The Jamaica Public Service Company Ltd recently warned it could shelve plans to spend billions of dollars to upgrade and improve its facilities if the Office of Utilities Regulation (OUR) fails to grant the 23 per cent, on average, tariff increase the light and power company has requested. On the invitation of The Gleaner, readers sent in queries about the operations of the company and its pricing system. Below are the questions submitted and the responses from JPS CEO, Damian Obiglio.

While I have noticed that competition has made cellphones affordable, the price of oil on the world market does not seem to feature in the pricing of the services from JPS. For a sustained period oil prices were plummeting, but it took a long time and complaints before any adjustment was done to the rate that we were billed at. The rate adjustment did not reflect the 50 per cent reduction in oil prices. I have noticed, though, that since oil prices went back up by a marginal percentage, JPS now would like a rate increase of 25 per cent. Why?

The rate increase we have requested will apply to the non-fuel portion of the bill, and has nothing to do with the movement in the price of oil. The rates charged for electricity consist of a fuel rate and a non-fuel rate.

The fluctuation in the price of oil we pay our supplier is reflected in the fuel rate (shown on the bill as Fuel & IPP Charge), which changes from month to month. You will note that this charge has moved from a high of over $20 per kilowatt-hour in August last year to just over $10 per kilowatt-hour in March - a direct result of the monthly changes in the price JPS pays for fuel.

JPS purchases all of its fuel oil from Petrojam and adjusts the fuel rate charged to customers every month to reflect the cost of oil purchased from Petrojam and the current exchange rate. The fuel rate is reviewed by the OUR each month for accuracy.

The disconnection you may perceive comes from the fact that numerous types of oil are daily quoted on the world market with prices all moving differently. The price movement of the heavy fuel oil (HFO) we use, for example, is different to that of say light sweet crude, which is the favourite oil price reference for the media.

Our tariff review application applies specifically to non-fuel rates, which are set every five years by the Office of Utilities Regulation (OUR). It takes into account all the other elements of cost that our business incurs other than fuel.

My JPS bill for this month is double what it usually is. I am not using any new or additional appliances. I live in a very frugal manner, at all times ensuring that I do not waste electricity. Only one room in my house has lights or any appliances on at any given time, so I fail to see how my bill can have doubled in the space of one month. I am sure that the exchange rate of the US$ to JA$ cannot be responsible for an increase of 100 per cent. Neither can the price of oil be the reason for such a hike, since the cost of oil has dramatically been reduced recently. Can you explain why JPS is over billing its customers?

JPS' policy is to bill customers for the consumption measured by a meter or, in the absence of a meter reading, by estimating the consumption for the period using the last three actual meter readings on our record.

It is difficult to reasonably pinpoint the reason for a change in an individual customer's bill without the full facts of the case. However, generally speaking, your total bill is calculated by multiplying your monthly consumption by the applicable fuel and non-fuel rates and the applicable foreign exchange rate. If consumption remains unchanged from one month to another it would be extraordinary for a bill to double.

However, it is quite possible for your consumption to have increased despite no perceived change in your normal behavior. In our experience, many times customers with very consistent energy-use patterns see spikes due to unintended usage. Examples of these include: freezer or refrigerator doors accidentally left ajar; high-energy appliances such as water heaters and air conditioners inadvertently left on for long periods; welding during construction/renovations; the acquisition of modern but higher energy consuming appliances such as large flat screen TVs; having additional persons in the house, etc.

Another very common problem we have encountered is in poor grounding and electrical faults that add to customers' bills through electrical 'leaks'. That is why we strongly recommend that customers have a certified electrician do an inspection of their wiring and appliances annually as a preventative measure.

If none of this applies in your case, please feel free to contact us, as I would be happy to have your particular situation investigated further.

Up to November 2008 I was getting a monthly light bill of roughly $5000-$6000. How come? My family of four rises at 4a.m.; leaves home at 5:30 a.m., returning between 10p.m. and 11pm Monday to Friday. We wash and iron once per week. The bill is now roughly $3000. Meanwhile, an unemployed friend, who lives in Port Royal with her mother and boy friend, gets a bill for roughly $500-$1000. HOW COME?

