October 27, 2020

MORE FUEL SHOCKS

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Confusion reigned yesterday as Caribbean Utilities Company (CUC) on Friday morning released a statement suggesting government was far more to blame for the cost of electricity than the Sparky’s Drive supplier.

In response to Premier McKeeva Bush’s Tuesday-night call for an audit on the utility, seeking the reasons for electricity costs, CUC on Friday released a two-page description of its efforts to hedge the price of diesel fuel on world markets, accompanied by a seven-page study of electricity rates.

The documents, however, left analysts scratching their heads about what the company asked consumers to pay.

CUC watchdog, the Electricity Regulatory Authority (ERA), “requested CUC to hedge its fuel prices,” the document said, sparking an agreement by CUC to pay its Esso and Texaco suppliers a total of $1.7 million per year to cap diesel costs at $3.55 per gallon.

The statement did not say when the ERA made its request, but cited March 2011 authority approval for a one-year “hedge” agreement, expiring in March 2012.

However, the company said, oil prices had declined since March, to August’s $3.03 per gallon, saying it also paid an additional 22 cents for shipping, fees and handling, and another 75 cents for government duties, yielding approximate costs of $4 per gallon.

The company further muddied the waters, however, saying “the  $1.7 million per annum currently represents 0.35 cents (less than half-a-cent) per kilowatt hour”, but elsewhere breaking down “35 cents per kilowatt hour (kWh)”, a 100-fold increase, into three components: 20 cents for fuel costs, 4.5 cents for government duty and 10.5 cents for CUC’s base rate, covering “all its costs, excluding fuel costs and government duty”.

Despite “government duty” accounting for less than half of CUC’s own overheads in the cost of a kWh, the company blamed the tax for hiking the price of electricity, comparing the “one-year “$1.7 million hedge, passed to consumers, to the government’s 75 cent-per-gallon surcharge, also passed to consumers, yielding $14.4 million per year.

One accountant, requesting anonymity, said CUC had been wise to hedge fuel prices, but that it had left consumers paying higher costs than necessary.

“This means that if the cost of fuel goes up or down, it does not matter to CUC, and the public are protected”, he said. The ERA “was right to insist that CUC hedge the price. However, it appears that the public is paying $3.55 per gallon plus the duty, but at least the hedging did protect everyone had the price gone up instead of down.”

A second accountant, also asking not to be named, said, however, it was likely CUC was paying the $3.03 price for fuel, not $3.55, having paid $1.7 million for the option, not the obligation, to buy at the cap price.

“The cap is the price paid to ensure that no matter what happens in the market CUC will have access to diesel at no more than $3.55,” he said, but the company “will of course be buying at that [$3.03] market price”.

He did not “have the facts”, however, on whether CUC was passing the $1.7 million fee to consumers.

Despite emails and telephone calls, the utility did not respond to questions about the statement, which Mr Bush challenged on Friday

“These are statements the ERA can and should be addressing,” he told iNews.

“What I can say is that based on the information provided, the cost of the $0.25 has only added around 5% to a bill,” Mr Bush said, alluding to the 2010 imposition of an additional 25-cent surcharge to the existing 50 cents per gallon levied by the previous administration. “I think it’s fair to say that this is not the significant increase that the consumers are complaining about.

“In any event I intend to get cabinet to order the audit. And as I have said this will be carried out by a company that has experience in carrying out these kind of audits on oil companies or electricity companies,” he said.

“In 2008, CUC says it hedged at $3.55,” Mr Bush continued. “In 2009 the cost of fuel dropped to $1.50, a difference of $2.55 per gallon for a period, and then in 2010 the cost of fuel has been at $3.00.

“For a period the cost of fuel was $2.05 higher than market and even now it is $0.55 higher than market rate. But CUC says this is not the problem. The problem, they say, is the additional $.025 duty to government. How can $2.05 or even $0.55 not be a problem, but $0.25 or $0.75 cents to government be a problem?”

 

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