More pressure to terminate anti-competitive clause in JPS licence

Two major players in the energy market have joined the call on the Government to terminate the Right Of First Refusal (ROFR) clause in the electricity licence which it issued to Jamaica Public Service (JPS) company in 2016.

Yesterday, Jamaica Energy Partners (JEP) and BMR Energy mirrored concerns expressed by WRB Energy last week about the ROFR at the Daryl Vaz-chaired joint select committee on the 2015 Electricity Act.

According to JEP, the ROFR should either be discontinued, or the same right should be given to other players in the market, if competition is to be fair.

“There should be no right of first refusal in the sector as it does not promote competitiveness. However, if the Government, in its wisdom, decides it’s necessary, give the ROFR to all generating asset holders as at the date of the Act in 2015,” Kevin Francis, the company’s director of strategic planning and facilities, said.

The ROFR gives JPS the right of first refusal to replace its generation units when they become due for retirement, according to the schedule determined by the portfolio minister.

Francis argued that it should be clearly expressed in the Electricity Act how the ROFR is determined, which could be based, for example, on the type of technology or fuel used, the level of investment, or willingness to upgrade or replace existing fleet, along with the usual caveats under the ROFR.

JEP further contends that section 20 (8) of the Act appears to give the single buyer JPS the option to replace generation capacity through subsidiary arrangements, despite sub-section five of the same section stating that the ROFR should not be extended to a subsidiary of the entity.

“These aren’t clear, and we ask for some definitive guidance on that,” he said. JEP is the largest independent power producer in Jamaica.

In his arguments for BMR Energy, Chief Executive Officer Bruce Levy also pointed to clear disadvantages to competition caused by the ROFR.

Levy said the clause is inconsistent with everything that Jamaica has adopted with respect to energy market reform.

“Left unchecked, it will set Jamaica’s energy reforms back 25 years. I have participated in energy deregulation in dozens of market, and a concept that has been proven time and time again is that electric power generation is best built, owned and operated in a non-regulated market. There is no reason to have regulated power generation. Electric generation should be selected and implemented by competitive processes, and this is the law of the land in pretty much every country now,” he told the committee.

Levy argued that some countries are too small to conduct competitive bidding, but “Jamaica is not one of them”. He pointed out that the technologies in electricity generation being used today would not have been developed at the pace they have if it weren’t for competition.

Furthermore, he stressed that the ROFR, which, when it was introduced in 2015, changed the country’s competitive solicitation policy, allows for replacement of capacity that was not needed at the expense of innovation.

“Does the electric grid in Jamaica need the ROFR replacement capacity? We know we are in a transition to get power from baseload central stations to renewable energy more distributed simply by geography generation, and the type of equipment that we need to make that system operate is different. So, we can’t just replace the existing capacity. We might not need to replace the existing capacity,” Levy asserted.

BMR Energy, like JEP, also argued that the ROFR does not assure the lowest price for energy and that JPS has always had the ability to compete in any competitive bid for new generation.

BMR Energy owns and operates the largest private sector renewable energy project in Jamaica at Potsdam in St Elizabeth.

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