Again, I cannot comment specifically on your account or that of your friend's without the benefit of more details. I can, however, assure you that, by law, JPS is not allowed to charge different rates to residential customers based on where they live. All residential customers are charged the same rate. It is reasonable to assume, therefore, that the difference between your bill and your friend's is higher consumption by your household. On average our residential customers use about 160 kWh per month. That translates into a monthly bill of approximately $4,000 or an average of $133 per day. Of course, consumption is a function of how often, how long and how much electricity is used, primarily by home appliances.

A common and reasonable assumption by many residential customers is that their consumption should show a marked decrease if they are away from home for extended periods. This is generally true, but the level of reduction is very dependent on the particular lifestyle of the customer and the quantity, design and configuration of their appliances. Remember, also, that appliances left plugged in are still using electricity when you are away from home.

We are pleased to note the significant decrease in your bill since November 2008. All customers have experienced a reduction in bills as a result of the fall in the price of oil reflected in the fuel rate on the bill.

Why is it so impossible to get any refunds from JPS for damaged equipment that is not 50 cycle, (for example refrigerators, washing machines, television sets and DVD players), when appliances with this cycle are not sold in Jamaica?

This is not correct. JPS compensates customers for damaged equipment depending on the circumstances under which equipment is damaged, irrespective of whether the appliance is rated 50 or 60 cycles. All claims are processed in accordance with the company's procedures. However, customers are reminded that, in keeping with the terms and conditions of service, they are required to appropriately protect their equipment.

What is the JPS' position regarding the use of natural gas to power turbines which produce electricity? Coal is a dirty fuel and should not be used, as it is harmful to the environment. Speaking of turbines, when will the current outdated ones be replaced?

We believe that to reduce the real price of electricity over the medium to long-term we must diversify the mix of fuels used in the generation of electricity. Natural gas definitely will have a place in that mix, as will renewable energy. In fact, JPS is currently pursuing a project to use compressed natural gas (CNG) to fuel our gas turbines and combined cycle plant at the Bogue power station in Montego Bay. The company is also constructing a 3 MW wind farm at Munroe and a 6.3 MW expansion of its hydro plant at Maggoty, both in St Elizabeth.

However, we are equally convinced that coal needs to be a major part of a diversified mix. Today's clean coal technology has significantly reduced the environmental impact of coal-fired generation, and any project JPS undertakes would comply with best international practice. Many countries with low energy prices generate the bulk of their power from coal, even with strict environmental laws. In the US, for example, just over 50 per cent of the net generation of electricity comes from coal-fired plants, 19 per cent from natural gas and 19 per cent from nuclear power.

Bear in mind, though, that while JPS has made recommendations on future generation options, it is the OUR and the Government that share responsibility for generation expansion policy. The OUR decides the fuel and technology of future plants as well as the timetable for retirement of existing plants. Note also, that since 2004 the addition of new generation is determined through competitive tender, with the OUR making the final decision on which company is allowed to build new generation capacity.

Why are paying customers, like me, still paying for those who steal? Why not cut the entire community where electricity theft is rampant, thus forcing the paying customers to turn on and identify those who are not paying. Who pays for electricity charges that cannot be collected? If it is the paying customers, when will this unfair practice stop?

Both customers and JPS share the heavy burden of electricity theft. JPS, by its licence has an obligation to serve. Therefore, even in a community where we may have 100 paying customers and 300 electricity cheats so 75 per cent of our power is stolen, we're still obliged to serve the 100 customers, which really means providing power to the entire community. So while we're sympathetic to your idea we're not allowed to implement such a wholesale solution.

We have, however, requested in our recent tariff application that we be allowed to do something similar to your suggestion. That is, where we have identified areas with a high level of losses, that the company be permitted to limit the supply of power to those communities during peak demand hours (say from 11 a.m. to 2 p.m. and from 6 p.m. to 8 p.m.). By cutting power to these areas during the peak times we could at the least avoid having to run some of the more expensive gas turbines to meet the peak demand, which consists as much of consumers as customers. This would reduce losses and result in fuel savings for customers.

Of course, a radical proposal like that will require political support from all sides. But the battle against losses requires a serious commitment from all sections of the society, as it represents the most serious threat to the future viability of the entire electricity sector.

We have also made some additional proposals for stronger penalties and fines for persons caught stealing electricity, which again requires legislative and political support. I encourage you to read the detailed section on system losses in our tariff review application to better understand the challenges this crime poses for the country.

If Jamaicans continue to become more energy conscious and opt for energy conservation and green technologies in their overall life style, will the JPS be able to accommodate such a trend?

