JAMAICA Public Service Company (JPS) is arguing that the seven per cent electricity rate increase approved by the Office of Utilities Regulation (OUR) would have been at least six times higher had it not proposed to the regulator that the costs be spread over several months.

“It would have worked out to approximately 50 per cent,” the electricity provider said in response to a Jamaica Observer query after answering a number of questions on the increase announced last week, which has sparked public anger.

The OUR told the nation that the increase stems from higher generation costs after Hurricane Melissa, which hit sections of Jamaica on October 28, disrupted lower-cost fuel supply, forcing JPS to use more expensive fuel. The hurricane also reduced electricity sales by approximately 30 per cent, which further pushed up the fuel and independent power producer (IPP) charges.

Customers will see the increase in their December bills, covering November’s electricity consumption, the OUR stated.

It also explained that it approved a plan to defer a portion of the increased costs in order to limit the immediate impact on consumers. JPS will recover these deferred amounts gradually over coming months.

For an average residential customer using 165 kWh, the increase adds approximately $655 to a bill that was previously about $9,000.

In an effort to explain the rationale for the increase, JPS said that in addition to the increased cost of generating power, overall electricity use across the island fell.

“The hurricane disrupted the supply of lower-cost fuel and limited the availability of renewables. This required the temporary use of more expensive fuels and less efficient generating units to get power to customers and maintain a stable power system after the hurricane. With many customers without supply, the fixed costs of generation had to be shared across fewer units of electricity, resulting in higher charges,” the company stated.

Pointing out that fuel and power generation charges are regulated and must reflect the actual costs incurred for the month, JPS said it does not retain these amounts as they are paid directly to fuel suppliers, namely Petrojam and Excelerate Energy, as well as the IPPs.

“To reduce the immediate impact on customers, only a portion of these costs was applied to December bills under regulatory approval, with the remainder to be spread over several months,” the company added.

It explained that the seven per cent increase on bills is a portion of the fuel and IPP bills that it has to pay rather than the full cost being applied to bills in one month.

“The full pass-through would have resulted in a much higher bill for customers,” JPS said, adding that it “still has to find a way to pay the full bill to the fuel providers and IPPs” even though it is “not able to collect the full amount from customers at this time”.

Last Tuesday, as public anger swelled over the increase, Energy Minister Daryl Vaz called a press conference at which he explained that the rate hike reflects higher fuel costs and the temporary loss of natural gas supply after Hurricane Melissa.

He also said that in approving the measure the OUR acknowledged that, given the scale of the impact of the disaster, it may take up to six months for electricity generation costs to stabilise and for the energy consumption patterns to return to normal.

At the same time, Vaz argued that the OUR-approved hike underscores fundamental flaws in JPS’s existing licence and reiterated his insistence that the licence cannot continue in its current form as it fails to protect consumers and leaves even the regulator with little power to intervene.

He said that although this increase is significantly less than the 16 per cent announced after Hurricane Beryl, “the position of the Government is that we must have a licence that protects the interest of the stakeholders. A better licence must be the way forward”.

Hurricane Beryl sideswiped Jamaica’s south-western coast in July 2024, leaving damage mostly in St Elizabeth, Manchester, Clarendon, and Westmoreland.

In its response to the Sunday Observer, JPS said that a significant portion of the fuel and IPP costs are fixed, which basically means that the company has to pay a fixed charge to the liquefied natural gas provider for the facility — outside of using any gas — and payment to the IPPs for “having built their power plants and having them available to serve load”.

The company said the portion of these fixed costs paid by customers is dependent on total sales, with the cost divided by each kWh sold.

“For example, think of the power plant as a bus that is rented for a trip to the country. The cost is fixed at say $10,000 — regardless of how many people are on the bus. This $10,000 is shared by all the persons on the bus. If there are 10 people on the bus, it’s $1,000 each, but if you have 20 people on the bus, the cost goes down to $500 each.”

That fixed cost, JPS said, is mandatory, regardless of whatever is happening in the environment. “What this means is that when demand for electricity is low — for example, after a hurricane — the fixed cost is spread over fewer customers. As a result, there is an upward pressure on rates,” JPS said.

It also said that in recognition of the impact of the volatility on customers’ bills, it has advocated and made a proposal to the OUR for a fuel rate stabilising mechanism.

That mechanism, JPS said, “primarily seeks to address the volatility problem and allow for a streamlined pricing experience for customers while still honouring obligations to fuel and IPP providers.

“It would smooth out the impact of the changes in prices on bills, so the bills do not change so dramatically from one month to the next”.

However, the company said it has “not received the approval of the OUR to implement this stabilising mechanism, despite informal signals of agreement. And JPS cannot, on its own accord, proceed with implementing anything outside of the prescribed regulatory framework”.