Erik Lavoie

The cur­rent bi-month­ly bill for the av­er­age res­i­den­tial house­hold could more than dou­ble (in­creas­ing by 124 per cent) by 2028, if the Cab­i­net ac­cepts the rec­om­men­da­tions of the Reg­u­lat­ed In­dus­tries Com­mis­sion (RIC) in its en­tire­ty, ac­cord­ing to Guardian Me­dia es­ti­mates.

Res­i­den­tial elec­tric­i­ty bills are pro­ject­ed to in­crease by be­tween 105 per cent (200 kWh per month) and 229 per cent (5,000 kWh per month) across the board, de­pend­ing on elec­tric­i­ty con­sump­tion.

A cus­tomer us­ing 940 kWh every two months (or 470 kWh per month) pays the Trinidad and To­ba­go Elec­tric­i­ty Com­mis­sion (T&TEC) $318 every two months, in­clud­ing VAT, at this time. That would work out to be $159 a month, if the RIC rec­om­men­da­tion for T&TEC to is­sue bills on a month­ly ba­sis, in­stead of every two months, is ac­cept­ed.

By 2028, the same av­er­age cus­tomer, still us­ing 470 kWh, would pay T&TEC around $356 a month, which is 124 per cent more than the $159 month­ly equiv­a­lent.

This ad­just­ment aris­es as res­i­den­tial con­sumers are moved to pay cost-re­flec­tive prices by the end of the Reg­u­lat­ed In­dus­tries Com­mis­sion’s (RIC) sec­ond 5-year con­trol pe­ri­od (PRE2).

Res­i­den­tial rev­enue re­cov­ery not enough

The RIC an­nounced a pro­posed rate hike in 2023, spark­ing wide­spread na­tion­al dis­cus­sion. Un­der the pro­posed rate in­creas­es for the first year of the RIC’s plan, the me­di­an house­hold, con­sum­ing 470 kWh per month, would face a 21 per cent in­crease in elec­tric­i­ty costs.

De­spite the ap­prox­i­mate­ly 30 per cent in­crease in rev­enue from res­i­den­tial con­sumers in the first year of PRE2, Guardian Me­dia’s in­ves­ti­ga­tions re­veal that the in­come from res­i­den­tial con­sumers will not ful­ly cov­er T&TEC’s ser­vice costs for the res­i­den­tial sec­tor.

The fore­cast rev­enue to be col­lect­ed by T&TEC from the res­i­den­tial rate in­crease in the first year of the five-year plan will range be­tween $1.38 bil­lion and $1.45 bil­lion.

This range falls sig­nif­i­cant­ly short—by ap­prox­i­mate­ly $770 mil­lion to $840 mil­lion—of the $2.22 bil­lion re­quired to meet the cost of ser­vic­ing res­i­den­tial users in the first year of PRE2.

Rather than im­ple­ment­ing an im­me­di­ate ad­just­ment to cost-re­flec­tive rates in the first year of PRE2, the RIC pre­ferred a grad­ual tran­si­tion to cost-re­flec­tive rates over PRE2.

The tem­po­rary gap in res­i­den­tial rev­enue re­cov­ery is an­tic­i­pat­ed to be off­set by high­er charges for in­dus­tri­al users next year, as out­lined in the RIC’s fi­nal de­ter­mi­na­tion. The $770 mil­lion to $840 mil­lion sub­sidy from in­dus­tri­al con­sumers will be “un­wound in the short­est pos­si­ble time and the RIC in­tend­ed to ‘phase-in’ tar­iffs so that res­i­den­tial cus­tomers would pay cost-re­flec­tive prices by the end of PRE2,” ac­cord­ing to the RIC’s fi­nal de­ter­mi­na­tion.

In ad­di­tion to the tran­si­tion to­wards cost-re­flec­tive ser­vice rates for res­i­den­tial users, an­nu­al RPI+X ad­just­ments will ne­ces­si­tate fur­ther year­ly in­creas­es in the rev­enue to be re­cov­ered from each group.

These ad­just­ments are to be cal­cu­lat­ed us­ing the RPI+X for­mu­la, where “RPI’’ stands for Re­tail Price In­dex in­fla­tion, and “X” rep­re­sents an ad­just­ment fac­tor. The RIC has set the X-fac­tor at 1.3 per cent, while the RPI has been “fixed” at 4.7 per cent by the RIC.

T&T’s na­tion­al sta­tis­ti­cal agency, the Cen­tral Sta­tis­ti­cal Of­fice (CSO) does not of­fer fu­ture in­fla­tion pro­jec­tions.

How­ev­er, the In­ter­na­tion­al Mon­e­tary Fund (IMF) pre­dicts T&T’s in­fla­tion rates should be be­tween 1.9 per cent and 2.9 per cent up to 2030, well be­low the RIC’s pro­jec­tion. It is un­clear if the RIC will ad­just its es­tab­lished RPI in­fla­tion rate as a part of its an­nu­al re­views.

