Fernando Herrero, Costa Rica’s General Regulator (regulador general), has publicly voiced concern and disgust over the Costa Rican Electricity Institute’s (ICE) very public pressures to raise electricity rates by an average of 46 percent. After ICE called a press conference to demand the rate hike, Herrero sent an official letter to ICE’s Board of Directors, explaining his thoughts on the matter.

Regarding ICE’s press conference and threats of future power outages if their demands were not met, Herrero wrote that “the aforementioned practices are especially inappropriate for democratic life and regulation when they are exercised by a provider that holds a monopoly… it is inappropriate for a public service provider to exert pressure on the decisions of the Public Service Regulatory Authority (Aresep) by means of influencing public opinion.”

Herrero clearly referred to fear-based pressures on the public – less than two years ago, the country experienced rolling blackouts due to a lack of energy supply. Its effects and memories — great inconveniences, lost business, rotting food — are more than enough to force the public into acceptance of new rates. On September 11, ICE higher ups officially announced at a press conference that the public would suffer from more rolling blackouts during early 2009 if Aresep did not approve a minimum 15% power cost increase. ICE claims that current rates are insufficient to cover their costs.

While the increase may seem fair at first glance, a history lesson is certainly in order. In fact, ICE has a history of rate increase demands – in April 2008 (just five months before the current demands began), the institute was granted an 11 to 72 percent rate increase, depending on consumption. Their reasoning at the time was the same: they needed more money to cover their rising costs, especially the fossil fuels the company uses to produce a small percentage of national energy.

Aresep and ICE have a long history of dispute over rate increases; the former strives to keep prices low, while the latter works to keep service high. Surely, a middle ground can be found (though no luck yet), and some have suggested that Aresep lower or even eliminate all taxes that ICE pays on fossil fuel consumption. Aresep is willing to entertain this idea, but explains that the lost taxes would have to be recouped elsewhere – until that is done, no tax adjustment will be possible.

The root of the problem seems to be that ICE is in complete control over the situation. As they say, absolute power corrupts absolutely: in this case, ICE holds monopoly power over Costa Rican energy, and may therefore demand and threaten as they see fit. With no possible recourse or alternative, customers are forced to endure sub-standard service (power outages are common, even without rolling blackout threats), high energy rates (I pay 50% more per kilowatt than I did in the United States) and unfulfilled promises.

Unfortunately, CAFTA’s implementation will not provide Costa Rica with additional electricity service providers. It will, however, break ICE’s monopoly over cellular phone usage, a reality that has already encouraged the telecommunications giant to improve its network (3G service has been mentioned), improve services (pre-paid phones are on their way) and keep their rates competitive. Clearly, ICE can do better for those of us Living in Costa Rica, if only they had the proper incentives.

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Filed under: Costa Rica News on October 15th, 2008