An agreement in principle reached between the government and Caribbean Utilities Company is expected to reduce residential electric bills by an average 15 per cent.
The expected savings assume there will be no significant increases in global oil prices, Leader of Government Business Kurt Tibbetts said while making remarks on the government’s Strategic Policy Statement, which was tabled in the Legislative Assembly on Friday.
Mr. Tibbetts explained how the savings would be derived.
‘This has been achieved by a number of factors, including the agreement by CUC to cease the Hurricane Ivan recovery surcharge, or CRS, from bills with effect 1 January 2008, as well as the decision of this government to provide a rebate of duty on fuel equivalent to 20 cents per Imperial gallon to CUC each month on its fuel purchases,’ Mr. Tibbetts said. ‘This rebate will be passed on directly to consumers and will be reflected on their bills starting in January of next year.’
Mr. Tibbetts said the government recognised that the duty on fuel used for electricity generation was a major component of consumers’ CUC bills, as much as 42 per cent for a typical customer.
In addition to the rebate on fuel duty, the government will allow CUC to continue importing non-fuel items at a reduced duty rate of 15 per cent.
‘This government is taking decisive action to reduce utility bills and that action does not come without considerable sacrifice,’ Mr. Tibbetts said. ‘The duty rebate on fuel will cost government some CI$5.9 million on present fuel consumption rates, and the lower import rate on non-fuel items will cost government another $2 million a year of potential revenue.’
CUC and the government have been in negotiations to renew Grand Cayman’s sole electricity provider’s 25-year licence – which expires in January 2011 – for the past two years. Several deadlines have been set for the finalisation of the negotiations, but no agreement has been reached until now. A formal agreement must still be signed between the two parties.
Mr. Tibbetts said there were other positive aspects of the terms of the new licence that would have direct benefits to CUC customers.
‘The guaranteed 15 per cent return on rate base licence that CUC has operated under for the past 21 years is being replaced by a formula where rate increases will be linked to the Consumer Price Index,’ he said. ‘This Government believes this to be a fair agreement for both parties and ensures that rates are linked to the cost of doing business generally and not to CUC’s investment in assets.’
Under the terms of the new deal, CUC will have to obtain permission before making capital investments, Mr. Tibbetts explained.
‘In the past, CUC had been basically unregulated, and allowed to invest in any assets it decided it needed,’ he said. ‘This could artificially inflate CUC’s rate base on which it measured its [return on rate base]. However under the new agreement, CUC will have to have its five-year capital investment programme pre-approved by the Electricity Regulatory Authority.’
The new agreement will also help many residential consumers by exempting them from licence fees. In the past, CUC expensed its licence fees to all customers in the form of rate increases. Under the new agreement, licence fees will be charged directly to customers on their electricity bills. However, the first 1,000 kilowatt hours will be exempt from licence fees. Statistics provided by CUC to the government indicate the average residential customer uses 871 kilowatt hours per month.
Mr. Tibbetts said the new licence arrangement would also encourage competition in electricity generation.
‘All additional generation capacity requirements from 2010 will go out to competitive solicitation, and this will assist in keeping future electricity bills lower,’ he said
Electricity generation from renewable resources is something else the new agreement would encourage, Mr. Tibbetts said.
‘Again, as technology changes in the industry, the changes made by this government to the ERA Law will allow for more flexibility in allowing generation from alternative sources,’ he said. ‘At this time, the waste to energy proposal is well under way, and Grand Cayman could see the generation of electricity from trash by 2010.’