Sat | Dec 5, 2020

OUR weighing rate cut for JPS

Published:Wednesday | November 12, 2014 | 12:00 AM
Albert Gordon, director general, OUR.
President and CEO of JPS, Kelly Tomblin.

Jamaica's utility regulator has rejected a request for a 21 per cent tariff increase by the island's mono-poly power transmission and distribution company, Jamaica Public Service Company (JPS) and is instead proposing a rate cut of up to four per cent, government sources tell Wednesday Business.

The Office of Utilities Regulation (OUR) and JPS declined to comment on the issue, saying only that JPS' tariff review application was still in progress, but the Wednesday Business sources say the OUR's decision to recommend a rate cut was made last week and conveyed to JPS.

Once the JPS is in receipt of the official determination, which several sources say will happen by the weekend, the power utility will have a week to respond before the regulator publishes its decision.

Sources say however that whether the OUR's rate cut decision makes it into the final determination is dependent on the feverish discussions now said to be taking place as the weekend looms.

It was not immediately clear whether the energy minister, Phillip Paulwell, has been presented with a full report of the OUR's position.

But according to our sources, the regulator's decision to reverse would require compelling arguments from JPS. Other sources insist there is scope for persuasion.

Said one official: "The discussion between the OUR and JPS has been going backwards and forwards for months, and in the end the OUR determined that an average one per cent in the tariff, based on their financial and economic analysis of JPS's presentation is in order. But the average one per cent reduction in electricity rates means that some customers will have up to four cent shaved from their cost."

The tariff determination does not include the cost of fuel, which, for electricity generators is a direct pass through to consumers. In recent months, however, with the price of oil falling, the fuel price component on people's electricity bills has headed south. A typical consumer will, for instance, see an 8.4 per cent decline in the electricity bills for the month of November.

Even with a decline in fuel price, Jamaicans, on average, pay around US$0.37 per kilowatt-hour - it has been as high as US$0.42 - for power - a price that analysts say is not only among the most expensive in the region, helps to keep the island's economy uncompetitive.

modernise power plants

But even as JPS participated in discussions to modernise power-generating plants and to change the fuel they burn to reduce the cost of electricity by at least a third, the firm, last April, as part of a five-year review of electricity tariffs, proposed an average 21 per cent hike in residential rates.

However, it also proposed a one per cent and two per cent decrease to commercial and industrial users of electricity.

JPS also proposed that it be allowed to increase its system-loss target - the amount of power lost in the process of production and distribution which the company can recoup from consumers - currently at 17.5 per cent, to as high 26.22 per cent in 2016, before beginning a sustained downward trend to 22.8 per cent in 2018. Wednesday Business sources say that the OUR did agree to a hike, but capped this at a rate slightly above 19 per cent.

Further, these sources say, the JPS had asked for a guaranteed return on equity of upwards of 25 per cent, but that this was being capped at between 12 per cent and 15 per cent under the OUR's determination.

"Based on the work of the forensic auditors and the OUR's analysts, it was determined that there were costs in JPS' proposal that ought not to be properly be passed on to consumers on the basis of electricity tariffs. Among these are some of the costs for consultants to make the case for tariff hikes. The bottom line is JPS is being told to be more efficient," said one source.