The current bi-monthly bill for the average residential household could more than double (increasing by 124 per cent) by 2028, if the Cabinet accepts the recommendations of the Regulated Industries Commission (RIC) in its entirety, according to Guardian Media estimates.
Residential electricity bills are projected to increase by between 105 per cent (200 kWh per month) and 229 per cent (5,000 kWh per month) across the board, depending on electricity consumption.
A customer using 940 kWh every two months (or 470 kWh per month) pays the Trinidad and Tobago Electricity Commission (T&TEC) $318 every two months, including VAT, at this time. That would work out to be $159 a month, if the RIC recommendation for T&TEC to issue bills on a monthly basis, instead of every two months, is accepted.
By 2028, the same average customer, still using 470 kWh, would pay T&TEC around $356 a month, which is 124 per cent more than the $159 monthly equivalent.
This adjustment arises as residential consumers are moved to pay cost-reflective prices by the end of the Regulated Industries Commission’s (RIC) second 5-year control period (PRE2).
Residential revenue recovery not enough
The RIC announced a proposed rate hike in 2023, sparking widespread national discussion. Under the proposed rate increases for the first year of the RIC’s plan, the median household, consuming 470 kWh per month, would face a 21 per cent increase in electricity costs.
Despite the approximately 30 per cent increase in revenue from residential consumers in the first year of PRE2, Guardian Media’s investigations reveal that the income from residential consumers will not fully cover T&TEC’s service costs for the residential sector.
The forecast revenue to be collected by T&TEC from the residential rate increase in the first year of the five-year plan will range between $1.38 billion and $1.45 billion.
This range falls significantly short—by approximately $770 million to $840 million—of the $2.22 billion required to meet the cost of servicing residential users in the first year of PRE2.
Rather than implementing an immediate adjustment to cost-reflective rates in the first year of PRE2, the RIC preferred a gradual transition to cost-reflective rates over PRE2.
The temporary gap in residential revenue recovery is anticipated to be offset by higher charges for industrial users next year, as outlined in the RIC’s final determination. The $770 million to $840 million subsidy from industrial consumers will be “unwound in the shortest possible time and the RIC intended to ‘phase-in’ tariffs so that residential customers would pay cost-reflective prices by the end of PRE2,” according to the RIC’s final determination.
In addition to the transition towards cost-reflective service rates for residential users, annual RPI+X adjustments will necessitate further yearly increases in the revenue to be recovered from each group.
These adjustments are to be calculated using the RPI+X formula, where “RPI’’ stands for Retail Price Index inflation, and “X” represents an adjustment factor. The RIC has set the X-factor at 1.3 per cent, while the RPI has been “fixed” at 4.7 per cent by the RIC.
T&T’s national statistical agency, the Central Statistical Office (CSO) does not offer future inflation projections.
However, the International Monetary Fund (IMF) predicts T&T’s inflation rates should be between 1.9 per cent and 2.9 per cent up to 2030, well below the RIC’s projection. It is unclear if the RIC will adjust its established RPI inflation rate as a part of its annual reviews.
By the 2027-28 period, the shift towards cost-reflective rates for residential consumers, combined with the six per cent RPI+X yearly adjustments, will significantly increase residential tariffs.
Estimates suggest that the median household’s electricity bill, using 470 kWh/month, will see an increase ranging from 101 per cent to 136 per cent when comparing present rates to those projected for 2028. (See Chart below)
Demand decrease could increase tariffs further
The RIC forecasts that household electricity consumption will slightly increase year-over-year, despite Guardian Media’s projected significant rise in residential electricity prices over the next five years.
In the case that the RIC follows through with a transition to cost-reflective rates by PRE2, Guardian Media believes that an aggregate decrease in residential electricity demand is a possibility.
If electricity usage were to decrease instead of increase, T&TEC risks a revenue shortfall, necessitating further price adjustments to meet revenue requirements.
Despite the significant projected increases to residential utility bills, T&T will still have one of the lowest residential electricity costs in the Caribbean region.
Reasons behind the rate hike
Central to the tariff increases proposed by the RIC is T&TEC’s rapidly deteriorating financial health. Given the lack of a rate review in 14 years, T&TEC finds itself with a debt burden of approximately $9.32 billion as of October 2023, according to T&TEC chairman, Romney Thomas, in a Guardian interview in October last year. Compounding this financial strain is the $1.4 billion still owed to T&TEC by various government-owned agencies.
