The Utilities Regulation and Competition Authority (URCA) is seeking to strike the right balance in setting a new tariff structure for the electricity sector that protects the interest of consumers, while also covering the operating, maintenance and investment costs of public electricity suppliers (PES).
This is against the backdrop that the government wants present tariffs to support improvements and future investments in electricity supply.
The regulator has proposed to have a regulatory process built around an incentive-based regime in the short term and implement a hybrid price cap regulatory regime by 2025.
“URCA is open to further examining each PES-proposed rate of return (ROR) approach in the context of an interim three-year tariff review submission. However, URCA’s long-term objective is to have a regulatory process built around an incentive-based regime. The three-year interim tariff based on the ROR method is intended to give the PES sufficient time to consult and prepare for a hybrid price cap regulatory regime for the ensuing tariff review application/submission,” the regulator states in its final framework paper.
“Rate of return regulation ensures that prices are aligned with costs each year. However, since all costs can be passed on in price, the PES would have little incentive to become more efficient. URCA could review costs to ensure that they are reasonable, as has happened in the US, but this is a demanding task as information asymmetry will make a fair assessment by URCA most difficult. That is to say, the PES holds all the information and can mislead URCA.”
The last tariff rate adjustment occurred in 2010 when the last Hubert Ingraham-led administration increased Bahamas Electricity Corporation (BEC) rates by about five percent.
In its just released statement of results and final decision from the initial consultation process, URCA stated that responses from the PES – which included Bahamas Power and Light, RAV Bahamas and Grand Bahama Power Company President David McGregor – were generally in support of its establishment of a framework and procedure for a tariff review.
However URCA said BPL proposed that PES be extended beyond one year to 18 months to be completed.
BPL also noted that URCA’s determination on the tariff rates ought not to consider the requirement of a rate reduction bond fee which the company is seeking to add to costumers’ bills once the bond has been issued.
“BPL considers that it is important to note this change and for URCA to reflect the same in setting out its legal framework and the extent of its remit. BPL states further, as the rate reduction bond charge is to be recovered as a separate line item/charge on customer’s bills, there is no need for this to be included in URCA’s consideration and determination of the rates,” BPL states in its response.
The government passed the Electricity Rate Reduction Bond (RRB) Bill, 2019, which established a legislative framework for BPL to raise more than $500 million through a rate reduction bond.
Minister of Public Works Desmond Bannister said in November 2019 that the average household’s light bill will increase by $20 to $30 for a limited period of time as a result of the RRB.
Earlier this year, URCA released its Tariff Review Framework, Guidelines and Procedures for Public Electricity Suppliers, which proposed three new special rate categories which include lifeline rates for the most vulnerable and economically challenged residential customers; time-of-use rates, which would be an optional standard rate applicable to all customers, allowing them to pay based on when they use electricity; and standby rates, which would be for those companies that own and operate generating equipment capable of meeting their own power requirement, but may at times find it necessary to take power from the utility when demand exceeds their supply.
The post URCA seeking to set viable electricity tariff structure appeared first on The Nassau Guardian.
source https://thenassauguardian.com/urca-seeking-to-set-viable-electricity-tariff-structure/
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