Power costs increase for businesses

An increase in electricity costs for businesses could wipe out the benefit of fuel duty cuts announced last week in the government’s budget, business owners have warned. 

The adjustment in the Caribbean Utilities Company’s base rate, which is effective immediately, means that even after the fuel duty cut is taken into account, some businesses are likely to see a net increase in their power costs over the next 12 months. 

“It seems that while one hand is giving, the other is taking away,” said Robert Hamaty, president of Tortuga Rum Company. 

Businessman Prentice Panton said the rate changes announced by CUC on Friday effectively negate any reduction to the cost of doing business that would result from government’s budget plans. 

There was some good news for residents, however, with the business community bearing the brunt of the rate increase. Residential bills will be lower by 1 percent as a result of CUC’s new fee structure, which will also see bills increase by 2.8 percent for “general commercial” and 1.1 percent for “large commercial” customers. 

The changes, which collectively add up to a 1.5 percent increase in the base rate of electricity in Cayman, were approved by the Electricity Regulatory Authority and are unconnected to the cuts announced in the budget last week. 

Government cut 25 cents off the duty rate for fuel imported by CUC – savings the power company is legally obliged to pass on to its customers and which Finance Minister Marco Archer estimated would result in a 4.3 percent decrease – or $21.50 off a $500 bill. 

That reduction will not come into effect until January 2015, meaning that for some businesses, things will get worse before they get better. 

CUC said in a statement that the fuel duty cut would ultimately have a positive effect for all customers. 

“The combined effect of the base rate changes and the duty reduction will be a reduction to all customer categories,” the company said in a statement. 

Mr. Panton, who owns several businesses including Liquor for Less and Reflections, said the increase was unexpected and undermined the budget, unfairly impacting small and medium sized businesses. 

“I don’t think, with the level of profit CUC is making, that the increase is justified. If there does have to be an increase, it should be the same for everyone. 

“Some businesses can barely afford to keep the lights on as it is. This hits small and medium-sized business the most and they are the ones that can least afford it,” he said. 

Mr. Hamaty agreed, saying, “The engine of growth for the economy is the business community and it feels like we are being penalized.” 

Woody Foster, who runs the Foster’s Foodfair IGA chain, said the increase of 1.1 percent for larger businesses is actually smaller than he had anticipated and would be offset by the fuel-duty reduction from January. 

“It is not something that is going to affect prices for us at this stage,” he said. 

CUC said the changes were the result of an independent “cost of service study” that looked to tweak charges based on how much it cost to provide them. 

“The Cost of Service study as the name implies seeks to determine the cost to serve the residential, general and large commercial customer categories, to rebalance rates between the classes and if necessary to recover those costs on an equitable basis. In this case it was found that the full cost to serve commercial customers would not be recovered adequately in the commercial rates and conversely on the residential costs there would be over recovery, therefore rate rebalancing was necessary in favour of residential customers.” 

CUC headquarters 1

CUC has announced an increase in its base rate for electricity.
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2 COMMENTS

  1. All of this at a time when the country is in the midst of an economic slowdown and CUC is reporting increased profits in the first quarter of this year when compared to the same period last year.
    Anybody can produce a Cost of Service study that can be used to justify a rate increase, and by their actions, CUC has most certainly done their part to further weaken the local economy. However, most of the blame should rest with the ERA and the government for not doing enough to push back against the request by CUC for a rate increase.

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