The Jamaica Public Service Company (JPS) is preparing for a battle with the Government over any attempt to review its operating licence.
The JPS was put on its guard last Friday when Government senator and chief technical adviser to the finance minister, Aubyn Hill, declared that the Andrew Holness-led administration is obliged to review the licence of the light and power company because of threats to the Jamaican economy.
Opening the State of the Nation Debate in the Senate, Hill called for a review of the modified licence issued to JPS last January, because it “seems to be quite opposed to the interest of Jamaicans”.
“We have to look at that licence carefully [and] as a new Government, we’re obliged to,” Hill told his parliamentary colleagues.
But Kelly Tomblin, the president and chief executive officer of the JPS, in a quick response, rejected Hill’s reasons for questioning the changes to the licence and expressed the hope that his comments would not suggest that Holness will shred the contract.
“I’m sure, similar to how the Government has continued on the framework for fuel diversity, that this Government certainly wouldn’t suggest that a licence negotiated in good faith, in which the JPS has made investments, would be negated by a subsequent government,” said Tomblin.
“Surely, he’s (Hill) not suggesting that,” added Tomblin.
In his Senate presentation, Hill argued that he was making the call from his position as a senator.
“Because I may have some influence on policy, I do not lose my right as a senator to bring up independent issues. My position is quite different from a recommendation, and if I gave a recommendation I probably would not be speaking on it publicly,” said Hill.
The international banker argued that the replacement of the price cap regime with the revenue cap in the licence “could dampen economic growth” because JPS’s growth is no longer tied to that of the economy.
“A good argument can be made that the revenue cap approach blunts any incentive on JPS’s part to support the expansion of renewable sources of energy or to improve efficiencies in their current business,” said Hill, who is the chairman of Innovative Renewable Energy & Electronics Limited.
He said giving the JPS the right of first refusal to replace generating plants due for retirement entrenches the company’s near-monopoly and is inconsistent with international standards and Jamaica’s national energy policy.
‘Inaccurate Conclusions’
Tomblin rejected those claims, arguing that Hill was making “inaccurate conclusions”.
“We negotiated with the Government for our licence amendments that we believe serve the country. We have about 31 guaranteed standards that are monitored by the Office of Utilities Regulation (OUR).
“Our overriding goal is to support economic growth. This (Hill’s arguments) requires a more fulsome discussion with the utility,” said Tomblin.
Hill’s call came days after the OUR announced new regulation which should give it more power to monitor the operations of the JPS and other entities which generate or supply electricity.
The regulation will govern the operational standards and established procedures for handling the generation, transmission, distribution, supply and dispatch of electricity across the island.
According to the OUR, the regulation adopts five grid codes, which are generation, transmission, distribution, supply, and dispatch.
“The codes, which were finalised in August 2016, have been developed in parallel, and are designed to be used in conjunction with each other,” said the OUR.
Winsome Callum
Early indications from the Jamaica Public Service (JPS) have pointed to a breakdown in its protection systems as the most likely cause of the islandwide power outage that occurred over the weekend.
While the company has said that more fulsome investigations into the issue will take time, it has confirmed that the outage was triggered during scheduled maintenance work at the Port Authority of Jamaica (PAJ) substation in Kingston.
“The scheduled work was part of ongoing system improvements being done by JPS to our power delivery (transmission and distribution) network,” Winsome Callum, director of corporate communications at the power company, said in an emailed response to The Gleaner.
Breakdown In Operating Procedures
According to Callum, initial investigations have revealed that there was a breakdown in the implementation of the established operating procedures for the work being done. This, she said, triggered a system fault that led to the outage.
“Preliminary indications are that the first level of the protection system did not operate as expected. As a result, several units at our power plants went offline. The network, in turn, shut down to protect itself from possible damage,” she said in explaining the failure on the protection system.
The protection system is a built-in mechanism on the national grid which is designed to safeguard against procedural errors.
“The protection system is designed to operate at different levels, ranging from isolating areas with a fault all the way up to the ultimate protection being to shut the entire electricity network down in the event of a major system fault,” the power company said.
The electricity supplier has indicated that in the coming days, its investigations will be focused on evaluating why the protection mechanism did not operate as expected.
The power company said it has already taken corrective measures and will be investing in system upgrades to create what it describes as a self-healing grid.
In the meantime, the Office of Utilities Regulation will today meet with executives of the JPS to discuss details of the ongoing investigations into the power outage.
The utility regulator wrote to the company yesterday requesting a preliminary report into the incident.
Callum confirmed that Energy Minister Dr Andrew Wheatley was provided with a preliminary overview on the outage and was to receive an initial report yesterday.
