Page 6 - CARILEC Electricity Tariff - December 2014

1. INTRODUCTION

The electric utility industry is among the most capital-intensive industries in the world and electricity prices
generally reflect the costs to build, finance, maintain, manage, and operate power plants and the electricity
grid that supply electricity to consumers. Trying to fully quantify and explain absolute electricity price
levels and relativities or comparisons is an intricate task.

Any inter-regional comparative analyses of electricity prices should give due consideration to the main
drivers of regional electricity price variances: economy of scale issues; fuel mix for power generation; and
the impact of energy policy (including taxation) and regulation among others.

On the other hand, intra-regional comparative analyses of electricity tariffs in the Caribbean should also
consider the differences in the operating environment and relevant cost factors that affect the electricity
tariff regime of each country. Variables such as the size of the utilities, regulatory policy, customer
demographics, geographic conditions, usage patterns, and fuel availability have a major impact on the cost
of providing the service, and on electricity prices. The cost factors to be considered include, but are not
limited to: capital investment in generating plant and interest rates; fuel type and costs; utilisation and
maintenance of power plants and the transmission and distribution systems; energy losses; and government
interventions such as industry-specific taxes and/or subsidies.

1.1 BACKGROUND
Caribbean electric energy prices have been the subject of much debate and analyses, as these prices impact
on important social and economic development issues (e.g. industrial competitiveness) in the region.

In the Caribbean electric utility industry, diseconomies of scale and over reliance on imported fossil fuels
for electric power generation, which are expensive, have had a direct effect on the cost of production and
therefore, have led to high electricity tariffs in the region. Moreover, the existence of some old electricity
tariff regimes; the introduction of renewable energy; rising fossil fuel costs; and an inappropriate regulatory
environment in the region have underpinned the need for urgent action by the electricity industry
regulators. Unfortunately, the process of setting electricity tariff rates to adequately address cost recovery
issues has been a major challenge for regulatory bodies and utilities in a time of significant changes in the
electric power industry.

As a means of mitigating the impacts of the rising cost of production due to high fossil fuel prices,
CARILEC have been exploring and promoting fuel price risk management strategies, diversification of fuel
mix, energy efficiency and demand response programmes, in addition to best practice regulation. These
initiatives and strategies have been pursued with the ultimate aim of stabilising, and possibly reducing, the
cost of energy to consumers within the Caribbean.

CARILEC has been conducting tariff surveys among its member electric utilities since 1996. However,
until 2014, the surveys resulted merely in a compilation and publication of the typical electricity bills for
residential, commercial and industrial customers. The surveys however, did not adequately provide critical
supporting data to aid an informed analysis of tariffs in the Caribbean region.

In 2013, the Secretariat via a mandate from the CARILEC Board of Directors revised the survey
questionnaire and reporting format. The scope of the survey was expanded to include: an amendment to the
domestic billing categories; a disaggregation of the electricity tariff across consumer segments;
mechanisms utilised by utilities for large and small scale power purchasing; fuel cost recovery strategies;
mechanisms to facilitate the uptake of renewable energy; and fossil fuel purchases strategies and challenges
among others.

1.2 PURPOSE
This report forms an essential part of CARILEC’s effort to adequately orient its members, investors and
other industry stakeholders about the characteristics, behaviour and outlook of the electric utility industry in
the Caribbean region. It seeks to provide more visibility of electricity pricing across consumer segments
and electric utilities in the region.
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