The Consumer Advisory Committee on Utilities (CACU) has come out in favour of the Jamaica Public Service Company’s (JPS) retention of its monopoly on transmission and distribution of electricity, arguing that liberalisation of the grid will not lead to reduced electricity prices.
“This misplaced focus on electricity market liberalisation carries with it the danger of destabilising and delaying the actions that have real promise of bringing lower electricity prices to Jamaica,” the CACU said in a statement.
According to the group, whose acting chairman is Stephen Wedderburn, the most important issues to be addressed in achieving reduced electricity prices “are the introduction of an alternative fuel to oil and the installation of new, efficient generation plants”.
In addition, CACU said, “at this time, the loss of JPS’s exclusivity would threaten the successful implementation of the long-awaited LNG project and the installation of the new and efficient 360 MW combined-cycle plant.”
JPS is slated to construct the 360mw liquefied petroleum gas plant at Old Harbour, St Catherine, at a cost of US$600 million.
“If these projects are delayed, it means that Jamaica will spend even more years with high electricity prices, as there are no other projects on the horizon that could lead to a significant reduction in electricity rates,” the CACU said.
It added that market liberalisation by itself, would not lead to lower electricity prices, and may in fact lead to increased prices.
The eight-member advisory committee was established by the Office of Utilities Regulation (OUR) in 2000. It comprises an independent group of persons from the public, who provide the OUR with a forum through which its receives consumers’ views on broad regulatory issues as well as perspectives on issues which affect the relationship between utility companies and consumers.
Part of its mandate is to report to the OUR on matters pertaining to the provision of utility services which affect the interests of consumers.
Members of the committee include Yasmin Chong, Erwin Burton, David Barrett, Kadin Birch, Paul Goldson, Adrea Adams and Gary Jackson.
On July 30, 2012, Justice Bryan Sykes issued a landmark ruling that the exclusivity provisions in the all-island electric licence granted to the JPS were invalid, on the basis that the relevant minister does not have the requisite authority to grant a licence on terms that bar the possibility of any other person entering the market for the transmission of electricity.
The ruling has been accepted in some quarters as signalling the end of JPS’ monopoly in the transmission and distribution of electricity.
Major uncertainties
However, the CACU, in analysing the issues, said it “does not share this sense of euphoria at Justice Sykes’ ruling. The committee believes that the ruling has served to introduce major uncertainties in the Jamaican electricity sector at a very critical time and could very well have the effect of significantly delaying the realisation of lower electricity prices in Jamaica.”
It continued: “We believe that the victory claimed by those who brought the case against JPS is likely to be a pyrrhic victory resulting in no real benefit for Jamaican consumers.”
CACU observed that it may seem strange that a consumer advocacy group appeared to be siding with an “unpopular monopoly provider of electricity”, but its view was that Jamaica should now be giving maximum focus to those actions which would lead to lower electricity prices.
“We do not believe that a break-up of JPS’ monopoly status will lead to lower electricity prices – at least not for the majority of electricity consumers in Jamaica – and we believe the focus on trying to liberalise the grid is distracting the society away from those concrete actions that will, in fact, lead to lower electricity prices,” the statement said.
The CACU said that as a consumer advocacy group, “We believe that the path to lower electricity prices must be the main focus, and that regardless of whether the transmission grid is liberalised or not, Jamaica will not get lower prices until we introduce an alternative fuel to oil and install new and more efficient generation plans to replace the near obsolete steam turbine units that form a major part of Jamaica’s baseload electricity generation capacity.”
Great contributor
The group said Jamaica’s continued dependence on oil for electricity generation was a greater contributor to high electricity prices than whether the market was liberalised or not. “Liberalising the transmission grid and having additional players generate electricity with oil is not going to give us lower electricity prices,” the CACU said.
It also observed that electricity costs could not, and would not, be reduced until critical decisions were taken and measures implemented to replace old and inefficient generating plants with more modern and efficient units.
“The Government has taken unto itself responsibility for both sets of measures. Specifically, it is the Government that sets the timetable for new generation capacity and issues the tenders for this capacity, and it is well known that it is the Government which is spearheading the LNG project,” the group said.
Furthermore, it noted that “there seems to be a generally accepted assumption that a liberalised electricity market will automatically lead to lower prices.
“We are concerned that commentators on the matter are not seeking to educate the public that in a liberalised market, there is a risk that prices could very well go up, and not down,” the group said.
“The objective of any investor is to maximise returns, and in a liberalised electricity market, JPS and any other power producer will be seeking to maximise their returns and if they have the opportunity to increase prices, they will not hesitate to do so,” the group said, referencing the liberalisation of the petroleum sector which, it said, has not resulted in a reduction in prices.
The CACU also noted that should a decision be made to liberalise electricity transmission and distribution, “Jamaica would not, in our view, be able to attract enough players to sustain a truly competitive market. Rather, we would likely end up with a handful of electricity generators resulting in an oligopoly structure.”
Moreover, the CACU said, “the Jamaican electricity system, with approximately half a million electricity customers, is quite small. We believe [it is] far too small to sustain a liberalised electricity market.”
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