Rise in electricity rates: Recipe for economic disaster

SHYMDEO GOSINE

THE REGULATED Industries Commission (RIC) recently held consultations with several stakeholders, including the business sector, and solicited views about how the rise in electricity rates would impact their day-to-day activities. Members of the public did not hesitate to air their views, and many stated that rate hikes will only serve to drive up prices, increase inflation, and bring hardship to the working class, especially the poor.

However, to bring the critical issues into proper perspective and context, one needs to understand the purpose of the RIC. Under its the RIC Act, its core functions include:

* ensuring that an efficient service provider (SP) can execute and finance its functions;

* undertaking studies of economy and efficiency of operation of the service providers under its purview;

* prescribing and monitoring standards of service; and

* establishing the principles and methodologies for determining rates and charges, that is, reviewing and determining price controls.

These functions reflect the responsibility of the regulator to ensure that the service provider for the electricity transmission and distribution sector is able to earn the revenue it requires to sustain its business while delivering quality service to its customers at affordable rates. With respect to establishing price controls or price limits, the most fundamental aspect of setting price limits is deciding the form of price control.

In bridging an understanding, it must be stated that the RIC Act confines the commission to an incentive-regulation approach but does not specify a particular form of price control.

The RIC can choose the specific form of control that it deems appropriate for the sectors. This approach should encourage the utility to find lower-cost ways of delivering service (productive efficiency), to make the best use of scarce resources that accrue the maximum benefit to society (allocative efficiency), and to develop new and more efficient ways of conducting its business over time (dynamic efficiency).

Broadly, the form of control that can be utilised under an incentive regulation is either a revenue or price-based control or a combination of both. Where a revenue-based control is used, the regulated firm will have an implied price over the control period. Where a price-based control is preferred, the firm will have an implied revenue over the control period.

Impact of rise in electricity

tariffs in uncertain economy

Over the past ten years, TT’s economy has undergone tremendous uncertainty, from rising inflation to increased domestic and foreign debt, accompanied by a lack of government spending and reduced business investment. This is not a positive picture for our economic landscape, and we must not forget the unprecedented challenges and hardships placed on the business sector (large and small enterprises) and our citizens as a whole. Incomes were recording near zero (except for the public service), and many people lost their jobs. Owing to the economic decline and the sudden advent of the covid19 pandemic, the business sector was under tremendous pressure and was trying to survive.

The support systems put in place by the State proved insufficient and ineffective. But given an adequate time period, a marginal level of recovery may be visible. However, I want to suggest that the Government takes these factors into consideration and understands that any rise in electricity rates will force businesses to factor this into their overall cost structure, and pass this tariff increase on to their customers. This is a stark reality.

The fixed income groups will be placed under tremendous and unprecedented pressure to make ends meet, especially given the fact that their disposable incomes are getting smaller and smaller. Another factor to consider is how would such a decision by the RIC on increased electricity rates impact the inflation rate and, more worrying, the food inflation rate.

The RIC is also exacerbating the given situation by also proposing that the billing cycle be monthly instead of the existing bimonthly. Again, such a decision will place consumers under very severe financial hardship by having to pay increased rates within a narrower time frame. This is very unreasonable. Again, such policies, in my opinion, will eventually result in economic and social disaster. Is this our shared future?

Moreover, the levels of electricity being utilised by the manufacturing sector is significant. However, a tariff increase will negatively impact our exports from the said sector and our country’s competitiveness will continually decrease. This is not the ideal situation that TT should find itself in.

The way forward

Our nation is in serious trouble, and the policymakers need to conceptualise and implement creative solutions to ease the serious financial burdens that are pressuring our society. Increasing the electricity rates at this point in time is certainly not the way to go.

The natural gas being used by the compressors and turbines to generate electricity is owned by the people of TT. Hence, it is the right of the people to enjoy the fruits of the natural resources and ensure that they enjoy a quality life. In addition, the private sector must be given the space to grow and thrive, and allow the flow of investments to eventually bring prosperity and job creation.

Further, more incentives must be given to our manufacturers and other exporters to boost our economy and earn more foreign exchange.

However, steps must be taken to boost T&TEC’s operational efficiency. A critical examination of its financial viability and staffing levels must also be taken into consideration. It is a well-known fact that T&TEC has been used as a cesspool of political patronage by various political parties. Such developments cannot continue.

But the most vexing problem lies with those debtors who are in serious arrears to T&TEC. The Government must make a serious effort to settle all outstanding bills owed to this electricity utility. Such a move would put T&TEC into a somewhat better financial position. This is but one pathway to follow.

In TT, all our electricity is being produced by foreign-based companies with which the State has contracts to pay for their full generation. With the closure of Mittal Steel (our largest user of electricity), Centrin, Petrotrin, Trinmar and other petrochemical plants at Point Lisas, it leaves 50 per cent of electricity being generated unused.

Hence it is advised that the RIC and T&TEC find ways or solutions to utilise the surplus electricity which can bring significant savings and can allow them to reduce the current rates of electricity rather than increase them.

Our nation has been going through a train wreck of failed policies over the past years that have only resulted in a deterioration of our institutions, economic sectors and national security, leading to social degradation. This cannot continue, or it will become imminent that we will be ending up just like Haiti.

Shymdeo Gosine is the MD of an engineering company