The Independent Regulatory Commission (IRC) has approved a reduced rate of return for Dominica’s Electricity Company (DOMLEC) which will allow the company to rake in up to EC$8-million per annum for the next three years.
Executive Director of the IRC Lancelot Mc Caskey made the announcement at a press conference which took place at the IRC’s office in Roseau on Wednesday.
He said DOMLEC is on the verge of investing over EC$45 million in improving its lines from Fond Cole to Sugar Loaf in the first instance and building or strengthening the lines from the Valley to Fond Cole to accept the geothermal energy.
“They are a company that has to make profit and while they are making $8-million – we are saying that they are going to make $8-million when they put in additional capital. That’s the difference,” he said.
The rate of return on DOMLEC’s capital assets from May 1st 2015, as well as approval of the investments that the company will be allowed to undertake for the next three years, were the two “significant decisions” announced by the IRC on Wednesday.
Mc Caskey said DOMLEC filed its rate of return proposal with the IRC on November 28th, 2014 and in that proposal it requested that the Commission approve a weighted average cost of capital (or rate of return) of 11.6 per cent made up as follows:
-A capital structure to finance its operations of 33.1 per cent debt and 66.9 percent equity
– A fixed interest paid on the debt mentioned above of 5.75 percent
-A return on equity shareholding of 14.5 percent
However, Mc Caskey informed that the IRC reviewed DOMLEC’s proposal and decided that the company’s capital structure favored it more than the consumers of electricity and used instead a 40/60 debt to equity as the structure of this rate review.
“The Commission also advised DOMLEC that it will be seeking in subsequent reviews to adjust the capital structure to reflect a higher component of debt. This will be more equitable for DOMLEC and the other shareholders,” he said.
He noted that at present DOMLEC enjoys a guaranteed return on equity of 15 percent and in order to maintain that level of return, it requested a return of 14.5 per cent.
“Contrary to DOMLEC’s request, the Commission determined that DOMLEC will receive a return on its equity of 10.44 percent a reduction of 4.56 per cent from its present position,” Mc Caskey noted.
In addition, the Commission decided that DOMLEC’s return on its assets must be 8.56 per cent, instead of the 11.6 per cent rate of return which the company requested.
For the past few years, DOMLEC has announced a profit in the region of $ 8-million.
Meanwhile, Mc Caskey said Dominicans should not jump for joy as it relates to reduced rates in electricity, since the process for a tariff review for DOMLEC has just started.
“I don’t want Dominicans to go about jumping for joy celebrating because we are just at the beginning of the process. We have not completed the process,” he said.
That process should be completed between June and August, Mc Caskey said.
Sounds to me the government wants to run Domlec by proxy, without laying out any money to take it over. As I see it the IRC is a 100% government body because their budget is covered direct by government, which is an extra overhead on our tax bill. I bet Domlec don’t have more than 30,000 customers so that IRC is costing everyone of them at least $50. Why do we need that in such a small market? After all, Dowasco does not need a regulatory body and water is more important than electricity.
but something is not understandable, The Independent Regulatory Commission (IRC) has approved a reduced rate of return for Dominica’s Electricity Company (DOMLEC) which will allow the company to rake in up to EC$8-million per annum for the next three years.! DOMLEC has been making a profit of EC$6- million per annum for the last 14 years now, but now the (IRC) is saying because of DOMLEC is on the verge of investing over EC$45-million in improving its lines from Fond Cole to Sugar Loaf in the first instance and building or strengthening the lines from the Valley to Fond Cole to accept the geothermal energy. so if i understood clearly the (IRC) will allow the company to rake in up to EC$8-million per annum for the next three years. so what will happen after the next three years, and if thegeothermal were to come in existence in more than three years what would happen and if geothermal were to failed what would happen. Please one help me understand .
Skeritt and his administration are not thinkers. As far as I am concerned, that government is a vie te vie government, better yet, a mickey mouse government. In stead of spending fifty millions dollars and counting on geothermal, which might fail, they should purchase Domlec and with the balance of the millions , subsidize electricity. In the next five years, all the profits would go back to the people. When the geothermal plant is completed, do Dominicans really believe DomLec is going to allow Government free access to all its equipment, lines, and just disappear. Domlec, don’t intend to go anywhere, they have announced they are going to spend $45 million on lines. They have given warning they intend to make $8 million in profits. Where is that profit going to come from. What will happen, Government will sell energy to Domlec who already has everything in place, then Domlec will sell it back to Dominicans for a profit. A , a, we are back to square one.
Wow! It’s good to be domlec
Even better for govt. because they will be making 15% in vat of Domlec sales, so they making more than Domlec and it looks like they now running Domlec too through their IRC. Imagine govt. telling Lime or Astaphan what profit they should make! If they want electricity to be cheaper to us they should cut the vat in the first place.
I don’t understand why Domlec has to be guaranteed profits. I thought investing by nature is a risk. Is this normal for businesses?
all of this to say?
Government should nationalize DOMLEC.