By the 2027-28 pe­ri­od, the shift to­wards cost-re­flec­tive rates for res­i­den­tial con­sumers, com­bined with the six per cent RPI+X year­ly ad­just­ments, will sig­nif­i­cant­ly in­crease res­i­den­tial tar­iffs.

Es­ti­mates sug­gest that the me­di­an house­hold’s elec­tric­i­ty bill, us­ing 470 kWh/month, will see an in­crease rang­ing from 101 per cent to 136 per cent when com­par­ing present rates to those pro­ject­ed for 2028. (See Chart be­low)

De­mand de­crease could in­crease tar­iffs fur­ther

The RIC fore­casts that house­hold elec­tric­i­ty con­sump­tion will slight­ly in­crease year-over-year, de­spite Guardian Me­dia’s pro­ject­ed sig­nif­i­cant rise in res­i­den­tial elec­tric­i­ty prices over the next five years.

In the case that the RIC fol­lows through with a tran­si­tion to cost-re­flec­tive rates by PRE2, Guardian Me­dia be­lieves that an ag­gre­gate de­crease in res­i­den­tial elec­tric­i­ty de­mand is a pos­si­bil­i­ty.

If elec­tric­i­ty us­age were to de­crease in­stead of in­crease, T&TEC risks a rev­enue short­fall, ne­ces­si­tat­ing fur­ther price ad­just­ments to meet rev­enue re­quire­ments.

De­spite the sig­nif­i­cant pro­ject­ed in­creas­es to res­i­den­tial util­i­ty bills, T&T will still have one of the low­est res­i­den­tial elec­tric­i­ty costs in the Caribbean re­gion.

Rea­sons be­hind the rate hike

Cen­tral to the tar­iff in­creas­es pro­posed by the RIC is T&TEC’s rapid­ly de­te­ri­o­rat­ing fi­nan­cial health. Giv­en the lack of a rate re­view in 14 years, T&TEC finds it­self with a debt bur­den of ap­prox­i­mate­ly $9.32 bil­lion as of Oc­to­ber 2023, ac­cord­ing to T&TEC chair­man, Rom­ney Thomas, in a Guardian in­ter­view in Oc­to­ber last year. Com­pound­ing this fi­nan­cial strain is the $1.4 bil­lion still owed to T&TEC by var­i­ous gov­ern­ment-owned agen­cies.

The ne­ces­si­ty to pay off debts ac­cru­ing in­ter­est com­bined with the in­creas­ing costs of pro­vid­ing elec­tric­i­ty ser­vice re­quired the RIC to put to­geth­er a strate­gic plan de­signed to al­le­vi­ate T&TEC's fi­nan­cial dis­tress. Cen­tral to this plan is the al­lo­ca­tion of a to­tal of $1.15 bil­lion for T&TEC to cov­er a por­tion of its out­stand­ing debt to the Na­tion­al Gas Com­pa­ny.

Fur­ther­more, the prospec­tive ad­di­tion of bp’s 112 MW of so­lar ca­pac­i­ty by 2025 will lead to an in­crease in en­er­gy costs with­out a cor­re­spond­ing re­duc­tion of ca­pac­i­ty costs from fos­sil fu­el in­de­pen­dent pow­er pro­duc­ers (IPPs), as T&TEC strug­gles to rene­go­ti­ate ca­pac­i­ty-based pow­er pur­chase agree­ments with the IPPs.

Govt as­sis­tance will con­tin­ue

Min­is­ter of Pub­lic Util­i­ties Mar­vin Gon­za­les has af­firmed the con­tin­u­a­tion of gov­ern­ment as­sis­tance pro­grams as rates in­crease. The 35 per cent re­bate for house­holds with bi-month­ly bills un­der $300 will re­main in place, al­though it is un­clear if the $300 cut­off will be di­rect­ly trans­ferred to month­ly rates. The re­bate costs the gov­ern­ment $74 mil­lion an­nu­al­ly.

An­oth­er pro­gramme called the Util­i­ty As­sis­tance Pro­gramme (UAP) pro­vides up to $1200 year­ly in re­lief for el­i­gi­ble vul­ner­a­ble groups, as long as house­holds con­sume less than 680 kWh bi-month­ly. Sim­i­lar­ly, it is un­clear if the mi­gra­tion to a month­ly pay­ment regime will change the scope and im­pact of the UAP.

Mr. Gon­za­les al­so sug­gest­ed pro­vid­ing “util­i­ty cards” to es­pe­cial­ly vul­ner­a­ble cit­i­zens, al­low­ing them “full ac­cess to wa­ter and elec­tric­i­ty.”

