OUR bats for customer savings if JPS falters on investments
Aiming to stave off legal disputes with power company Jamaica Public Service Company Limited, the utilities regulator has proposed ground rules and definitions of key terms that will serve as the basis for its decisions regarding the pending five-year tariff application from the electricity provider.
The rules include giving customers a reprieve, if capital investments are not made on time.
The Office of Utilities Regulation, OUR, has invited comment on its proposals, with a cut-off date in August.
It’s the second such consultation since the implementation of the renewed electricity licence in 2016 that gives JPS exclusive rights over the distribution of electricity.
The rate review process is conducted at five-year intervals, with the next one scheduled for April 2024, and the proposed rules offer an outline of the “principles, methodologies, and procedures” to be used in the rate-setting exercise.
“In this respect, it provides a channel for stakeholders in the industry to discuss critical issues related to the tariff, thereby minimising the risk for significant disputes after the rates are determined by the OUR,” the regulator said.
As recently as 2021, JPS appealed the OUR’s interim rate determination reportedly on several factors including the cost of system losses, the definition of the foreign exchange surcharge, quality of service, and treatment of investments.
The OUR rules document now proposes that “if for any reason, JPS does not undertake an approved capital project in the business plan then an adjustment shall be made to remove the associated project cost from the revenue requirement”.
In certain situations that reduction in capital spending will serve to benefit customers, it added.
“In the event of a change in the scope of a major project or an extraordinary maintenance project in any given year that results in at least a 10 per cent reduction in the original capital cost, the savings derived shall be shared in a 50:50 ratio with customers,” the OUR said.
Major projects are those at or above US$10 million; minor projects fall below US$10 million; and extraordinary maintenance projects, which arise from unforeseen circumstances, are classified above US$10 million.
For the five-year tariff period, 2019 to 2023, JPS had budgeted for for US$416 million of capital projects in its business plan. However, a chunk of that investment was delayed due to the onset of the pandemic in 2020. It wasn’t immediately clear whether customer bills benefited from reductions in capital spending.
The revised electricity licence in 2016 introduced changes in the regulatory framework governing the electricity sector, key changes included adding a revenue cap approach which replaced the price cap mechanism; and using forward rather than historic tariff calculations. The OUR added that the forward-looking approach requires that JPS’s rates be based on, among other things, forecast expenditure, revenue and demand.
“While such an approach allows for better matching of JPS’s activities with its revenues, it may be problematic if there are wide variances in the projections,” said the regulator.