As families across Jamaica continue to rebuild after Hurricane Melissa, people are understandably concerned about what lies ahead, especially regarding electricity costs. Uncertainty can heighten anxiety and lead to misinformation, so it may, therefore, be helpful to explain how disasters like hurricanes can influence electricity costs, and to outline Jamaica’s existing regulatory safeguards to protect utility customers.

There are at least three key points to keep in mind. First, fuel rates can change each month based on predetermined indexed formulas, while non-fuel rates change periodically and only after regulatory approval. Second, a hurricane disrupts how electricity is produced and delivered, and can have adverse cost implications that inevitably affect electricity prices. Third, Jamaica’s regulatory framework includes some safeguards to protect customers from arbitrary or unfair increases.

Hurricane-related costs are not Automatically Included in Bills

Storm-related non-fuel costs are subject to review and approval by the Office of Utilities Regulation (OUR), which ensures customers pay only for costs that are reasonable, necessary, and directly linked to restoring service. Fuel-related costs are a direct pass-through on customers’ bills. However, fuel costs tend to be volatile and sometimes exhibit significant fluctuation. Without intervention, the changes to customer bills may be significant.

Consequently, these costs are not included in customer bills without scrutiny, particularly when they may cause bill shock. In this regard, the OUR exercises its regulatory authority to review and oversee how these costs are reflected on customer bills, including consideration of the timing and speed with which such costs are passed on to ratepayers.

Why Fuel Costs May Rise After a Hurricane

Hurricanes can limit the use of, or knock out Jamaica’s most efficient power plants, particularly those that use Liquefied Natural Gas (LNG). Critical infrastructure, such as the Floating Storage and Regasification Unit (FSRU), which stores natural gas in Old Harbour Bay, St Catherine, must be relocated for safety if a storm poses a threat, as occurred during Hurricane Melissa. Consequently, in the absence of the FSRU, electricity must be generated using more expensive fuels, such as automotive diesel oil (ADO) or heavy fuel oil (HFO).

Furthermore, even where renewable energy sources like solar and wind facilities survive the hurricane, they need to be curtailed if the grid is unstable, or they may also be lost to the grid if connections are damaged. Given that renewable energy plants represent the lowest cost electricity to the grid, the result is a system that is less efficient and more costly to operate.

An everyday analogy helps. When you don’t have access to WiFi, you are forced to use mobile data instead. Data runs out faster, costs more, and offers a more limited experience. And if your phone battery is running low, you may need to turn off certain apps to prolong your battery power.

After a hurricane, the electricity system operates in a similar manner: efficient power sources, including renewables, may be unavailable or limited. As a result, the system relies more on older generators that both use more fuel and depend on more expensive fuels. Loss of supply to homes and businesses may also limit the use of larger, more efficient generating units.

Additionally, fuel costs are calculated monthly and include some fixed costs; therefore, reduced aggregate energy consumption, resulting from fewer customers being connected to the grid after a hurricane, translates to a higher fuel rate.

Damage to the grid further reduces efficiency. Electricity may have to travel along longer or temporary routes while repairs are made. A damaged grid may result in higher levels of technical losses, requiring more fuel to deliver the same amount of power.

Exchange-rate movements can also add pressure. Fuel purchases and payments to independent power producers (IPPs) are largely priced in US dollars, so fluctuations in the Jamaican dollar following a major event can impact electricity costs. Fortunately, this was not the case with Hurricane Melissa as the exchange rate remained stable.

Other Costs and Their Controls

Other hurricane-related impacts fall on the non-fuel side of electricity costs, such as repairing poles, wires, transformers, and substations. These repairs require crews, overtime, contractors, and replacement equipment. However, such costs are not automatically passed on. The Jamaica Public Service Company Ltd (JPS) must demonstrate to the OUR that they were reasonable, necessary, and clearly linked to hurricane damage, rather than normal operations.

A key protection for customers is the Electricity Disaster Fund (EDF), which acts as an insurance for the electricity grid. This is the first point of call for financing any storm-related non-fuel costs. The extent and magnitude of Hurricane Melissa’s damage, however, well exceeded the resources of the fund and will require resorting to other sources.

In severe cases where parts of the grid are inaccessible, temporary microgrids or distributed generators may be used to restore power more quickly. These solutions can be effective but are more expensive to operate. Even then, costs are subject to review and can be implemented only if the OUR determines they were the most practical and affordable option under the circumstances.

Hurricanes may also trigger force majeure provisions under the electricity licence, allowing certain performance standards to be temporarily adjusted so that attention can be focused on safe restoration. This does not determine customer bills, but it can affect how some costs are assessed within the regulatory process.

Even when customers lose power temporarily, fixed costs remain unchanged. Staff must still be paid, plants must be maintained, and the system must be operated safely. When a storm temporarily reduces the number of customers connected to the grid, the system must still cover these fixed costs. Just as with a phone plan, the cost of maintaining the service does not disappear simply because usage drops.

Restoring customers as quickly and safely as possible helps return the system to normal operation, where costs are more evenly distributed.

Long-term rebuilding costs, such as replacing major assets rather than repairing them, are typically considered during the five-year rate review process, or in exceptional circumstances through extraordinary review mechanisms, and are not immediate.

How Customers Are Protected

The OUR applies prudence tests, verifies hurricane-related claims, limits what can be recovered, and assesses major operational decisions, including the use of temporary generation. Such costs are subject to a rigorous review and approval process where only items deemed necessary are allowed through.

As the country continues to rebuild after Hurricane Melissa, understanding how the system works helps maintain confidence that customers remain protected as the grid is restored.

Stanley G Smellie is the Office of Utilities Regulation’s regulatory policy specialist