PROJECTS

JPS Tariff Submission, Jamaica

The problem

Jamaica’s national electricity utility (JPS) was not earning an adequate return on capital and was at risk of customers switching to self-generation.

How we helped

We prepared a submission to the regulator arguing for a tariff increase. To do this, we forecast electricity demand, calculated JPS’s cost of capital, and used Data Envelope Analysis to estimate an appropriate X-factor. We also made the case of a revenue cap to protect the utility from demand risk and to decouple distribution revenues from energy sold.

Impact

The OUR rejected the tariff increase and the revenue cap proposal JPS appealed. Castalia provided expert testimony. The OUR’s surprise decision contributed to a rethinking of electricity regulation in Jamaica. The Office of Utilities Regulation Act was amended to require the regulator to establish and follow clear procedures for the use of analytical tools in setting electricity tariffs. Non-Executive Directors were appointed to oversee the technical staff and hold them accountable. The government granted JPS a new licence, which provided for a revenue cap. Once these changes had been agreed, JPS settled its appeal against the regulator’s decision.