Winsome Callum | Why electricity bills increased — and how volatility can be fixed

There is never a good time for an increase in electricity bills. That is especially true after a hurricane, just before Christmas, and for a service that households and businesses depend on every day. So the frustration following the recent seven per cent increase in electricity bills is understandable. Customers are right to ask: Why now? And who benefits?

The short answer is: JPS does not benefit from this increase. The increase reflects higher fuel and power generation costs that the company is legally required to pay – and pass through – under Jamaica’s regulatory system.

WHAT DROVE THE INCREASE?

In the weeks following Category 5 Hurricane Melissa, the cost of producing electricity rose sharply, just as electricity use across the island fell equally sharply.

In keeping with the government’s policy of fuel diversification to ensure energy security, Jamaica Public Service Company Limited (JPS) customers are served using a mix of fuel and energy sources which come at different costs. The hurricane disrupted access to lower-cost fuel and lower-cost generation options such as hydro plants. More expensive fuels and less efficient generating units had to be used temporarily, to prevent a total system shutdown and accelerate restoration after the hurricane.

At the same time, thousands of customers were without supply. This meant that fixed generation costs – costs that do not go away when fewer people are using electricity – had to be spread across fewer units (kWh) of power. The result was higher per-unit charges.

These impacts appear on bills as the Fuel Charge and the Independent Power Producer (IPP) charge.

NOT REVENUE FOR JPS

Fuel and IPP charges are known as pass-through costs. This means that the money collected does not stay with JPS. It goes directly to fuel suppliers and other power producers who generate electricity and sell to the grid.

Like all businesses, JPS at times faces increases in the cost of the inputs required to provide its service. Like all businesses, these increased costs are reflected in the price of the service being sold to customers. However, unlike most other businesses, JPS operates within a strict regulatory framework.

Every single dollar passed through to customers, and the way these charges are determined, are reviewed and approved by the Office of Utilities Regulation (OUR). JPS cannot add to or alter these charges on its own.

The Fuel and IPP rates reflect the actual costs incurred during the period for which customers are being billed. The approved pass-through mechanism requires that these costs should be passed on to customers in the same month, regardless of circumstances. This allows customers to pay for the service at the rates prevailing at the time of consumption.

MITIGATE HIGHER INCREASE

However, because of the magnitude of the disruption caused by Melissa, JPS had to seek special approval from the OUR to adjust the normal pass-through requirement. The seven per cent increase applied in December does not represent the full fuel/IPP cost impact of the hurricane. To protect customers from severe bill shock, JPS has worked with our suppliers, and Excelerate Energy, our natural gas supplier, has been particularly accommodating in containing the costs to be immediately recovered.

JPS also submitted a proposal to the OUR, for spreading the total Fuel and IPP costs over multiple months, instead of passing on the full amount to customers all at once. The regulator approved JPS’ proposal.

We have done this to help shield customers from the rate shock. However, JPS is still required to pay the fuel suppliers and power producers, even though collection of the full amount due will be delayed.

BIGGER PROBLEM: VOLATILITY

This situation highlights the real issue facing customers. The problem is not a single increase, but the general unpredictability of electricity bills.

Similar to the weekly changes in fuel price at the pumps, which can go up or down, the Fuel rate and the IPP rate on electricity bills change every month. These monthly changes are based on factors largely outside anyone’s control: global fuel prices, exchange rates, electricity demand, and the mix of generation used in a given month. Extreme weather events make this volatility worse.

Because of the monthly changes in Fuel and IPP charges each month, bills can rise or fall sharply from one month to the next, making household and business budgeting difficult. Since the start of the year, Fuel and IPP charges have caused bills to move both up and down – by as much as 12 per cent in a single month.

MORE STABLE BILLS

Customers’ frustration is real, and it is understandable. Stabilising electricity bills is not just possible – it is necessary. JPS has therefore proposed a fuel rate stabilisation mechanism to the OUR. The goal is to reduce sharp month-to-month swings in bills while still fully honouring the obligation to pay fuel suppliers and power producers. Similar mechanisms are used in energy markets around the world.

The proposal includes options such as:

• Locking in fuel prices at intervals to reduce exposure to short-term market spikes

• Spreading fixed fuel and IPP costs evenly across the year

• Building reserves during high-demand periods that can be used when demand drops, like after a hurricane

JPS remains committed to working with the regulator to reduce volatility, improve predictability, and protect customers, especially during times of national hardship.

Winsome Callum is director, corporate communications at Jamaica Public Service Company Ltd. Send feedback to columns@gleanerjm.com