A “marginal” rise in electricity rates appears to be imminent, although the Caribbean Utilities Company is tight-lipped about the increase, saying only it is too early to discuss details.
The utility gained rises in 2012, 2013, 2014 and 2015, and last week submitted its 2016 calculations to industry overseer the Electricity Regulatory Authority.
While CUC Corporate Communications Manager Pat Bynoe-Clarke said “it is too early to say” if an “adjustment” might be granted by the ERA, authority Managing Director Charles Farrington said the submission from the utility was routine.
“There is no mystery. The CUC license requires any adjustment … to be effective June 1 of every year,” he said, pointing to a complex, standardized formula for calculating inflation, indexed to the consumer price index in Cayman and the United States, joined to the value of CUC’s fixed assets. Called the Rate Cap Adjustment Mechanism, the formula combines inflation, CPI figures and CUC’s audited accounts to determine the amount of any rate increase.
Mr. Farrington said it was possible the ERA could refuse an increase, but declined to predict the outcome. “Given that framework, around about now both CUC and the ERA would be examining the numbers to see what they reveal.”
ERA Deputy Managing Director Louis Boucher said CUC had presented the authority “with the calculations and economic data that is used to determine the required June 1, 2016, base rate adjustment (if any)” adding that “adjustment,” depending on the math, could be a decrease, an increase or a freeze.
“The ERA has verified the economic data … and calculations submitted by CUC in accordance with its [transmission and distribution] licence and agrees with them,” he said.
“In 2015, CUC performed just above the lower band of acceptable performance which allowed them to earn 80 percent of any changes in price-level indexes. However, the formula is based on 60 percent of changes in [the] CI CPI, excluding food and fuel items, and 40 percent of changes in [the] US CPI, excluding food and fuel items.”
The two CPIs, he said, largely cancel each other, meaning “the end result of this year’s calculation (June 1, 2016 rate adjustment) will therefore be marginal to consumers.”
He declined to elaborate.
“Either a press release or an insert in consumer’s June CUC invoices will explain any required base rate adjustment,” he said.
CUC’s “base rate” is currently 10 cents per kilowatt hour. In 2015 the company sold 582 million kWh, nearly 18 million more than the previous year. That 3.3 percent increase yielded revenue of $76.7 million in 2015, the lion’s share of the company’s $22.8 million net earnings.
CUC’s base rate is how the utility earns profits, covering maintenance and regulatory costs, and including a percentage of the value of the company’s fixed assets. Fuel costs – covering government’s per-gallon tax on fuel and the price of diesel oil – are billed separately, passed directly to customers without change. Base rates are reviewed annually.
In 2015 the ERA granted a 0.9 percent rise, effective June 1, adding about $1 to every customer invoice.
In 2014 CUC applied to the ERA on April 28 for a 1.5 percent increase in its base rate, which took effect June 1.
In 2013 CUC applied to the ERA on April 2, gaining approval for a June 1.8 percent rise in base rates from 10.46 cents to 10.65 cents per kilowatt hour. The increase brought roughly an additional $1.2 million annually to CUC, which it said was necessary to ensure the company remained financially viable, able to attract sufficient capital to operate a modern electrical network and deliver a reliable service.
The rise, along with increased sales, contributed to net 2013 earnings of $20.4 million, a $2.7 million growth from 2012.
In 2012 CUC gained a June 1 rise of 0.7 percent, after a March application to the ERA.
In both 2011 and 2010, at the height of the global recession, CUC did not seek an increase to its base rates of 10.5 cents per kWh, although in June 2009, the base rate rose 2.4 percent.
Between 2002 and 2008 CUC froze base rates while it negotiated with government for new licenses covering both generation and the transmission and distribution network. September 2004’s Hurricane Ivan threw negotiations and scheduled charges into chaos as the utility sought reimbursement for its damaged network.
Once CUC has submitted its application, Mr. Farrington said, “and assuming we have both calculated the same number, the ERA Board would have to approve any increase in base rates.”
Neither CUC nor the ERA, he said, “has any discretion” regarding the amount of an increase or authority approval.
The process is automatic, he said, “be it positive, zero or negative … the result of calculations which have been set out in the license.
“It is intended to be an eminently objective and non-controversial (at least from a regulatory point of view) result,” Mr. Farrington said, although he conceded CUC was at liberty to decline a rate rise were “they feeling very generous and wanted to forgo an increase to which they are entitled … but I would not hold my breath for that.” The June application also raises the possibility of other changes to CUC billing, including a long-whispered “demand billing” scheme, in which designated consumers are charged according to their highest monthly rate of consumption.
The scheme is linked to “time of use” plans, in which prices vary according to when power is consumed. Widely employed in North America, Europe and Australia, TOU essentially means a load of laundry at 3 a.m. costs less than if it is done during peak hours.