A critical assessment of Guyana’s failure to deliver electricity supply

Aug 26, 2017 Letters

---

Dear Editor,
The matter I will address in this letter has caused me long hours of thought and consideration. What I will say here is not intended to denigrate or condemn anyone or attack anyone’s competence, but I feel the time has come for someone to speak out on the matter of regulation of our public utilities – electricity, water and telephone – and their performances.
There has recently been some discussion in the letter columns of the dailies on the frequent interruptions of our daily lives through blackouts and outages. Since our lives, and the life of the country by extension, depend so much on the use of electricity, it is fitting that the country engages in a conversation on the instability and unreliability of our electricity system. Electricity is a national security issue. When there are blackout our lives are put in peril and, therefore, the administration ought to deal with this issue frontally if it is to secure the lives of all of us.
Blackouts are nothing new to this country. They have been with us since 1977. Yes, I said 1977. This country has been experiencing frequent blackouts for some 40 years, not 40 days. Successive administration vowed to end it all but to no avail. It seems that for 40 years, during which time billions of dollars were spent on system upgrades, we have not been able to conquer the demons in the electricity system that cause these frequent blackouts. Something seems wrong with what we have been doing to curb this problem, and so we should perhaps begin looking at other ways of harnessing it. What I will proffer next can be considered my musings on the subject.
Wherever public utilities are monopolies, whether owned by the government or the private sector, it is not enough to put in place a managing Board and a team of managers to manage and run them. The Board and management are always primarily concerned with making profits and showing the shareholders their competence. That is important for them to keep their jobs. In such a situation, regulation by an independent regulator, whose task will be to balance the interests of all the stakeholders in the sector, becomes indispensable.
Guyana got a Public Utilities Commission (PUC) in October of 1990. At the time the administration was implementing the World Bank/IMF Economic Recovery Programme (ERP) and the PUC grew out of that programme, which among other things promoted private investment, and the Public Utilities Act No. 26 of 1990. Under this Act, the PUC was a truly independent body and drew envy from the other public regulators across the English speaking Caribbean who, for the most part, operated as a department of a Ministry.
With successive amendments over the years, the right to fully and independently regulate the electricity sector was taken away from the PUC. First came the removal of rate-making for the Guyana Electricity Corporation from under its purview and then the Electricity Sector Reform Act (ESRA) No. 11 of 1999 and its various amendments which essentially made the Guyana Power & Light (GPL), the successor company, the utility of the country and leader in the sector, a self-regulating entity.
Perhaps I should explain what I mean by “self-regulating”. The ESRA which was designed to satisfy the desires and proposals of the consortium of Commonwealth Development Corporation (CDC) of the United Kingdom and the Electricity Supply Board International (ESBI) of Ireland which was entering a 50/50 partnership as owners of the company. The ESRA completely removed effective regulation of the company and sector from under the PUC and placed it firmly in the hands of GPL and the subject Minister for power.
Since then the PUC’s role became academic to put it mildly. It does not make rates but approve what is sent to it following strict guidelines embodied in the ESRA. It does not approve GPL’s Investment Plans which is so critical to rate-making and the stability of the electricity system. Suffice it to say the ESRA emasculated the PUC so far as regulating electricity is concerned.
The GPL’s ownership relationship was dismantled in 2003 but the ESRA continued in place. Through it GPL makes its own rates annually in accordance with the First Schedule of the Act as mandated by Section 27(2) which reads as follows: “After January 1, 2001, the First Schedule and the license granted by the Minister to Guyana Power & Light, Inc. under section 42 shall govern the rates for the supply of electricity and services at any time charged and to be charged by Guyana Power & Light, Inc., and the mechanisms, formulae, principles and procedures whereby such rates shall be calculated and determined for all purposes under this Act and the Public Utilities Act.”
This provision was essentially replicated in the license granted to GPL on October 4. 2010. As I understand it, the function of the PUC in this arrangement is to ensure that the figures used in the rate formula and the formula itself are in compliance with the schedule. Once the compliance is proved, the rates are approved. Additionally, it is a cardinal of rate-making that both the utility and the present consumers and would-be consumers should have rate certainty. Can anyone plan on rates that change from year to year? Rate certainty is important for planning.
Making electricity rates as they are done now violates a number of regulatory principles the most fundamental of which are valuing the regulated company and arriving at a rate of return based on a regulated weighted average cost of capital as well as the principle of used and useful in relation to the assets used to provide a service to the consumer. The result of this violation is that consumers of electricity produced and sold by GPL have to pay for all of GPL’s losses as well as its assets whether they were used to provide a service for them or not. The abandonment of these critical processes and rate certainty is unfair to the consumers and would be consumers of electricity from GPL. I will have more to say in another letter.
Lance McCaskey

---

---