April 2014

Electricity distributor seeks up to 93% rate hike

JPS goes after $10-b annual return

JAMAICA Public Service Company (JPS) is hoping to clear US$94-million ($10.3 billion) profit a year should its proposed rate hike be approved.

The light and power company applied to the Office of Utilities Regulations (OUR) for a raft of changes to its non-fuel tariff (the rate that recovers cost associated with transmitting and distributing electricity rather than generating it).

Residential customers will see the monthly charge for network access (which up to now has been called the customer charge) increase by a range of 70 per cent to 420 per cent, depending on usage, if JPS gets its way.

What’s more, the monopoly electricity distributor hopes to raise the non-fuel, or energy charge to households by a range of 48 per cent to 93 per cent, moving from the lower end of the range to the higher end, the more electricity is used.

For commercial customers, the rates for which JPS has applied, decreases with higher usage, supposedly to promote greater use of electricity for business purposes.

On the other hand, the utility proposes a 65 per cent increase for the smallest commercial users, while enterprises can’t realise a decrease in the overall rate until they have consumed some 140,000 kilowatt-hours (kWh).

Indeed, the utility devised creative ways of encouraging more efficient consumption, such as recommending to the regulator that it altogether remove the non-fuel rate charged to large industrial customers.

That would see JPS give up just under $5 billion in revenue, which it would earn back from proposed increases to the demand charge that are applied to bills of consumers with heavy-duty electric machinery.

When factoring in the fuel charge, the rate hikes might not seem so daunting.

JPS figures that using a fuel rate of 23 US cents per kWh, the residential tariff increases, on average, by 22 per cent. Most commerical customers, or 98 per cent of them would see an average increase of 16 per cent, using the same math.

Of course, the proposed non-fuel tariff rates coupled with the fuel rates would put the cost of electricity at 45 US cents per kWh for the average household and 43 US cents per kWh for the overwhelming majority of commercial customers.

In its latest five-year tariff review application, JPS rationalised that it accumulated net profit of US$96 million, or an average of US$24 milion a year, from 2010 to 2013.

“The target profit for JPS, allowed (not guaranteed) through the revenue requirement, has never been achieved, representing an allowed return on equity (ROE) of 16 per cent that was approved in 2009, which should have resulted in a net profit of approximately US$43 million per annum”, said JPS of its profit performance over the tariff period that recently ended.

High system losses over the period factored heavily in its shortfall.

The utility company estimated that it was not allowed to recover US$111 million in fuel costs due to penalties from 2009 to 2013.

“The magnitude of the penalty varies with the price of oil and the risk exposure was amplified with the spike in the price of oil over the past two years,” said the light and distribution company. “At the end of 2013 losses, technical (8.6 per cent) and non-technical (largely theft –18.04 per cent), stood at a total of 26.64 per cent.”

Jamaica Observer;

 

Energy Minister Phillip Paulwell

MINISTER of Science, Technology, Energy, and Mining Phillip Paulwell announced yesterday that he has granted Energy World International (EWI) a licence to supply electric power to the Jamaica Public Service Company (JPS), under the terms of the Power Purchase Agreement between the two entities.

However, the minister’s statement that he granted the licence to EWI on Monday did not address the controversial issue of whether critical safeguards, including the US$37 million performance bond, which must be provided by EWI within 10 days of the date the licence becomes effective, was included.

In the release, Paulwell admitted that he had granted a licence to EWI from as early as April 4, but had withdrawn the original one, amended it to provide for some negotiated changes, and reissued it 10 days later (April 14).

Paulwell’s statement said that the second included “a draft implementation agreement between the Government of Jamaica and EWI, outlining commitments of both parties to employ best efforts to ensure the success of this very important project”. However, with no specificity, it could not be ascertained how much attention has been paid to the call by the Private Sector Organisation of Jamaica (PSOJ) and the Energy Monitoring Committee (EMC) for the critical safeguards to be maintained.

