Prior to examining the fundamental reasons for my rejection, I wish to state that the service rendered by TTEC to the national community is less than satisfactory.

A reliable supply of electricity is crucial to the success of any economy and the Commission’s ability to maintain a regular supply is questionable.

In fact, there have been continuous and lengthy blackouts throughout the country.

St. Augustine South has been particularly hard it by blackouts within recent months.

In all fairness to TTEC, after making representation to the Commission on behalf of the residents of that area, we have noticed a marked reduction in the interruption of service.

The Commission did respond to my intervention, however, no date was given for the completion of maintenance work in an effort to boost supply to Bamboo Settlement.

The San Juan region has also been hard it with disruption in the service of electricity.

The area in San Juan that is being referred to is North of the Croisee along Saddle Road and environs.

Several businessmen and women from this area have complained to me about these interruptions.

Reference was made to two days in particular where on October 1, 2005, service was interrupted for just over six hours.

I was also told that the situation could have been corrected in much less time. Another incident occurred on October 20, 2005 when service was disrupted for practically the entire day.

This, of course, is unacceptable and the Electricity Commission must be ever mindful of the delivery of service before any request for a rate increase can be considered.

I am sure that TTEC will argue that in order to provide a better service, there will be need for upgrades that will cost additional funding.

This argument is a ruse.

It will depend on more effective management of resources and a penchant for reducing cost.

I now turn to the fundamentals behind the rejection of a rate increase for the Trinidad and Tobago Electricity Commission. Electricity is an extremely important component of all citizens, essentially a crucial commodity in their public and private lives.

Electricity bills have increased annually reflecting increases in the fuel (which may rise due to gas price increases and conversion inefficiencies) and foreign exchange rates, the latter covering not only conversion cost in US dollars but also on capital acquisition.

The business sector also has several concerns about the proposed rate increase.

They have narrowed it down to the following six:

1. Initial cash flow requirement, which is based on an assessment and valuation of the Regulated Asset Base (RAB) and computation of future demand load.

2. The issue of the role of dividends from PowerGen in the cash flow computation.

3. The gas supply price and contractual increases and its effect on pricing.

4. The bulk power supply contracts, the ability of TTEC to police them and their effect on TTEC costing.

5. The issue of cross sub-sidisation between tariff categories.

6. Productivity and performance measurements.

The following is the private sector’s assessment of the aforementioned points.

1. Initial Cash Flow Requirement

In attempting to arrive at the quantum of increase for the initial period, it is being suggested by the RIC’s consultant, Kenesjay Systems Limited that TTEC uses an Average Incremental Cost per kWh of electricity for the period 2005 - 2008, which dictates the projected investments required and the incremental demand expected for this period.

This will provide an upper limit for TTEC unit revenue.

The lower limit will be established by determining the Required Cash Flow, which estimates a price level that allows the Company to sustain its investment programme under realistic financing assumptions that covers debt service, interest payments, tax liability and contributions to the investment programme.

It is being suggested that the increase be based on an average figure between these two benchmarks.

This methodology is being proposed by Kenesjay Systems Limited because the TTEC asset records are in a chaotic state and have never been reconciled physically with their accounting records.

As a result, the Regulated Asset Base is unknown and it is expected that the exercise to correct this will be completed by the end of 2006.

Our serious concern is that improper estimation will result in a significant initial increase in tariffs.

The more prudent approach would have been to force the utility to put its house in order, so as to get a true picture of its capital and investment requirements.

It would also serve to assure the public that the utility has the managerial capability and efficiency to move forward, since we understand that this asset accounting exercise has been attempted many times.

2.Exclusion of PowerGen Dividend

The issue of excluding PowerGen dividends in the cash flow demand computation on the basis that it is dependent on the performance of another corporate entity, which is not in their control, is not sound, since it is a long-term contract (renewable in 2009), has been relatively consistent and accounts for 7 per cent of TTEC revenues.

In addition, it has greater certainty of being paid than TTEC’s receivables!

3. Gas Supply Contracts and Effect on Pricing

The gas supply contracts need to be urgently reviewed, since the annual escalation clause (4 per cent) in the current contract has the effect of compounding the increases by impacting both TTEC account payables and debt interest charges.

The government needs to renegotiate another low price gas contract for electricity, such as the 20-year contract negotiated with AMOCO in 1974.

The prime minister, at the completion of the LNG Train IV negotiation, stated that he had negotiated free gas for TTEC, which acknowledged that electricity is a social commodity.

We need clarification on this, since this must have an impact on future rate increases, or shall we say decreases?

It must also be stressed that electricity is the only direct benefit that the general population receives from our gas patrimony.

4. Bulk Power Supply Contracts

The bulk power supply contracts with PowerGen and Trinity Power must be renegotiated and made public and it is insufficient for the RIC to merely state that this conversion cost (43 per cent) is uncontrollable.

It is indeed unfortunate that the government and TTEC missed the opportunity to purchase both of these enterprises, which have changed ownership in recent times.

Ownership would have had the effect of correcting the adverse contractual obligations entered into by TTEC and the government.

The RIC position that the 70 per cent of TTEC cost structure represented by the gas supply contract and the conversion by PowerGen and Trinity Power is uncontrollable and outside its purview is untenable, since both generating companies fall under its ambit.

The rate of return for zero risk investments in other jurisdictions is approximately five to six per cent.

What returns are these two generators making?

Most power generators have to procure their own fuel source for conversion, why must this exception continue here?

Notwithstanding, TTEC has been negligent in policing its own interest as outlined in the RIC document.

The heat transfer rate and conversion efficiency requirements have not been meticulously monitored under the bulk power supply contracts.

The power generators, already without incentive to operate efficiently because of their free gas and take or pay contract, have been allowed to do so with impunity.

It is important that these contracts be presented for public scrutiny, and full disclosure be made regarding concessions and benefits given to these two companies.

5. Cross Subsidisation between Tariff Categories

TTEC has indicated that the commercial and industrial tariff sectors are making profits, which are being used to subsidise residential customers.

We fully support the RIC’s position that each tariff segment must pay for its true efficient cost.

In the residential category, government must recognise that electricity is a social commodity, any difference in cost of providing it to households, ought to come from the Treasury and not from other customers, in a manner similar to the gas subsidisation at National Petroleum.

6. The Productivity and Performance Measurements Regime

The productivity and performance measurements regime must be instituted and reported on a regular basis.

The performance indicators suggested by the RIC are comprehensive and the Private Sector Organisations support their urgent implementation.

CONCLUSION

The Trinidad and Tobago Electricity Commission has made an insufficient case for a rate increase at this time.

In addition to this, any increase in the rate of electricity will lead to an escalation in the rate of inflation, which is already too high.

The population has had to grapple with rising food prices for the past year and will not be able to absorb any additional cost without reverting to a reduction in the standard of living.

As mentioned by the private sector, electricity is a social commodity and should be subsidised as is the case with National Petroleum and gas prices.

TTEC has not made its case. Let us now hope that the Regulated Industries Commission will reject the Commission’s petition at this time.