OPINION: VINLEC Should Abolish the Fuel Surcharge

The views expressed herein are solely those of the writer ans do not necessarily reflect the views of One News SVG.

By Luke Browne

Recently, VINLEC announced an increase in its fuel surcharge. We also face the prospect of further increases in this charge in the upcoming months that can take it to record levels. This matter has deep and serious implications for the price of electricity and the cost-of-living in St. Vincent and the Grenadines. We therefore believe that this is an appropriate time for us to call on VINLEC to abolish this fuel surcharge and update its electricity pricing model.

Currently, this pricing model has 2 components – a basic charge and the fuel surcharge. The basic charge takes into account the price of diesel as it was all the way back in the 1970s ($0.52 per gallon) and some other costs associated with the supply of electricity. The fuel surcharge covers the difference between the price of fuel in the base year and the actual cost of fuel in the relevant month.

Hypothetically speaking, VINLEC might use 1,000 gallons of diesel in the course of producing 20,000 units of electricity for a particular month during which the relevant cost of diesel is $10.52 per gallon. In this scenario, the total fuel bill will be $10,520.00 for the month – $520.00 of which will be covered in the base rate and the remaining balance of $10,000.00 would be covered by way of a fuel surcharge that amounts to $0.50 per unit of electricity.

If van drivers can’t change their fares every time there is a change in the price of gas or diesel, why should VINLEC be allowed to change its price every time there is a change in the price of its fuel? This fuel surcharge is unpredictable and can lead to bill shocks. We can have a situation in which a person pays more for electricity in a month during which he or she actually uses less electricity when compared to a previous month. This is a perverse outcome with implications for an individual’s ability to manage his and her own affairs or engage in financial planning. This is very harmful to the financial well-being or welfare of Vincentians.

The pricing system is irrational for several other reasons. If VINLEC produces all the electricity required for a month from only renewable sources and therefore uses no diesel, the fuel surcharge will be zero. However, the customer will still be required to pay the fuel component that is built into the base rate. Additionally, it seems to me that this model operates as if there is no cost associated with the production of renewable energy. I certainly do not believe that this cost could have been built into the base rate which was determined many decades ago. Moreover, the model seems to suggest that there is no difference in the cost of producing renewable electricity from different sources. We invite you to reflect on these matters.

We call on VINLEC to provide the public with information on the composition by source of the electricity produced by it and the average cost of producing a unit of electricity in a reference year. This will aide our thinking on this subject.

For us, it is already clear that we can eradicate the need for a fuel surcharge by simply updating the base rate for electricity. I recommend this course of action as a matter for priority public policy.

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