GEBE introduces conditional new tariff structure in August

POSTED: 07/24/11 1:14 PM

St. Maarten – GEBE announced in a recent statement that it is on track to introduce the new tariff structure as conditionally approved by the Minister of Tourism, Economic Affairs, Transport and Telecommunications for August 1, 2011. A formal decision was made in June and GEBE management was informed at the same time.

The fuel clause under the new tariff system will reflect the actual fuel component while all other costs will be in the base rate. The new base rate will be Naf 0.29 /kWh and the fixed charge will increase from Naf 17.50 to Naf 29.00 for regular households and from Naf 4.75 to Naf 7.25 for small households. The net effect will be that with rising fuel prices, the fuel clause will increase less than under the old tariff system.

The new tariff structure is based on an extensive study that was carried out by KEMA in close consultation with the Ministry of Public Housing, Spatial Planning, Environment and Infrastructure. The study took place between 2009 and 2010 and the final report was submitted to GEBE management in March 2010. The main directive with respect to the study was for the consultant to study GEBE operations and what it costs to run the company especially looking at the fuel that has to be purchased abroad to supply the generators and keep them operational.
GEBE’s old tariff structure dates back to 1960 when a barrel of oil was just US$2.63. At that time GEBE had a small operation with a minimal peak load of less than one megawatt (MW). The tariff at that time was Naf.0.17/kilowatt hour and was sufficient to cover the operational costs of the company.

“Today, over 50-years later, the island has grown by leaps and bounds with a population of approximately 50,000 with a considerable private sector. A barrel of oil now hovers around US$100 and the peak demand is no longer 1 MW as it was 50-years ago, but approximately 57 MW. The tariff of 50-years ago cannot cover all operational costs today and therefore a part of the operational costs are recovered via the present fuel clause,” the company’s management stated in their release.

With the current fuel clause formula, GEBE’s revenues depend on the price of oil. When the world oil price is low GEBE’s revenues drop and when the oil price is high the company’s revenues increase, and consequently the company’s viability depends on the price of oil which is beyond the control of company. All experts agree that the current revenue structure of the company is too risky for a utility company and should be corrected, hence the introduction of a new tariff system. The new tariff system will take away the volatility by incorporating all the operational costs and needed margins to secure the long term viability of the company while at the same time having the fuel costs as a direct pass through only.

However, the reality is that with global oil market prices hovering around US$100 per barrel, electricity on all oil importing Caribbean islands will be expensive. This is a fact that we and other Caribbean islands have to live in the short term.
St Maarten is not the only island that has this challenge of high electricity prices. Consumers in The Bahamas, Cayman Islands, Jamaica, Dominica, Aruba, Curacao and many others have reported the same challenges. The fuel clause is a common pricing tool used by utility companies, and used throughout the Caribbean. On Curacao, Bonaire and Aruba it is known as the “Brandstof Clausule”, on the Cayman Islands the “Fuel Levy” and in the USVI, it’s known as the “Levelized Energy Adjustment Clause” or LEAC.

With fuel prices changing constantly, utility companies needed a way to adjust the bills in response to changing fuel prices. The fuel clause was included as a separate item on the bill so that consumers can easily see the changes in their bill as a result of the price of oil or fuel.

Recent reports from oil analysts and investors indicate that the supply of oil will remain tight due to the situation in oil producing Libya which has an on-going civil war. Libya used to export 1.5 million barrels daily and now this is no longer the case. This means that spare production capacity in other oil producing countries such as Saudi Arabia will erode quickly and for this reason pressure on oil prices will be substantial.

The International Energy Agency and the Energy Information Administration have warned that world demand for oil will outstrip supplies this year despite sluggish economic growth in the U.S. and Europe. Demand from China, and other emerging nations will drive global oil consumption for years to come.

“GEBE recommends to its valued customers that conservation of electricity is necessary at this time of high global oil prices. Instead of using the air conditioner, use a fan; put a timer on your hot water heater, and switch to energy efficient light bulbs. Energy conservation and efficiency must become a way of life and practiced in every aspect of people’s lives. If you take measures to protect yourself against increases in oil prices, you will be better off,” the statement concluded.

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