Corporate headquarters of the Jamaica Public Service Company Limited, Knutsford Boulevard, New Kingston.
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.”
business@gleanerjm.com
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MONTEGO BAY, St James
MONTEGO BAY, St James
ELECTRICITY bills will jump 18 per cent for the average residential customer this month, returning them to their usual levels. After customers benefitted from a one-off, US$3.8-million ($340 million) fuel rebate from Petrojam, a new heat rate target and lower oil prices last month, the fuel rate has returned to levels seen up to July this year.
KINGSTON, Jamaica
HEART TO HEART
With Betty Ann Blaine
Tuesday, September 18, 2012
Dear Reader,
There is a monopoly mindset that seems to have taken deep root in the psyche of certain individuals and organisations in Jamaica, but perhaps more detrimentally inside the corridors of government.
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DAVIS… a properly regulated monopoly is perhaps the best option for Jamaica |
That monopoly mindset reared its head a few weeks ago when the senior adviser to the prime minister, Dr Carlton Davis, was quoted as saying that a properly regulated monopoly was perhaps the best option for Jamaica – the statement made within the context of the monopoly licence currently held by the light and power company, the Jamaica Public Service Company.
Dr Davis’s statement sent shock waves across the country for more reasons than one. First, it breached acceptable protocols in that it usurped the portfolio of the Minister of Energy Phillip Paulwell, who should have been the person to speak on such matters. Second, Dr Davis’s comment was diametrically opposed to the stated public position of the minister of energy who has been heralding the cause of competition and bemoaning the untenable nature of the current monopoly arrangement with the JPS. Third, Dr Davis’s position as head of the LNG (Liquified Natural Gas) Steering Committee represents a de facto conflict of interest inasmuch as it reflects the very same position of the monopoly provider with a potential interest in the LNG market.
I believe that the question must be asked: “Whose side is Dr Davis on?” In addition, as he is senior adviser to the prime minister, are we to deduce that any advice to Mrs Simpson Miller regarding the JPS would favour the retention of that company’s monopoly status?
My question to Dr Davis is, “Monopoly best” for whom? The senior adviser should be asked to delineate how the JPS monopoly has been “best” for Jamaican consumers.
The litany of complaints against the JPS is as extensive as it is long-standing. From overbilling, back billing, connections, disconnections and reconnections, Jamaican consumers have continually expressed their disgruntlement with the costs and services offered by the light and power company.
In fact, the formation of the consumer advocacy group, CURE (Citizens United to Reduce Electricity), was as a direct response to the insatiable menu of complaints against the JPS, particularly the cries that went up about the new digital meters that have been introduced for the first time in Jamaica.
And householders were not the only complainers. One of the sectors affected most severely by the high cost of electricity is the country’s small and medium-sized businesses. Many have already collapsed and some of those remaining are teetering on the brink of insolvency.
Separate and apart from Jamaica’s particular and precarious energy situation, the notion of perpetuating monopolies is fast becoming a thing of the past, but there are those amongst us who simply don’t get it.
By definition, a monopoly is a market with only one seller – where a business is the only provider of certain goods or services. Anyone who has ever played the popular game, Monopoly, would have a pretty good idea of what a monopoly is. In the board game, one of the goals is to own all of the properties of a particular colour, or in economic terms, to have a monopoly on properties of a particular colour. It is also the case that when a player has a monopoly on a set of properties, the rents on those properties go up. This is also a realistic feature of the game since it’s generally true that monopolies lead to higher prices.
The general agreement is that monopolies are bad for consumers. Under a monopoly, the producer is assured of his profits and his inducement to introduce innovations is unlikely. He is not under any competitive urge to introduce changes or increase output. According to one economist, “The monopolist functions from a position of privilege. He works from behind a protective shell. If capitalism stands for constant changes which provide vitality to the capitalist system, monopoly cannot sustain it.”
In 1997, New Yorkers, faced with mounting increases in their electricity bills, moved to dismantle the monopoly held by the light and power company, Con Edison. The plan split Con Edison into three companies. “One will own power plants and compete on the wholesale level with other generators. A second will be a power retailer, buying power from wholesalers and competing with other retailers for customers’ business. The third will maintain monopoly ownership of the wires that link customers to the state’s power grid and will charge competing retailers for the use of the “network”. Although it was not a perfect plan, one official described it as “a floor we can build on”. Consumers in New York experienced an immediate 10 per cent cut in electricity rates as a result of the dismantling of the monopoly.
Here at home, dismantling the monopoly mindset appears to be a critical pre-requisite, but one that appears to be inevitable.
With love,
bab2609@yahoo.com
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ATTORNEY-AT-LAW Hugh Wildman on Tuesday urged the Government to use its 19 per cent share in the Jamaica Public Service (JPS) to acquire the electricity grid from the light and power company in an effort to accommodate energy providers who would want to enter the market.
Wildman, the attorney for the group of persons who had the Supreme Court struck down the exclusivity aspect of the JPS’s 20-year all-island licence, said that the grid should be in State control in order for Jamaica to benefit from affordable energy.
“Persons are expressing an interest in providing energy. What the Government needs to do now is use its 19 per cent share to acquire the grid from the JPS to allow other players to come on board,” said Wildman, who was speaking at the Kiwanis weekly luncheon at the Wyndham Hotel in New Kingston.
Wildman said that there are new players out there with better technology that would benefit consumers.
“Without cheaper energy Jamaica is going nowhere but down. Jamaica deserves better,” Wildman said.
The way was made clear for other players to enter the energy market when Justice Bryan Sykes on July 30 struck down the exclusivity aspect of JPS’s licence, issued by the energy minister in 2001. At the same time though, Sykes said that the all-island aspect of the licence was valid.
JPS has since appealed the ruling. So too have Dennis Meadows, Betty Ann Blaine and Cyrus Rousseau, the group of people who have brought the action against the JPS.
The claimants are asking the Court of Appeal to declare the licence invalid. The claimants are set to argue that only one licence was issued to the JPS and that it cannot be divided to make one part valid and another part invalid, as was done by the Supreme Court. The claimants are contending that the Electric Lighting Act prevents an entity from providing electricity across the entire island.
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President and CEO of JPS, Kelly A. Tomblin.-Rudolph Brown/Photographer
The much maligned and criticised Jamaica Public Service Company (JPS) could be the one to save the Government‘s floundering liquefied natural gas (LNG) project, which will bring cheaper electricity to Jamaicans.
Having stuck to the letter of the law and prevented the parent company of the JPS, Marubeni Corporation, from bidding to supply LNG to Jamaica, the Government now seems ready to eat humble pie and beg the firm for help.
Marubeni had wanted to submit a bid to supply the LNG to Jamaica but was disqualified after it arrived minutes after the 5 p.m. deadline.
However, with the qualified bidders offering prices that would not lead to any appreciable decline in the cost of electricity to Jamaicans, it appears negotiations are set to be initiated with Marubeni.
“The prices quoted by the bidders are much higher than Jamaica can pay and would not attract the JPS or the bauxite companies,” a source close to the talks told