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He dropped the bombshell of a request for increased electricity rates back on November fifteenth... and today it was formally announced by the Public Utilities Commission that B.E.L. Chief Executive Lynn Young got his New Year's wish. The new prices, effective January first, average thirteen percent. And while Young has successfully cited the company's increased costs for petroleum and power purchases from Mexico, we asked him this afternoon what mechanism will enable electricity rates to go down should the situation change.
Lynn Young, CEO, Belize Electricity Limited
”The same mechanism that is causing it to go up will cause it to go down. What the P.U.C. did at the last hearing we had earlier when we got the first increase, we were projecting that we were going to have higher cost of power because of the Katrina effect, the hurricanes and all that and oil prices. And we had already gotten notice from Mexico that the Mexican rates will go up. The P.U.C. took the position that we’ll adjust to what the cost is now and we’ll put a mechanism in place that if the cost continues to go up above a certain amount we would do another increase, which is what has happened. But what they also did was we looked at the rate stabilisation account, which is at—it’s over twenty-seven million dollars now. They agreed with us that it’s really going too high; it’s putting a lot of pressure on the company to keep up with the payments, actually finding cash to meet payments. And in fact, unfortunately, we’ve actually neglected some street light maintenance and all that and I think it’s beginning to affect service. So they agreed with us that they will not adjust the rates down until we’ve cleared off that twenty-seven million dollars balance, because it’s just too big. So as oil prices go down, what they did, they’ve spread that balance over four years. In the rates, it is set up that we recover that over four years. If oil prices go down and if Chalillo does better that we expect it do, then it will go down faster and we hope that that would happen because once that twenty-seven million dollars is cleared off, then the rates will fall back to the base rates that the P.U.C. has approved.”
Stewart Krohn
“Lynn, looking at the schedule of price increases you can look at the rise per kilowatt hour and say fine, it’s related to increased cost. But the service charge, in the case of residential customers it went up by a hundred percent from five dollars to ten dollars; in the case of commercial customers it went up from seventy dollars to a hundred dollars. This looks like a little bit of a trick being played here. How can you account for those massive increases in service charges?”
Lynn Young
”No that’s not a trick. At the end of the day the P.U.C. looks at the overall amount of money we get and how much we spend and whether we’re covering our expenses and covering our loan payments and everything else. The structure of the rates, it’s really structured to send the right, if you wish, economic messages to the customers. For example the commercial rate, it gets lower after a certain amount, whereas the residential rate has a different structure and...”
Stewart Krohn
“But I’m talking about the service charge. That looks like the kinda charge that no matter what happens in the future it doesn’t go down. It’s a fixed administrative charge... even if petroleum prices go down we’re not gonna see those monthly service charges go down are we?”
Lynn Young
”Yeah, you see Stewart in any business you have—and I know you know this—you have the variable cost and you have the fixed cost. In our business, the variable cost is the cost of power, the cost of fuel, the cost of buying energy. Every time you buy a kilowatt hour from us, we have to get fuel or purchase it from hydro or from Mexico, so that’s variable. Now the fixed cost, all the lines, the street lighting, metering, all those things are fixed costs. Once we put in a line that costs, say I don’t know, twenty million dollars to run a line from here to P.G. or whatever, that is in. We borrow money or we get money from whatever sources and we have to meet those payments now to pay that back. So that’s fixed cost, right. So for every customer that’s buying power from us, there’s a certain amount of fixed cost whether or not that customer’s buying one kilowatt hour from us. And the fixed cost is much higher than that monthly amount that’s in there, but we put in a certain monthly amount to try and make sure we cover at least the fixed operating cost of sending out a truck to do metering, to fix the pole, to do things like that.”
The timing of the price increase could not have been worse, as it comes at the very time that Belizeans are being told of all the wonderful money saving developments in the energy sector. Things like the Chalillo Dam, Hydro Maya, and B.S.I.'s co-generation project...not to mention the oil wells multiplying at Spanish Lookout. With these prospects in mind, Young remains cautiously optimistic about the future.
Lynn Young
”I always in interviews hesitate to promise lower rates because there’s so much outside your control. But yes, you are right, things certainly look more hopeful for rates to go down in the medium term. We really haven’t seen the effects of Chalillo yet, we’ve just maybe a million dollars or so we’ve saved over the last two months of operating Chalillo by getting power from Chalillo rather than running diesels or buying expensive Mexican peak power and economic energy. But Chalillo really was two years late and in fact we didn’t finish the dam until I think it was in September when we finally closed it off and we inaugurated it in November. So we only got a bit of the rainy season storage in there, so we haven’t really gotten the full effects of Chalillo yet, so that’ll kick in some time next year. The cogen, we hope that comes on line the year after. Hydro Maya is supposed to come on line next year and Hydro Maya is another very economically priced hydro power. So I guess...”
Stewart Krohn
“Before you go on, you failed to mention crude oil. Don’t you think that you can covert your present diesel plants now to use the crude oil as many people in Belize are doing? Is there a problem?”
Lynn Young
”Yes, there is a problem. Not many people are converting their diesel plants to use the crude oil. As you know, when you take oil out of the ground it’s not processed, it has a bit of everything in it. The oil that’s coming out of the ground in Belize, from the tests we have seen so far is very good crude, but it’s still oil out of the ground. There’s a lot of gas in it, there’s a high percentage of gasoline in it, and even though it’s very similar to diesel, that gasoline has lowered the flash point of that oil to about twenty degrees or so and when it’s not in the diesel engine it’s going to be a problem because the gas will pre-ignite. So we’ve tried running the fuel in a couple of our engines in some of the old engines that we have just as a test basis and it cannot work. We’ve spoken to the manufacturers and they’ve said no it cannot work without processing. The other option we have, which is the more exciting option is the gas turbine because we’re using diesel in the gas turbines and the gas turbines is just burning to fuel to create heat to expand the air through the turbines. So the people who are producing the oil, they are looking at the possibility to brining in what they call a micro refinery to do the processing and other than that we are talking to the manufacturers of the gas turbine to see if we can get equipment and we can process the oil to a level where we can burn it in the gas turbine.”
On July first, consumers will also face the grim likelihood of even higher light bills caused by the implementation of the G.S.T. It is unclear at this time, however, exactly how much the new tax will add to electricity prices as the details of exemptions and zero ratings for B.E.L. have yet to be finalised.
In related news, it was announced today by the Governor General that Lynn Young has been awarded an O.B.E. by Queen Elizabeth the Second for service to business and industry.
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