JAMAICA Public Service Company (JPS) has applied for a rate adjustment that could result in a 0.42 per cent increase in light bills.
In its submission to the Office of Utilities Regulations (OUR), the light and power company suggested that it increase its non-fuel rates by an average of 2.09 per cent.
It also asked for an adjustment to the heat rate target that would result in a 1.55 per cent reduction in the fuel rate.
Given that the fuel component of the typical residential customer
JAMAICANS no longer have a good reason to complain about high electricity bills, says Roger Chang, president of the Jamaica Solar Energy Association. A cheaper alternative is available.
“There is no valid reason for complaining of high electricity cost. Because there is an option and that option is solar panel systems. It will produce electricity at a ‘levelised’ cost of electricity of just around US10 cents per Kilowatt hour (kWh),” Chang told the Rotary Club of Spanish Town at the Police Officers Club in St Andrew.
“And when you factor in the other costs, the other tariffs, it will work out somewhere between another seven to nine cent. So you are looking at maybe US19 cents per kWh which is still less than half of JPS,” he said.
Insisting that renewable energy is the way to go, Chang argued that when one looks at the cost of electricity over the lifespan of 25 years it works out to about US10 cent per kWh. Consumers are now paying JPS over US45 cents per kWh. “Four times as much.”
However, Chang, who has been involved with solar panels since the 1980s, admitted that there is a place for the Jamaica Public Service.
“If we are talking in the context of solar panels as a renewable energy source, then you will need JPS to make the renewable energy source cost effective and viable. What we effectively have been doing is using the JPS as a battery, as a backup battery. So JPS is cheaper than you can buy and maintain our own batteries,” Chang said.
“You don’t use solar panel as a backup system. It is not cost effective that way,” he cautioned, adding, “It doesn’t make sense that you buy solar panels and batteries and invest hundreds of thousands on a backup system that you don’t use.
JPS rates have not gone down significantly for a very long time, partly because the OUR (Office of Utilities Regulations) has mandated that they should concentrate on making the grid more stable, with fewer power cuts.
“We don’t get power cut as we used to before,” Chang said. “So, a solar panel system with batteries as a backup is not worth it anymore.”
Under a complicated formula, JPS will soon start paying small power genera-tors between US20 cents and US26 cents for electricity they feed into the grid.
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Political promises tend to electrify voters but they can be costly.
Our understanding is that the general consumption tax (GCT) on electricity generates approximately J$3 billion in revenue per annum for the Government of Jamaica.
The full and unconditional removal of GCT from electricity bills would therefore reduce gross revenues by a similar amount, further increase fiscal deficit pressures, and represent a further narrowing of the tax base.
The Government has not, so far, indicated how this revenue loss would be compensated, and given the urgent need to balance our fiscal accounts, we believe it is safe to assume that the lost revenue will need to be made up by some other tax measure.
In the absence of any such proposed tax measures, The Gleaner Council has decided to critically assess the fiscal and welfare effects of the revised basis of application of GCT on electricity being proposed by the Private Sector Working Group (PSWG).
GCT on Residential Electricity Bills
The PSWG proposals firstly contemplate an increase of the current rate of GCT on electricity from 10 per cent to an ‘across-the-board’ standard rate of 12.5 per cent.
Importantly, the PSWG also proposes a simultaneous 50 per cent increase in the threshold that would incur GCT from 200 kWh/per month currently, to 300 kWh/per month.
Of the 508,000 JPS residential electricity customers, approximately 51,000 of them are liable to incur GCT on their bills based on their consumption levels.
Under the PSWG’s proposals, that number would fall by 28,000 to approximately 23,000. Therefore, less than five per cent of JPS customers would continue to pay GCT on their electricity bills.
Put another way, based on current consumption patterns, 95 per cent of residential JPS customers would no longer pay GCT on their electricity bills.
The Government’s policy is that 100 per cent of JPS residential customers, irrespective of consumption, will no longer pay GCT.
Again, the Government is yet to articulate the mechanisms that will be imposed to make that policy change at least revenue neutral.
We can conclude, firstly, that for residential electricity consumers, there is very little difference in terms of outcomes between the PSWG proposals and the alternative of removing GCT from electricity altogether.