The above sub­si­dies have not been fac­tored in­to the analy­sis of pro­ject­ed per­cent­age in­creas­es in elec­tric­i­ty rates, giv­en that the na­ture and im­ple­men­ta­tion of these sub­si­dies may sig­nif­i­cant­ly change due to the RIC’s rec­om­men­da­tions.

Ad­di­tion­al­ly, the NGC pro­vides fu­el to T&TEC at a sub­si­dized rate that is 50 per cent cheap­er than the true eco­nom­ic cost, ef­fec­tive­ly shield­ing T&TEC from in­cur­ring an ad­di­tion­al $10 bil­lion in costs. A me­di­an house­hold’s res­i­den­tial bill would in­stead in­crease as much as 204 per cent if the NGC were to un­sub­sidise the price of nat­ur­al gas by 2028.

Pro­posed changes are not fi­nal

The RIC’s Fi­nal De­ter­mi­na­tion has not been im­ple­ment­ed yet, as the RIC has been wait­ing on the Cab­i­net’s de­ci­sion on its ap­proval since Oc­to­ber 2023. The cab­i­net may pre­lim­i­nar­i­ly re­ject the pro­pos­al, in­struct­ing the RIC to amend cer­tain as­pects of its plan. The cab­i­net is set to make a de­ci­sion soon. Mr. Gon­za­les has pub­licly ex­pressed con­cerns in T&TEC’s abil­i­ty to re­cov­er the rev­enue it needs, stat­ing that “there would still be a short­fall of over $500 mil­lion on the part of T&TEC”. Con­se­quent­ly, the re­jec­tion of the pro­pos­al is a pos­si­bil­i­ty.

Even if the fi­nal de­ter­mi­na­tion is ap­proved in its present form, the util­i­ty bills of res­i­den­tial con­sumers may in­crease far less over the 5-year pe­ri­od than Guardian Me­dia’s pro­jec­tion. A sig­nif­i­cant por­tion of the fore­cast­ed in­creas­es by 2028 de­pends on the RIC’s state­ment that “res­i­den­tial cus­tomers would pay cost-re­flec­tive prices by the end of PRE2.” If this state­ment were to be an­nulled in any way or form, year­ly price in­creas­es would on­ly be based on the RPI+X es­ca­la­tion, lead­ing to an es­ti­mat­ed bill in­crease of less than 58 per cent for the me­di­an house­hold by 2028.

Ul­ti­mate­ly, a lot can change over the next 5 years. Should the RIC’s pro­pos­al se­cure ap­proval and be im­ple­ment­ed as writ­ten, the pro­jec­tions pro­vid­ed in the graph of this ar­ti­cle may pro­vide a re­al­is­tic range of res­i­den­tial util­i­ty bill es­ti­mates by 2028.

Ques­tions to the RIC

Guardian Me­dia sent the RIC a list of 12 ques­tions re­gard­ing the Fi­nal De­ter­mi­na­tion. The RIC an­swered five of them. Here are the four most im­por­tant ques­tions asked:

Q: What is the amount of rev­enue T&TEC is pro­ject­ed to re­cov­er from res­i­den­tial users in the first year of the five-year con­trol pe­ri­od?

A: The RIC did not pro­vide an an­swer.

Q: Is the en­tire­ty of the short­fall in res­i­den­tial rev­enue ex­pect­ed to be re­cov­ered by the in­creas­es in in­dus­tri­al tar­iffs?

A: The RIC de­ter­mines an al­lowed rev­enue re­quire­ment and there­after the over­all al­lo­ca­tion at­trib­ut­able to the broad cus­tomer class. Start­ing tar­iffs were set for the first year of the reg­u­la­to­ry pe­ri­od to re­cov­er that al­lowed rev­enue. The RIC’s aim is to un­wind cross-sub­si­dies so that by the end of the pe­ri­od, all class­es ful­ly re­cov­er their re­spec­tive cost-to-serve.

Q: Will the X-fac­tor and/or RPI stay con­stant through­out the five-year pe­ri­od (PRE2)?

A: The X-fac­tor of 1.3 per cent will stay con­stant through­out PRE2. It does not mat­ter if the RPI ex­ceeds the RIC’s as­sump­tion. The in­crease in the al­lowed Rev­enue Re­quire­ment is capped at 6 per cent year on year.

Q: Did the RIC as­sume in its cal­cu­la­tions that the price elas­tic­i­ty of de­mand of elec­tric­i­ty in T&T is per­fect­ly in­elas­tic?

A: The RIC did not pro­vide an an­swer.

Dis­claimer: Util­i­ty bill cost pro­jec­tions for spe­cif­ic month­ly kWh con­sump­tion by 2028 are pure­ly pre­dic­tive. Guardian Me­dia rec­og­nizes that these fore­casts may di­verge sub­stan­tial­ly from the ac­tu­al out­come in 2028, in­clud­ing po­ten­tial per­cent­age in­creas­es be­yond the "high con­fi­dence” in­ter­val.