Thu | Aug 24, 2017

OUR to get oversight board in major overhaul

Published:Friday | October 9, 2015 | 10:00 AM
Albert Gordon, Director General of the Office of Utilities Regulation.

IN A clear response to ongoing controversies over competence of its agency that regulates utility companies, the Jamaican Government has tabled legislation to weaken the power of its executive director by making him accountable to a new, six-member 'office', which will ensure the execution of the administration's policy for the sector.

The proposed amendment to the Office of Utilities Regulation (OUR) Act will also make it mandatory for the OUR, when deciding electricity tariffs, to get the opinion the island's central bank before arriving at a model for pricing capital assets - an issue of significance last year between the OUR and the light and power company, Jamaica Public Service (JPS), when new rates were being determined.

Currently, the director general of the OUR, Albert Gordon, and his deputies compromise the 'office' - an inner-core that makes final decisions on regulatory matters. The director general has a cast vote, in the event of a tie.

But under the changes presented to Parliament this week, the restructured office will become the six members to be appointed by the governor general, four of whom will be on the advice of the prime minister after consultation with the leader of the opposition. One member will be the recommendation of the Private Sector Organisation of Jamaica (PSOJ), or some similar successor body, and the other on the recommendation of a body representing the interests of consumers. One of the persons recommended by the prime minister will be the chairman.

The appointees to the new 'office' will be from "among persons qualified, or with demonstrated capacity in matters relating to industry, finance, economics, engineering, accountancy or law", according to the bill.

The OUR's director general did not immediately respond to the proposed amendments and its ultimate impact - the dilution of his authority.

Doubling roles

The move appears, on the face of it, to be an effort to graft on to the OUR a mechanism similar to the Electricity Sector Enterprise Team (ESET), a group that was established to negotiate new, cheaper power-generation facilities, after the collapse of a controversy-ridden bid process, overseen by the OUR, for 380 megawatts of gas-fired power plants.

During those quarrels, the OUR was accused of breaching the Government's procurement rules by facilitating the belated entry of the Hong Kong-based firm Energy World International (EWI) into the tender process - a claim the agency rejected. In the end, although it offered the lowest generating cost for power, EWI's bid disintegrated when the World Bank denied it financing for the project.

On the matter of a capital pricing mechanism to help arrive at a rate of return on investment in the electricity sector, the amended bill would obligate the OUR to seek the opinion of the Bank of Jamaica "by way of guidance, which opinion shall take into account relevant market benchmarks and provide an assessment of the appropriate country risk premiums", even it as it gives weight to considerations such as consumer interests and broader developmental policies.

In last year's rate determination, the OUR lowered JPS' underlying tariff by around one per cent - the light and power company had required a 20 per cent hike - and, compared to its previous determination, slashed its expected return on investment by 3.75 percentage points, to 12.5 per cent.

Critics of the OUR accused the agency of using an overly academic model in its capital pricing scheme and did not take sufficiently into account real-world situations, including Jamaica's country risk.

business@gleanerjm.com