January 12, 2015
The PSOJ has expressed its grave concern with aspects of the recently released Office of Utility Regulations’ Rate Determination for the Jamaica Public Service (JPS). While we recognise the need for effective regulation of any monopoly operation, our concern stems from what could be seen by future investors as actions by the regulator that are inimical to the viability of a business.
The following are highlighted as areas of particular concern:
- The OUR has denied the provision of revenue allowances to offset JPS Foreign exchange losses arising from settlement risk, in circumstances where JPS pays Petrojam for fuel in USD and bills its customers in JAD. This is compounded by the fact that the Government of Jamaica (GOJ) operates significant arrears in the payment of their bills to the company running into billions of Jamaican dollars.
- The current determination will mean significant continuing financial losses estimated at in excess of US$30 million being imposed on JPS, arising from the OUR’s position that JPS should absorb the cost of fuel consumed and which the company is unable to recover because of the incidence of electricity theft in Jamaica. The PSOJ believes that the extent of electricity theft in the country is an issue of socio-economic conditions, as well as a failure of law enforcement that successive Governments have allowed to persist, and that it is therefore unfair that the company be called upon to absorb such losses. Effectively the regulator is saying to an investor that they must remain uncompetitive and absorb costs caused by the deficiencies of the state. On the contrary, the PSOJ believes that what is required is a holistic approach of collaboration among all national stakeholders (JPS, Central Government, the security forces and the various social intervention agencies of government) to tackle what is a serious national malady.
- While the OUR is properly empowered to determine an appropriate targeted Rate of Return (ROE) to be earned by JPS, it is difficult to understand the agency’s ruling to reduce the target ROE from 16% allowed in the prior rate review to 12.25%. This action is particularly curious given those economic developments since 2009 that have served to increase the risks of operating in Jamaica, as well as the several recent power purchase contracts endorsed by the OUR that target rates of return as high as18%.
In light of the issues described, the PSOJ is extremely concerned about the implications of this ruling for the overall health of the electricity sector in Jamaica. The organisation believes that the treatment of JPS and its investors by the OUR, as a regulatory agency established by statute and whose actions represents Jamaica in the eyes of the international investment community, is likely to send the wrong signals as it relates to Jamaica’s commitment to fair play in its dealings with foreign investors and its ability to provide a consistent and predictable legal and regulatory environment for their operations.
Of equal concern are the negative implications that the OUR’s decisions may have for the country’s ability to attract investment of over US$1.5 Billion that is critical to efforts being made to implement new and more efficient generating capacity projects, which are intended to significantly reduce the cost of energy to ratepayers in the longer term.
The high cost of electricity in Jamaica is perhaps the most critical economic issue currently faced by the country. It would be tragic in our view if the actions of the OUR to effect a very small reduction in the non-fuel portion only of current electricity bills, were to have the effect of denying consumers the benefit of far more meaningful reductions in energy cost over the medium to longer term. This should not be allowed to happen, and we therefore call upon the GOJ to take immediate steps to ensure that achievement of our longer term objective for energy cost reduction are in no way threatened.
Contact: Ms. Kareen Cox, Marketing & Public Relations Manager
Tel: 927-6238 (Ext. 2052); Fax 978-2709