Jamaica Public Service Company (JPS) customers will see an increase in their August electricity bills as a result of the average 2.6 per cent rate increase the Office of Utilities Regulation yesterday (OUR) announced it had granted the energy company.
Rate-10 customers (small residential) will see on average a 2.4-per-cent increase, the same as Rate-20 (small commercial) customers.
For Rate-40 customers (medium commercial/industrial), the increase is 2.9 per cent, and 3.2 per cent for Rate 50 (large commercial/industrial) customers.
This means that a Rate-10 customer using 349 kilowatt-hours of electricity per month for which he or she paid $9,583.48 before April, is likely to see that bill going up by about $231.90 to $9,815.38, reflecting a 2.42 per cent increase.
Contacted for comment, Winsome Callum, director of corporate communications at the JPS, advised that company officials had only “just” received the determination notice and were going through it and so could not comment in detail on the matter.
This first rate increase granted by the OUR in more than three years comes on the heels of a 12.8 per cent increase in electricity charges announced by the JPS less than a month ago, on June 13, and which it linked to the tax package announced by Finance Minister Audley Shaw in his Budget presentation on May 12.
The JPS justified the rate hike at the time to the following combination of factors:
• An increase in the cost of the fuel used for electricity generation because of rising oil prices on the international market;
• The impact of the recent increase in the special consumption tax charged on heavy fuel oil;
• Continued devaluation of the Jamaican dollar.
In its release, the OUR explained that in arriving at its decision, it had taken the following factors into consideration:
a) A 9.53 per cent increase in the non-fuel revenue cap over the starting cap of 2014;
b) The full pass-through of system losses in the fuel rate as is now required by the new electricity licence;
c) The introduction of a revised incentive scheme for system-loss reduction, and based upon non-fuel revenues rather than fuel revenues, in keeping with the terms of the new licence;
d) A 50 per cent reduction in the Electricity Efficiency Improvement Fund (EEIF) tariff contribution;
e) The adjustment of rates to be charged for prepaid residential customers; and,
f) The adjustment of rates to be charged to some customers who will benefit under the Community Renewal Programme.
Kelly Tomblin
Light and power company Jamaica Public Service (JPS) has asked the Office of Utilities Regulations (OUR) to approve an increase in its annual revenue target to $45.07 billion, up from a base year target of $40.6 billion, or a jump of 9.53 per cent.
“This increase includes fluctuations in the value of the Jamaican dollar against the United States dollar and the inflation in the cost of providing electricity products and services,” the Our said in a press statement.
The OUR is currently reviewing the JPS’s submission for its annual tariff adjustment for 2016. The request for tariff review was made on May 4, 2016, and the OUR is expected to complete its review and issue its determination by July 3, 2016, the regulator said.
“The adjustment will be the first under the provisions of the new Electricity Licence, 2016. On January 27, 2016, a modified licence was issued by the Government of Jamaica to JPS. The provisions of the new licence fundamentally changed the regulatory framework and the methodology for the calculation of the tariff,” the statement said.
If granted, the JPS’s submission for an adjustment, which is in keeping with the provisions of the Electricity Licence 2016, that allows it to make annual filings to the OUR, will require the OUR to apply the amended provisions of the licence in respect of such matters as adding a surcharge to the revenue requirement.
This includes a surcharge from foreign exchange, interest rate and revenue. JPS is proposing to add on $526.6 million which represents the foreign exchange and interest surcharge. As a result of the amendments to the licence, JPS is now allowed to include the total net interest expense or income which is paid or earned in the revenue requirement.
Additionally, the Kelly Tomblin-led JPS is now entitled to an adjustment on its revenue requirement for any foreign exchange loss which it may incur in the prior year in relation to working capital and debt service driven by Jamaican to US dollar exchange results.
The company is also entitled to adjustments to the 2014/2015 approved prepaid rates for the Residential Rate 10 and Commercial Rate 20 customers, and to introduce interests rates on outstanding balances owed by commercial and the Office of Utilities Regulation (OUR) is reviewing the Jamaica Public Service Company Limited (JPS) submission for its annual tariff adjustment for 2016. The request for tariff review was made on May 4, 2016, and the OUR is expected to complete its review and issue its determination within 60 days, that is, by July 3, 2016.
The Office of Utilities Regulation (OUR) says it will ensure that power utility Jamaica Public Service Company does not increase bills to consumers based on the delay in the delivery of cheaper gas fuel.
The first delivery of liquefied natural gas – LNG – by JPS’ supplier was expected in April, but has been pushed back to August.
New Fortress Energy has developed a terminal in Montego Bay to feed gas to JPS’ Bogue plant, which has been converted to burn either LNG or automotive diesel oil.