The necessity to pay off debts accruing interest combined with the increasing costs of providing electricity service required the RIC to put together a strategic plan designed to alleviate T&TEC's financial distress. Central to this plan is the allocation of a total of $1.15 billion for T&TEC to cover a portion of its outstanding debt to the National Gas Company.
Furthermore, the prospective addition of bp’s 112 MW of solar capacity by 2025 will lead to an increase in energy costs without a corresponding reduction of capacity costs from fossil fuel independent power producers (IPPs), as T&TEC struggles to renegotiate capacity-based power purchase agreements with the IPPs.
Govt assistance will continue
Minister of Public Utilities Marvin Gonzales has affirmed the continuation of government assistance programs as rates increase. The 35 per cent rebate for households with bi-monthly bills under $300 will remain in place, although it is unclear if the $300 cutoff will be directly transferred to monthly rates. The rebate costs the government $74 million annually.
Another programme called the Utility Assistance Programme (UAP) provides up to $1200 yearly in relief for eligible vulnerable groups, as long as households consume less than 680 kWh bi-monthly. Similarly, it is unclear if the migration to a monthly payment regime will change the scope and impact of the UAP.
Mr. Gonzales also suggested providing “utility cards” to especially vulnerable citizens, allowing them “full access to water and electricity.”
The above subsidies have not been factored into the analysis of projected percentage increases in electricity rates, given that the nature and implementation of these subsidies may significantly change due to the RIC’s recommendations.
Additionally, the NGC provides fuel to T&TEC at a subsidized rate that is 50 per cent cheaper than the true economic cost, effectively shielding T&TEC from incurring an additional $10 billion in costs. A median household’s residential bill would instead increase as much as 204 per cent if the NGC were to unsubsidise the price of natural gas by 2028.
Proposed changes are not final
The RIC’s Final Determination has not been implemented yet, as the RIC has been waiting on the Cabinet’s decision on its approval since October 2023. The cabinet may preliminarily reject the proposal, instructing the RIC to amend certain aspects of its plan. The cabinet is set to make a decision soon. Mr. Gonzales has publicly expressed concerns in T&TEC’s ability to recover the revenue it needs, stating that “there would still be a shortfall of over $500 million on the part of T&TEC”. Consequently, the rejection of the proposal is a possibility.
Even if the final determination is approved in its present form, the utility bills of residential consumers may increase far less over the 5-year period than Guardian Media’s projection. A significant portion of the forecasted increases by 2028 depends on the RIC’s statement that “residential customers would pay cost-reflective prices by the end of PRE2.” If this statement were to be annulled in any way or form, yearly price increases would only be based on the RPI+X escalation, leading to an estimated bill increase of less than 58 per cent for the median household by 2028.
Ultimately, a lot can change over the next 5 years. Should the RIC’s proposal secure approval and be implemented as written, the projections provided in the graph of this article may provide a realistic range of residential utility bill estimates by 2028.
Questions to the RIC
Guardian Media sent the RIC a list of 12 questions regarding the Final Determination. The RIC answered five of them. Here are the four most important questions asked:
Q: What is the amount of revenue T&TEC is projected to recover from residential users in the first year of the five-year control period?
A: The RIC did not provide an answer.
Q: Is the entirety of the shortfall in residential revenue expected to be recovered by the increases in industrial tariffs?
A: The RIC determines an allowed revenue requirement and thereafter the overall allocation attributable to the broad customer class. Starting tariffs were set for the first year of the regulatory period to recover that allowed revenue. The RIC’s aim is to unwind cross-subsidies so that by the end of the period, all classes fully recover their respective cost-to-serve.
Q: Will the X-factor and/or RPI stay constant throughout the five-year period (PRE2)?
A: The X-factor of 1.3 per cent will stay constant throughout PRE2. It does not matter if the RPI exceeds the RIC’s assumption. The increase in the allowed Revenue Requirement is capped at 6 per cent year on year.
Q: Did the RIC assume in its calculations that the price elasticity of demand of electricity in T&T is perfectly inelastic?
A: The RIC did not provide an answer.
Disclaimer: Utility bill cost projections for specific monthly kWh consumption by 2028 are purely predictive. Guardian Media recognizes that these forecasts may diverge substantially from the actual outcome in 2028, including potential percentage increases beyond the "high confidence” interval.