Second, since there is undeniably a high correlation between income levels and rates of electricity consumption, leaving GCT in place for those customers whose incomes afford them the opportunity of consuming large quantities of electricity could justifiably be argued to contribute to the overall progressivity and equity of the tax system.
By contrast, the removal of GCT altogether would have the opposite effect – rendering the tax system more regressive and less equitable.
GCT on commercial electricity bills
We believe that the case for continuing to apply GCT to the electricity bills of commercial entities is even stronger.
Given that GCT is a value added tax, the proposed 2.5 percentage point rate increase to 12.5 per cent will not impact the cost structures of commercial entities, as they will be in a position to claim the GCT input tax against output tax liabilities in their monthly returns.
The increased rate of GCT will also not affect the final price to consumers of products and services, given that the standard rate of GCT would be reduced by five percentage points, from 17.5 per cent to 12.5 per cent.
In the case of non-compliant commercial taxpayers, it is true that the GCT on electricity represents a part of their cost structure and any increase in the rate, as proposed by the PSWG, would add to their cost.
If we have rational buyers in the market for these products and services, then, all else being equal, they would buy from the suppliers with the lowest cost, which in this case would be GCT registered firms.
This point is worth restating – the removal of GCT from electricity would have absolutely no impact on compliant taxpayers or their customers; rather, such a policy would simply reward the non-compliant taxpayer (“he who plays by the rules gets the shaft”).
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Once again, we are heartened to see the continued robust discussion on energy issues in the media. However, Mark Wignall
With high light bills, constantly increasing petrol prices, the promise of the PNP last year to remove the GCT component on JPS bills, Petrojam refusing to divulge the money value of the materials after processing one barrel of oil and claiming
Close to five months after its president and chief executive officer resigned, the Jamaica Public Service (JPS) has found a new head.
Shelly Tomlin, a corporate lawyer out of the United States, is to become the new president and CEO of the light and power company.
The former president and CEO, Damian Obiglio, resigned in November last year after a five-year stint with
JAMAICAN businesses have long bemoaned the high cost of energy and the deleterious impact it has on both their businesses and the bottom line. Residents too have complained and in many cases it accounts for a third of employees wages.
With oil prices now above US$105 per barrel and geopolitical tensions in the Middle East threatening to send oil prices skyrocketing, the energy situation becomes even more precarious given the fact that Jamaica spends about a third of its foreign exchange earnings on imported oil.
Minister of Energy, Mining and Telecommunications Phillip Paulwell has vowed to oversee the liberalisation of the energy sector resulting in the reduction of electricity costs by as much as 40 per cent by 2014. Here he is supported by some of the biggest names in corporate Jamaica, including CEO of GraceKennedy Don Wehby; Managing Director of WISYNCO, William Mahfood; President and CEO of Jamaica Broilers Christopher Levy, and Managing Director of Jamaica Producers Jeffrey Hall.
Speaking with Caribbean Business Report from the Petroleum Corporation of Jamaica (PCJ) headquarters in Kingston, Paulwell said: “The energy situation in Jamaica today is probably the most critical economic issue facing the country. There is no way businesses can expand and employ more people with electricity prices at US 40 cents per kilo watt-hour, nor can we attract foreign companies to invest here with those prices. Any discussion I have with the business community, the high cost of energy constantly comes up. This means we are at a crisis point.
Solving Jamaica’s energy problem
CLAIMING he was distressed at the price of electricity at US 40 cents per kilowatt-hour, Minister of Science, Technology, Energy and Mining Phillip Paulwell said he is determined to ensure the full liberalisation of the energy sector to help drive down the electricity costs.
Speaking at a function in Kingston yesterday, Paulwell said that he was not prepared to wait on the Jamaica Public Service Company’s (JPS) three-year plan to bring down the cost of electricity to the consumer.
“I believe we have to free up the system. We have to liberalise. We have to enable the private sector with their R&D (research and development) to decide on the best technology for Jamaica at this time,” Paulwell stated.
The liberalisation of the market will not happen by “sitting around and waiting on a plan from JPS that in three years’ time we are going to do so and so”, the minister noted.
“It is when you unleash the spirit of competition, the vibrancy of the market, allow our consumers to finally become the rulers when it comes to energy,” he said.
Earlier this month, the JPS
Anastasia Cunningham,
