Electricity tariffs set to increase by 16%
Scheduled power cuts end
By Gitanjali Singh
Stabroek News
April 18, 2003
The state-owned power company yesterday announced an interim average 16% increase in electricity tariffs on bills to be issued in April and May, pending the filing of its final return certificate with the Public Utilities Commission (PUC).
The new board has also ordered a halt to scheduled power cuts. Announcing the measures yesterday at the GTV 11 Studios, Chairman of the Guyana Power and Light Board (GPL), Ronald Alli indicated that the full increases due as a result of higher fuel prices in the first quarter of this year and legislated allowable returns to GPL in the tariff setting mechanisms, were not being recovered in the new interim rates.
That full sum, he said, would be in the order of 32% but the new board had only sanctioned an approximate 17.5% increase. (See actual increases in the table below, which average 16%).
The increases announced include a fuel surcharge of $6.08 per kilowatt-hour, which is equivalent to an average15% rate increase on bills issued in December to consumers.
Surcharges/rebates are applied to bills after the end of each quarter to recover for increases/decreases in the price of fuel in the preceding quarter.
GPL had in January filed with the PUC to recover a rate increase of 13.9% on residential customers and 16.6% for business customers. However, consumer advocate, Ramon Gaskin, had secured a court order blocking these increases. The order was discontinued on April 8.
Had GPL sought to recover the initial increase plus the average 15% applicable now for the fuel surcharge, residential customers would have faced an average increase of 29.9% and business customers would have faced an average increase of 32.6%.
Instead, residential consumers would face an actual 15.8% increase on their fixed charge per month but their energy charges move up by 18.1% for those consuming less than 100 kilowatt hours per month while those using more than that will face an increase of 16.5%.
Business consumers, on the other hand, would see their bill increases between 12% and 17% (see table).
It had been anticipated that the company might have considered an elimination of the allowable rates of return contained in the rate setting mechanism to minimise the increases to consumers. However, one source argues that the interim rate increases announced are in effect, just a recovery of the higher fuel costs for the first quarter with a small recovery for returns to allow the operations to continue without undue disruptions.
The rate setting mechanism guarantees Guyana Power and Light, now 100% owned by the government, a 20% return on preferred shares and a 23% return on common shares. Factored into the rate setting mechanism, which uses a weighted average cost of capital formula, it realizes for 2002, a recoverable rate of 18% of US$70M (the rate base) which gives rise to a $2.1B revenue requirement for the company. However, in the interim certificate, GPL was showing a loss of $500M and therefore had applied for increases to recover $2.6B in revenues.
But Stabroek News was told that the audited accounts of the company show a profit and the final return certificate shows a need for a recovery of only 14% (excluding fuel surcharge/rebate).
It is very likely that given the hardship facing many Guyanese that the board will factor these into consideration at the time of applying for its final rate increases before the PUC by the end of this month. These new and final rates would apply to bills to be issued from June 1st.
Alli, who was named chairman of GPL last week, resuming a post he held prior to the privatisation of the Guyana Electricity Company (GEC), said the board was determined that rates should reflect not only the cost of operations but also “a cost efficient operation”.
He said in arriving at the decision to cut the allowable rate, the board factored in the projected savings from the management fee of approximately 60% per annum or US$2.1M which flows from the disbanding of the management contract arrangement; the current drop in the fuel prices; the cash flow projections and the board’s decision to keep the Kingston Steam Plant off-line.
The new board at its first meeting last Friday took a decision to keep the Kingston Steam Plant off-line because of its high operational cost but Alli noted that this would mean reduced system reliability as Kingston had served as a buffer generator in the past. Kingston has been out of service for several weeks to ease on the consumption of fuel.
“Our cash flow provides reasonable assurance that the company can meet its outstanding liabilities, overdue maintenance obligations as well as other operational costs,” Alli told reporters.
Flanked by the new board of directors, Alli said the immediate task ahead for the board was the successful transition of GPL to a new interim management. He said the board was currently concluding arrangements for the four top positions of the company but he would not confirm whether Robin Singh, former general manager under him, would be the new CEO. Nor would he confirm that two persons from the current management team would be retained. Short-term contracts for one year would be signed with the new managers.
The board sees as its most important challenge security of GPL’s financial viability and to restore a reliable supply of electricity to consumers. The four-hour scheduled outages were halted from last Friday when the board held its inaugural meeting and took that decision. There is a two-hour power cut currently to facilitate maintenance but this would be terminated this weekend, Alli said.
With the rate increases and other cost savings, the board expects GPL to be in a position to pay off its accumulated debts to creditors, including the Demerara Power Company which is managing the Wartsila sets and whose contract was extended to December 2004. The debts are to be rescheduled and the board expects that GPL would conduct minimum maintenance necessary to keep operations going this year.
The board is moving to secure two outstanding loans for GPL to allow it to move ahead with its investment programmes, which could not be drawn by the current outgoing management team because it could not raise matching funds. A loan of US$20M was secured from the European Investment Bank (EIB) and this is potentially on the line. The Inter-American Development Bank’s (IDB) US$27M loan to the government for the unserved areas electrification project is also stalled because GPL could not raise US$1M as its contribution to the project. Alli said GPL would raise this sum from its cash flow. This project will bring 40,000 new customers onto the grid.
Alli indicated that the board had reopened discussions with both the IDB and the EIB on these loans and he was confident that the projected cash flows from GPL’s operation would allow for the securities to be raised securing these projects.
Asked whether the rate setting mechanism would be changed given that the outgoing managers had found that its lag in revenue recoveries worked against it being able to repay debt, Alli indicated that it could be a consideration. He noted the downward trend in fuel prices which would impact positively on cash flow and realize sums to repay new debt.
Director and Executive Head of the Privatisation Unit, Winston Brassington, pointed out that the mechanism worked against GPL because the internal efficiencies projected were not realized to allow for a positive impact on the cash flow. He said while costs went up, the associated benefits from efficiency savings were not realized, hence the cash flow difficulties under the outgoing managers.
Meantime, the board is mulling options on how to cut the scourge of commercial losses, which can readily realize efficiency savings for GPL and reduced rates.
“Honest consumers must not pay for commercial losses caused by the deliberate stealing of electricity. The board is determined that rates should reflect, not merely the cost of operations, but a cost efficient operation,” Ally stated.
He noted that GPL loses millions each year because of meter tampering and said the board has under active consideration methods of meter reading and collections, which would eliminate the fraudulent use of electricity and provide for automatic disconnection. Two examples he provided were pre-paid meter card services and hand held meter reading, which transfers the reading immediately to consumers’ accounts. These issues would engage the new management’s attention. Alli also reiterated the need for a change in the attitude of consumers and for them to start paying for the services they benefit from so that this would in turn realize lower rates for all consumers.
Asked about the board’s policy position/direction on the rate setting mechanism, which has an implicit 20% and 23% return built in for rate purposes, Alli indicated that the board was relatively new and had not been able to study the matter fully. On the other hand, he noted the need to maintain the status quo given the government’s stated position of finding another investor for the entity who may want similar benefits as AC Power. He also pointed out that any changes would require legislative action.
Since GEC was privatized, electricity rates went up by over 100% but Alli said yesterday that recoveries for fuel prices increases accounted for 52% of this increase.
