Grumbling won't solve light bill puzzle

It ought not to take long for the Office of Utilities Regulation (OUR) to get to the bottom of the puzzling cases of JPS light bills that, according to some users, bear no relationship to the amount of electricity consumed. What is most surprising is that it took such a furore to push the Office into action on so obvious an area of its mandate. Or, put differently, Jamaican consumers and private-sector groups are still amazingly complacent when it comes to calling upon the 'watchdog' powers of regulatory agencies like the OUR to protect their interests - they grumble rather than use the legal provisions to seek redress.

Beyond any problems with Jamaica Public Service Company's billing system, which should be dealt with expeditiously, the recent outcry has, for the umpteenth time, focused attention on one of the most critical impediment to Jamaica's economic progress since the 1973 oil price shock - high energy costs.

By failing to diversify our fuel source away from almost total dependence on oil, we have ended up as one of the few countries that still burn the most expensive fuel to produce energy. And on top of this, we are doing so using old, inefficient generating plants.

Unfortunately, this problem could get worse as Japan has turned to its abandoned, oil-fired generating plants to help meet electricity demand in the wake of the closure of most of its nuclear-power plants after the meltdown of the Fukushima plant.

This has resulted in a sharp increase in demand for Heavy Fuel Oil or Bunker C, the fraction from petroleum distillation that is burned to produce electricity, including by JPS.

Consequently, the price of Bunker C has since March 2011 jumped faster than that of crude oil the source from which it is extracted. And this happened even as the price of crude oil itself escalated when the Libyan conflict erupted.

Back in January, the price of West Texas Intermediate (WTI) crude oil (the most widely used reference price in this hemisphere) stood at under US$90 per barrel, but jumped to an average of nearly US$110 per barrel in April.

The price of Bunker C moved up even more sharply and, indeed, by May and June had overtaken crude by as much as US$7 per barrel in June, reflecting the spike in Japanese demand.

Historically, Bunker C price was usually less than 90 per cent of crude price but this could change depending on how long Japan keeps its nuclear plants offline.

While the current situation may be temporary, the reality is that oil is going to remain an expensive commodity in the medium to long term.

But Jamaicans have ignored this reality even as the problem of high energy costs was getting worse in the mid-2000s, when oil prices were taking off.

In 2004, the price of crude (WTI) increased by over 30 per cent to reach an average of over US$41 and continued climbing, so that by the end of 2005 it went to a high of nearly US$57 per barrel and to US$66 by 2006 - a doubling in just three years.

Still, we paid little attention until the explosion in the price in 2007 when oil went up to more than US$90 per barrel by yearend, or by nearly 50.0 percent that year alone. Truth be told, Jamaica has been let down by Trinidad and Tobago with which a joint natural gas project was being contemplated.

And, in fact, preliminary engineering work was being undertaken up to 2006 when, suddenly, the plans were shelved because the anticipated gas supply fell apart.

The big gap in the energy plans was that coal was overlooked as one of the new sources, and is still not being seen as a priority, although it is the cheapest and the main fuel used to produce electricity in the US, China, Japan and other countries.

business@gleanerjm.com