Cayman consumers cannot bear another rate hike | Loop Cayman Islands

The content originally appeared on: Cayman Compass

A local utilities company indicated on their social media page recently that the dollar value of the fuel cost on electricity bills will be increasing in the coming months and consumers should take steps to assess their properties to identify areas where they can make adjustments that will lead to reduced energy usage. While there are some people who will be able to make these adjustments without any material impact on their daily lives, there are others who may find the proposed rate adjustment challenging, in part, due to the existing, high cost-of-living in Cayman.

For a better understanding of this, in particular, how rate increases may impact the cost of living and how it may affect people differently, it useful to look at the cost-of-living data published by the Economics & Statistics Office (ESO) of the Cayman Islands Government for the past two years.

Overall, the ESO data shows that the Consumer Price Index (often used to measure inflation and the cost of a basket of goods and services) spiked by 7.6 percent in the fourth quarter of 2021.

In relation to housing and utilities, the ESO said:

The index for housing and utilities moved up by 11.5 per cent in the fourth quarter of 2021. The main contributors to this increase were electricity rates went up by 26.5 per cent, and water supply by 13.1 per cent. Additionally, actual rentals paid by tenants and imputed rentals for owner-occupiers increased by 5.1 per cent and 10.7 per cent.

For domestic cleaners and others earning less than $3,000 per month, there is not much left over after dealing with car loan, mortgage or rental payments, spending on groceries and sending funds overseas to support families. A rate hike for people in these categories may therefore be a big deal, resulting in the choice of either feeding their families or keeping their lights on.

On the other hand, the top five highest average earning occupations in Cayman, being judges, lawyers, managing directors, chief executives and dentists who typically earn annual six figure incomes, may have more (relatively speaking) left over after monthly commitments to act as a buffer against the proposed increase in electricity prices this year.

Ripple effects

For those who are pushed over the financial edge with rate hikes this year, they may turn to the government’s Needs Assessment Unit or local charities to supplement their living expenses. This will increase some people’s dependency in these areas, the opposite of what the current government appears to be trying to do i.e., the government is trying to take people off of welfare and into jobs that provide them with adequate financial support.

Regulator also in the crosshairs

In addition to charities, consumers will be looking to the Utility Regulation and Competition Office (OfReg) for a solution to keep utility prices low. However, due to the way that current laws are written, OfReg’s board of directors will likely face a conundrum in this area.

The challenge is that, while OfReg should be acting in the public interest in situations like proposed rate hikes, the laws require OfReg to ensure that fuel sector providers obtain fair and reasonable returns.

With no definition in the laws for “fair and reasonable returns,” what is fair and reasonable will be left to discussions between fuel sector providers and OfReg executives at the negotiation table.

The failure to clarify this definition and to confirm whose interests OfReg should really be acting for will ultimately lead to frustration, confusion and anger from members of the public, directed towards OfReg, if the proposed, higher dollar value of the fuel cost is actually reflected in utility bills later this year.

Instead of allowing the backs of low income consumers to be broken by rate hikes, OfReg’s new board of directors should propose changes to the relevant laws/Acts, along with suggesting to the government that duties on fuel be reduced or waived by the government for a period. Doing so may (hopefully) avoiding the passage onto consumers of any higher dollar value of fuel cost via electricity bills, which at the moment represents about 50 per cent of monthly electricity bills as shown in the below utility bill snapshot provided by a Loop reader.

The other alternative, of course, is to ask the electricity provider to bear the proposed increase in fuel cost, however, this may lead to lower dividends or no dividend distributions for shareholders, which may be a hard conversation for the utility provider to have with their owners.

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