Wed | Aug 16, 2017

Small business threat - Application for electricity rate increase irks sector interests

Published:Friday | November 25, 2016 | 11:00 AMEdmond Campbell
Hugh Johnson

As the Office of Utilities Regulation (OUR) pores over an application by the Jamaica Public Service (JPS) for a rate increase affecting residential, small, and large commercial customers, at least one sector group is expressing great concern that if a one per cent hike is granted by the regulatory body, it could significantly affect the small-business sector.

Hugh Johnson, president of the Small Businesses Association of Jamaica (SBAJ), argues that an increase in electricity costs to small businesses at this time would have a debilitating effect on the sector and notes that security and utility costs are the main factors that make players in the sector uncompetitive in relation to their counterparts in other jurisdictions.

In its submission for a rate increase, dated October 25, 2016, the JPS said that the electricity licence, 2016, includes several changes that affect the calculation of its non-fuel rates.

ASSET IMPAIRMENT

The company said the amendment to depreciation schedules has shortened the lives allowed for a number of assets in different categories.

As a result of this, the JPS is claiming asset impairment based on what it describes as "a recomputation of the lives of its asset amounting to US$21.4 million over the period 2016 to 2018".

However, the light and power company said the immediate application is for US$13.4 million.

Further, the JPS estimates that if its proposal is accepted, recovering the asset impairment costs would result in an increase of approximately one per cent on the average residential customer bill, 0.8 per cent on large commercial and industrial customers' bills, and a proposed hike of 1.1 per cent on small commercial customers' bills.

INTERNATIONAL COMPETITIVENESS

However, Johnson said a one per cent increase in any utility cost would put the sector at a grave disadvantage in relation to its competitors from other jurisdictions.

"We are not competing against the man down the street anymore. In every operation you are competing against the man on the other side of the world. It's a global environment, so getting to international competitiveness is one of our mantras because unless we get there, we can't survive in the export arena," he said.

The SBAJ head contends that small businesses in Jamaica must be able to survive in the export arena in order to sustain the five-in-four concept of growth articulated by the Andrew Holness administration.

The Economic Growth Council, established by the Government, has been mandated to assist the administration in achieving five per cent growth in gross domestic product by the 2020-2021 financial year.

Johnson told The Gleaner that the membership of the association would be reviewing this application for a 1.1 per cent rate increase to the small-business sector.

"As soon as we digest the proposal, we will come up with a counter-proposal to see how best we can navigate this treacherous path because the JPS is a private entity that needs to operate, but at the same time, we have to be mindful of the fact that we are in a global environment, competing against people from other regions that don't suffer the same challenges that we do as it relates to our utility rates," he added.

The OUR's team is currently in the process of undertaking the review and analysis of the application.

edmond.campbell@

gleanerjm.com