Speaking at a Kiwanis Club luncheon just hours before the minister’s press release, PSOJ president, Chris Zacca, pointed out that the 381-megawatt plant to be built by EWI was critical in terms of the retirement of old, inefficient equipment being used by the JPS, which have been contributing to high electricity costs.

Zacca said that he was happy that Paulwell has assured the country that the public/private EMC will remain in place for the duration of the project, as it can play a very important role in providing transparency as the project moves into the implementation stage. However, he criticised the silence of the minister on the questions of ensuring that EWI keeps its promises, including: financing; construction timelines; fuel supply; and, most importantly, the provision of the five per cent, or US$37-million performance bond.

“This provision for posting a performance bond has been in existence from day one of the start of this process. I am advised that the Energy Monitoring Committee also views these safeguards as absolutely necessary, given the lack of information so far provided,” Zacca noted.

Paulwell, meanwhile, promised to meet shortly with the EMC to provide an update on both the licence and the draft implementation agreement before making documents public.

Jamaica Observer;

 

Pengelley

ENERGY MINISTER Phillip Paulwell is facing demands that he state his position on the future of the Energy Monitoring Committee (EMC), which The Sunday Gleaner yesterday reported is to be disbanded.

Key private sector groupings such as the Private Sector Organisation of Jamaica (PSOJ), the Jamaica Chamber of Commerce (JCC), and the Jamaica Manufacturers’ Associa-tion (JMA) have reacted to the report with fury, stating that they “cannot understand why the minister would be considering disbanding this committee this early in the project”.

The EMC was established by Cabinet as part of its mandate to monitor the bid process for the 360-megawatt generation facility, ensuring that it strictly adheres to the arrangements prescribed by the Office of Utilities Regulation (OUR).

The committee is also charged with ensuring that at the end of the process, the price of electricity provided by the licensee to the Jamaica Public Service Company does not exceed the agreed price per kilowatt hour.

“We would very much appreciate hearing from the minister his reasons for not wanting the committee to pursue its mandate,” the JMA and the JCC said in a joint media release.

The EMC is made up of nine members from the Government, the private sector, and the trade union movement.

The Sunday Gleaner

Energy Minister Phillip Paulwell. – File

Energy Minister Phillip Paulwell yesterday revealed he has no intention of going against an Office of Utilities Regulation (OUR) recommendation to grant a licence to Energy World International (EWI).

Paulwell, who returned to the island from St Lucia yesterday afternoon, said “once the OUR recommends to me a licence, I sign”.

He added: “They have taken me to court before, I won’t risk that again.”

Said Paulwell: “They have submitted to me, since I returned as minister (in January 2012), over 120 electricity licences, I have signed every single one of them. I am going to my desk now and I report in the morning.”

The OUR last Wednesday recommended that EWI be granted a licence to supply 381 megawatts of generating capacity using natural gas as the fuel source.

But several voices have come out in opposition to the licence being issued to the Hong Kong-based company, with the Office of the Contractor General, members of civil society, the Energy Monitoring Committee (EMC), and the private sector urging Paulwell to proceed with caution.

However, the minister yesterday indicated he has a legal obligation, under the OUR Act, to grant the licence.

“I am a creature of the law and rules, and there are certain rules that govern my operation and one of which is that you have a body called the OUR, and there are some regulations, and once they recommend to the minister a licence, it would be a serious matter to go against them,” Paulwell said.

LACK OF INFORMATION

In the meantime, the EMC said it remained concerned about the lack of adequate information provided by the EWI to support its application for a licence to construct the plant.

However, Peter Melhado, co-chair of the EMC, said the OUR was the body with the authority to make such recommendations and the committee has no choice but to accept it.

Melhado said the EMC would now turn its attention to ensuring that EWI adheres to all aspects of the licence.

“Our focus will definitely be on certainly commenting if we see any variant between … what is in the licence and the PPA (power purchase agreement) … and if there are any breaches,” he said.

Jamaica Gleaner;