“The OUR has moved to assure consumers that it will be vigilant in ensuring that the delay in the delivery of liquefied natural gas to the Bogue power plant will not result in an increase in the price of electricity,” said the regulator in a statement.
While welcoming the completion of the conversion of the 120-megawatt combined cycle plant, the OUR signalled disappointment with the “four-month delay” in the delivery of the overall project.
The gas supply agreement signed by JPS and New Fortress Energy on August 5, 2015, stipulated that gas delivery would commence April 2016, the OUR stated.
“Safeguards for customers were included in the agreement with New Fortress to ensure that any delay on its part would not result in negative cost implications for customers,” noted OUR Director General Albert Gordon. “The OUR has been monitoring the project closely and will continue to keep the public abreast of its progress.”
Project’s goal
The Bogue project’s goals, which are aligned to those in the National Energy Policy, were to reduce fuel cost, and lower the operations and maintenance expenditure of electricity generation. Gordon noted that the OUR’s involvement in the project began in 2008 and that the agency mandated that the plant be upgraded to burn gas in the 2014-2019 JPS tariff determination.
“To ensure this, the OUR also made provisions for the setting up of the Bogue Plant Reconfiguration Fund (BPRF), financed through the tariff, to facilitate the conversion cost,” the agency said.
The revenues for the BPRF – which totalled $15 million – were collected by the JPS through a line item in the monthly fuel rate calculation on customers’ bills, over a twelve-month period, between February 2015 and January 2016, the OUR said.
Requests to JPS for comment were unanswered up to press time.
KINGSTON, Jamaica – Customers of Jamaica Public Service (JPS) will again be able to apply for licences to sell their excess electricity generated from renewable energy sources to the grid as of April 11, 2016.
Minister of Science Energy & Technology (MSET) Dr Andrew Wheatley today announced that the Office of Utilities Regulation (OUR) will resume accepting applications on behalf of the ministry for net billing under similar terms as the previously-concluded net billing pilot project until the details of a permanent programme are finalised.
According to a release from the ministry, the decision to continue the programme came out of an agreement reached on April 7 with the OUR and JPS.
All parties agreed that it was in the best interest of all concerned that the net billing programme be resumed so as to strengthen the development of the renewable energy sector in accordance with the National Energy Policy, the release said.
The two-year pilot programme was extended to May 2015, as the system peak demand threshold for net billing was not met. As at March 2015, 351 applications were received, 311 of which were granted licences, the ministry said.
Jamaica Public Service Company (JPS) claims that switching all its low-consuming users to prepaid meters would increase the risk profile of the utility provider, and secondly, cost it hundreds of millions in lost non-fuel revenue annually – an ironic twist given that the meters are meant to curtail losses.
JPS currently offers prepaid meters in select inner-city areas under a pilot programme, but its admission of the cost puts the timeline for its larger role in question.
“If all customers consuming less than 100 kilowatt hours switched to the prepaid service, JPS stands to lose J$399 million in non-fuel revenues per annum,” the power utility said in its annual tariff application documentation published late last month by its regulator, the Office of Utilities Regulation (OUR).
“By any measure, this exposure is significant and further increases the risk profile of the company, especially given the challenges in meeting certain financial covenants.”
JPS holds US$324 million in long-term loans, and its financial covenants require a minimum undisclosed debt to earnings before interest tax depreciation and amortisation. The company was fully compliant with all its loan obligations as at September 2015.
Customers that consume less than 100 kWh are classified as Rate 10 users. These users usually are low-income households but account for some 222,000 of the 594,000 JPS customers, according to OUR documentation.
Regular customers – Rate 20 – who consume less than 75,000 kWh per month would remain revenue neutral for the switch to prepaid meters.
JPS added that this level of loss is “unsustainable” and is only acceptable for the remainder of the prepaid pilot which offers prepaid meters to a relatively small number of customers. The power utility wants the OUR to increase the prepaid rates to Rate 10 customers in order to remove a large part of that shortfall.
“We would, however, like to state that the rate structure should aim for revenue neutrality as the prepaid programme evolves,” said JPS.
The company proposed an adjustment to non-fuel tariff rates for Rate 10 prepaid customers to $14.4311/kWh for the first 119kWh in a 30-day cycle; and $20.5719/kWh for every kWh above 119kWh in a 30-day cycle.
The OUR rejected that specific JPS proposal. It approved instead a Rate 10 prepaid rate of $13.19/kWh for the first 100kWh in a 30-day cycle and $20.85/kWh for every kWh thereafter for a 30-day cycle.
JPS made US$23.7 million net profit over nine-months ending September 2015 on revenues of US$583 million which nearly doubled the US$12.5 million in profit earned a year earlier.
There was no response to mailed queries and calls to JPS for comment on this story up to press time.