The Independent Regulatory Commission (IRC) has reached its final decision regarding the Depreciation Study, submitted by the Dominica Electricity Company Ltd. (DOMLEC), as part of the ongoing Tariff Review. The Depreciation Study is a critical component of determining the suitable method for calculating the depreciation of DOMLEC’s physical assets. The consultation period on the Depreciation Study opened in January 2024 and ended in April 2024.
The consultation began with the publication of a consultative document, followed by an in-person public meeting on February 22nd. Both IRC presenters and DOMLEC’s consultants provided clarification and responded to questions from stakeholders. Stakeholders’ responses to specific consultation questions were documented. IRC issued its formal comments on stakeholder feedback after the public consultation.
The Commission advised stakeholders that the higher the depreciation expense, the higher the electricity rates would be. On the contrary, a lower depreciation expense would contribute to lower electricity rates for customers. Following that, stakeholders were given another opportunity to respond to the IRC. No formidable issues or objections were raised from the two consultative documents issued by IRC.
IRC also received a ‘No Objection Letter’ from DOMLEC’s management on the Commission’s initial decision. The Commission has carefully considered all relevant factors and stakeholders’ input. Therefore, it has been concluded that the Remaining Useful Life Method is most suitable for the depreciation of DOMLEC’s assets, instead of the Whole Life approach. It must be noted that through the collaborative effort between DOMLEC and the IRC, the Remaining Useful Life method was proven to be more applicable to certain asset groups.
The impact yielded a significant reduction in the depreciation expense for the relevant asset categories. In simple terms, DOMLEC’s original depreciation determination of approximately $20 million was calculated using the Whole Life Method, but this amount was reduced to $12.7 million using the Remaining Useful Life.
The Commission’s Decision as outlined in its Document Reference No: 2024/001/D will be made public on May 30th, 2024; and will be published in the Official Gazette. DOMLEC will be obligated to make the amendments to its Depreciation Policy, that aligns with IRC’s approval of its Depreciation Study. This will serve as a guiding principle for the following stages in the electricity tariff review process. The next step in the tariff review process with DOMLEC is the consultation on DOMLEC’s proposed Weighted Average Cost of Capital, which looks at the required rate of return for DOMLEC’s shareholders.
The Commission expects the consultation period for that matter to begin in June 2024. The Commission must consult stakeholders, before making any decisions that impact the review of DOMLEC’s proposals for new electricity rates. As such, the Commission urges all consumers of electricity to take an interest in the developments leading to the final determination of new electricity rates, as we aim to safeguard the interests of consumers and the financial viability of the utility company.
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