to operate transparently to that extent”.

It said all that is required under law is that the “aspirational objective of transparency” is taken into account.

The authority also said Belco was not at any significant disadvantage as the rationale provided adequate guidance, and that the RA had a duty of confidentiality along with other ”weighty“ regulatory reasons not to disclose.

Mr Justice Mussenden ruled that Belco’s fairness complaints failed and that there was no basis for complaints about transparency in respect of the approved and rejected projects.

Finally, Belco claimed the RA operated in an unfair manner in reaching its decision, given the time frame for rate setting and implementation of a new approach to capital expenditure allowance.

RA and Belco statements

The Regulatory Authority of Bermuda said in a statement: “We are carefully examining the final judgment in order to assess its full impact.

“On initial review, the manner in which this prolonged court case with Belco has been resolved appears to confirm our dedication to fair practices and data-driven decisions.

“It's a win, but we are mindful and cognisant of the journey ahead.”

It added that in 2022 Belco sought a revenue of $478 million and an 8.96 per cent rate of return over two years.

The RA said: “However, the court supported the RA's determination of a more reasonable total collection of $454 million with a 7.16 per cent weighted average rate of return.

“Although the court recognised the expertise of the RA, it nonetheless carefully scrutinised Belco’s expenses and rate base, confirming the RA’s approach.

“We are very pleased that our knowledgeable decision-making, the effectiveness of the regulatory process, the reasonableness of the RA’s approach and our unwavering commitment to fairness have been recognised, and Belco’s claims of impropriety debunked.

“The judgment delves into Belco's grounds of appeal, which challenged the RA's decisions on return on equity, rate of return, expense disallowance, and procedural matters on a number of interrelated grounds.

“The court dismissed these grounds, affirming our legal stance and recognising the RA’s expertise.

“While this legal triumph is of great significance for the RA, its broader impact on Bermuda is of even greater importance, ensuring that approximately $24 million will no longer burden the consumer.”

It added: “This judgment reinforces our role as guardians of Bermuda's regulated sectors.

“We believe its effect will be to ensure compliance with the law, but beyond that, it will contribute to the wellbeing of our island and its community.

“It's more than just a legal win; it's a reaffirmation of our mission to safeguard the interests of Bermuda in the face of complex regulatory challenges."

Richard Ambrosio, the RA’s interim chief executive and Director of Legal Affairs and Enforcement, said: “I am pleased to express my sincere appreciation to our exceptional team at the RA, notably the Head of Regulation, Nigel Burgess, whose expertise played a pivotal role in securing this positive outcome.

“A special acknowledgement goes to our external counsel, Ronald Myers, Mark Diel, and Adam Richards of Marshall Diel & Myers, for their invaluable contributions.

“I also thank Thomas Amram of Ricardo Engineering & Environment and his team.”

He added: “This judgment is a testament to the collective effort of our team of professionals.

“I am thankful for the court's careful consideration, and I am grateful that the learned Chief Justice has recognised and upheld our arguments and delivered a judgment that we believe reinforces the integrity of regulatory processes in our jurisdiction."

Wayne Caines, the Belco president, said: “Bermuda Electric Light Company Ltd has received and is reviewing the judgment in our appeal of the Regulatory Authority’s 22/23 retail tariff review decision and order.

“As always, we are committed to providing safe, reliable power for our customers.”

Belco said it left questions as to what costs were permitted in the rate base, that further meetings it requested were rejected, and further information it submitted were “ignored”.

The RA argued that a sufficient timetable was given to Belco and information was allowed to be submitted in three sets, with a further extension for one of them.

It said it also held eight technical meeting and workshops with Belco to help the firm understand the process, and that Wayne Caines, the Belco president, said he was encouraged by the work of Belco and the RA in clarifying the requirements and reducing uncertainties.

The RA withheld a report by expert Ricardo Energy and Environment saying the confidentiality of sensitive commercial information may outweigh the duty to inform.

Mr Justice Mussenden said: “It is clear that Belco were fully apprised of the principles being applied by the RA for the exercise of its discretion to the extent that Belco was able to make informed and meaningful representations.

“The RA gave Belco a prior opportunity to make representations, that is the right to be heard, and the RA gave Belco sufficient information for it to be in a position to make proper representations, that is the right to be informed.”

In the absence of a cost appeal submission, Belco must pay the RA’s legal fees.

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For the full judgment, see Related Media