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Jan 16, 2012

P.U.C. says B.E.L. can fix its cash flow problem

John Avery

But how will the significant rate reduction affect the already cash strapped utility company? One thing that could ease B.E.L.’s financial burden is a reduction in taxes, which Avery says is expected on April first. According to Avery, B.E.L.’s previous owners created the cash flow problems and now it is up to the new owners and the government to fix it, not the P.U.C.

John Avery, Chairman/Director General, Public Utilities Commission

“It’s very difficult at this time to assess B.E.L.’s cash flow issues because the new management inherited a cash flow situation that we felt was artificially created and unless they take steps to remedy that, the company will experience an ongoing cash flow tightness, I should say. At the time when government was contemplating taking over B.E.L. we had made several public statements to the effect that B.E.L. in 2009 and 2010 did not acquire any new debt, even though our thing says that half of your new investments are to be financed through debt; they did not take on any new debt but they continued with the same level of capital spending. They financed that capital spending through surpluses that they collected over the period and also by non-payment of their bills to CFE and BECOL. So what they did was they took money that they were supposed to spend on cost of power and that sort of thing and used it for capital expenditure and they didn’t borrow any money for capital expenditure during those two years and that is what created their cash flow problem. Until B.E.L. incurs some debt that is commensurate with the amount of capital spending they did over those two years to make up for that shortfall, they will forever have a cash flow problem. Now we cannot make any adjustments based on that; that is something that between them and government they would need to try to resolve. We don’t make rates and sort of thing or determine values based on their cash flow. We determine the amount of revenue we think is appropriate; they need to manage their cash flow appropriately.”

Electricity rates will be reduced in this way: social rate consumers will spend two cents less; residential and commercial consumers will save three cents while industrial consumers will only enjoy a reduction of one cent per kilowatt hour.

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