The ongoing consultation process being hosted by the Regulated Industries Commission concerning the proposed increase of rates charged by the T&T Electricity Commission is being questioned by senior economist Dr Vaalmikki Arjoon and Attorney Kiel Taklalsingh.
In their document ‘A Shock to the System: Investigating the Causes and Impacts of Soaring Electricity Prices in T&T’, the duo called the consultation flawed.
The document said, “Firstly, it is trite and in any event a maxim of lawful consultations that sufficient and/or reasonable time should be afforded to affected parties to consider the material, which is the subject of the consultative process, in order to elicit intelligible responses. It should therefore be noted that the RIC has only provided a mere two-month period for responses to a document of approximately 300 pages, which is technical in nature, and would require research, technical advice, and mature consideration to provide a response.”
The statement also questioned if all the commissioners of the RIC would be present at every public consultation to lawfully engage with the public and participate in answering questions from the public.
The report said, “Ultimately, the consultation process is not only about allowing people to gather and vent, but also a process which is imbibed with democratic spirit, it allows people to interact with the actual decision maker, as opposed to functionaries. The presence of the executive director, with all due respect, answering questions on behalf of commissioners begs the question as to the understanding by commissioners of their role and function in this process.”
The RIC made public its proposed changes to T&TEC rates in December, to much furore from the public as the increases ranged from 15 per cent to as high as 64 per cent for residential customers based on kilowatt consumption with commercial customers facing percentage increases ranging from 51 per cent to 63 per cent.
Dr Arjoon and Taklalsingh admitted that the adjustment in rates was long overdue as the current rates are insufficient for T&TEC to cover their costs.
However they note that the last rate review was done 17 years ago, and the duo argued that the failure to implement the rate increases on time, has placed an additional economic burden on T&TEC which is now set to be passed on to the public.
The report said, “In this time, the cost of operations for T&TEC would have naturally increased, such as the cost of equipment, repairs, salaries etc, which also put T&TEC in a more precarious financial position. Had the rate reviews been done when they were due in shorter intervals–every five years, then perhaps the electricity prices would have increased marginally and incrementally each year, and there would be no need to have these drastic increases which are being proposed now, as the price of electricity would have placed T&TEC in a better position to cover their costs.”
The report continued, “Naturally, if lengthy periods (eg 17 years) pass before rates increase, then there is a serious risk of having to implement a large tariff increase, which is what is happening now, instead of small incremental increases that the five-year rate reviews were supposed to achieve!
“Given that these rate reviews didn’t happen, as usual, citizens and the business community have to bear the brunt of this mistake, and it is astonishing that the RIC did not anticipate this years ago.”
The report also acknowledged that T&T enjoyed significantly cheaper electricity rates than the majority of the region, and while this was also noted by the RIC in bringing forward its proposed changes, the cheaper rates had been a key reason this country “ attracted significant private sector investments by both local and foreign investors for decades, despite a litany of obstacles existing in our business environment.”
However, the report questioned what impact the proposed changes would have on these investments in addition to impacting the quality of life of the public.
The report said, “These electricity price increases will yet again compound the overall cost of doing business locally. So far, a myriad of factors has exacerbated business costs, including higher fuel prices and transport costs, increased prices from international suppliers and concomitant higher taxes paid on these imports due to higher prices, customs overtime and inefficiencies at our ports causing higher rent and demurrage charges for businesses, among a host of other obstacles in the business environment.”
The document argued that these costs and obstacles will inevitably be passed down to the public, who are already reeling from the effects of significant inflationary pressures stemming from the COVID-19 pandemic and the Russia-Ukraine conflict.
“Naturally, not only manufacturers, but all businesses will pass on this added cost to consumers in the form of higher prices. This will compound the cost of living for all households, as consumers will face these increased prices plus their own higher residential electricity charges.
“In the short term, inflation will worsen. CBTT data shows that overall prices have increased by 14 per cent from Jan 2020 to Dec 2022, with prices of food, the most consumed item daily, increasing by 28 per cent in the same period. Bread increased by 27 per cent, meat increased by 24 per cent and milk, cheese and eggs increased by 17 per cent.
“Prices of these and other food items will further compound with the rate increase, a key reason being that supermarkets will have to pay higher electricity charges, especially since their refrigerated and frozen sections are in constant use,” said the document, which raised questions if by proxy the public was ultimately paying the price for years of inefficiency by T&TEC.
“Going forward it is integral that T&TEC mitigate their inefficient practices and lower their cost structure, as this has exacerbated their operating costs and contributed to restricting their profitability for years, leaving the state with little choice but to spend hundreds of millions each year to subsidise them,” said the document, which added there were many potential benefits to keeping the rates low.
“Lower costs could have meant reduced subsidies to be paid and less need for these higher rates. It also necessities that they be more reliable with their power supply to the country and avoid periodic cuts in their service which seems to be happening regularly in several parts of the country.
“Moreover, this could cause us to lose some investors, both local and foreign – with the deepening of the energy sector in Guyana and Suriname, higher electricity prices locally together with the other problematic factors in doing business could encourage some businesses especially those in the industrial sector to relocate to these countries, in the very likely event they lower their electricity prices,” said the document which also stated that T&TEC under the current Power Purchase Agreement was only required to pay for the gas which had been converted to electricity suggesting that increased efficiency could save both the public and T&TEC money.
“The flaw is that the RIC failed to utilise the regulatory principle of use and useful that it discussed in the Draft Determination. In other words, it may be useful for power generators to have excess capacity but only the cost associated with that which is used should be allowed to be recovered.
“Further, the RIC’s Draft Determination established that installed supply capacity exceeds current demand. Consumers are therefore also paying for that capacity which exceeds demand (for both natural gas and electricity not generated),” said the document.