Yes. JPS fully supports the use of renewable energy sources and the efficient use of energy. In fact, in a recent tender for renewable energy projects by the OUR, our company was the sole tender with viable projects to expand one of our hydro plants and build a new wind farm. We're about to spend $3 billion on those projects, demonstrating our commitment to green energy, which requires significant investment and recovery of capital over very long periods.

We have seen an 18 per cent reduction in the monthly consumption of our residential customers over the last five years. Indeed, we may be guilty of hurting our own pockets by consistently advising customers to conserve, especially at a time when the spike in world oil price and the notable devaluation of the currency drove up energy bills. We have no regrets, however, as it was the right thing to do.

It is widely perceived that the JPS, in all of the years since its inception, has not been able to provide all Jamaica with electricity. Jamaica is a very small land space with accommodating topography and a settlement pattern comparable to and relative to other countries where electricity provision is done. Over the years the JPS has not been able to cover the entire island 100 per cent; instead, they have deliberately held back the physical expansion of the provision and have instead increased the cost on present customers. Is the JPS interested in long-term development or short-term profit making?

Approximately 95 per cent of Jamaicans have access to electricity service. This is a remarkable achievement by any international standard, and Jamaica can justifiably feel proud. However, it should be appreciated that as the segment of the population to be served grows smaller the actual investment to serve them grows disproportionately large. This is because these customer pockets are usually in very rural or difficult terrain. It is, therefore, a great misconception that by achieving 100 per cent electrification that the cost will be lower for everyone. It was in recognition of the fact that getting service to these pockets of residents would require a subsidy from government that the Rural Electrification Programme (REP) was established. This government-funded agency has done a splendid job, and I believe the expansion of electricity service in rural Jamaica continues to be one of its mandates.

JPS is undoubtedly committed to the development of Jamaica. Since privatisation in 2001 we have spent over US$500 million adding new generation, modernising and expanding the transmission and distribution networks and improving systems to better serve customers. Over the past five years alone we have spent more than J$14 billion, while making a profit of only J$2.7 billion. We made the investment because it needed to happen and we're in this business for the long term. But, make no mistake about it, this is clearly not sustainable. You simply cannot make a profit of J$500 million per year on average but invest over J$3 billion per year. It is a sure recipe for bankruptcy. However, we must continue to invest J$3 - 4 billion per annum to continue expanding and transforming the network into a first-class electricity grid.

The Proposed 23 per cent increase of electricity is real theft by an avaricious corporation called JPS. Already due to poor maintenance and insurance policies the common customer is asked to bear the hurricane Ivan recovery charges which already forms 50 per cent of the JPS bill for any household. The reason given for the recovery charged was that proper due diligence was not done by then operator, Mirant Corporation. How come JPS gets away with daylight robbery?

You are wrong on the motive, purpose and amount of the Hurricane Ivan recovery charge. Firstly, the hurricane recovery charge represents approximately one per cent of your total bill, and not 50 per cent as you stated. The reason for this charge is quite simple. JPS cannot obtain insurance against hurricanes for its transmission and distribution assets. The situation is the same for other Caribbean Basin and US South-east utilities.

Foreseeing the risk of the T&D network being destroyed with no resources to rebuild, JPS proposed and the OUR approved a self-insurance fund. The simple fact is that no private entity would invest billions of dollars per year with the risk of losing it all to hurricanes. To the extent that there is damage in excess of the self-insurance fund this must be recovered through a surcharge on bills. JPS makes no profit from this charge, we are simply recovering the cost of repairing the T&D network that serves our customers. For viable businesses, a basic requisite is that all legitimate operating costs are ultimately reflected in the rates charged for its goods or service.

Approximately half of your bill is the result of the fuel charge and that is reset each month based on the cost of fuel purchased by JPS. Undoubtedly, you have noticed that this charge has fallen by close to 50 per cent since last August. It is important to understand that JPS does not derive any of its core profits from the fuel charge on your bill either, this is primarily just the cost of fuel purchased by JPS.

As it relates to our recent request for a tariff increase, the primary reasons are: the $14 billion in capital expenditure spent in improving the network over the last five years, plus the increased operating costs due to higher interest rates, salaries, insurance and power purchased from other suppliers, among other things. One of the advantages for customers of JPS is that, because we are a regulated utility, these costs must be reviewed and approved by an independent third party. The OUR will ultimately approve tariffs that we trust will be cost-reflective and protect the future of the electricity sector.