Introduction:
The utilities regulatory process was established in Jamaica by the Utilities Regulation Act of 1995 to protect the interests of consumers during their relationship with utility service providers (OOCUR, n/k).
In Jamaica, the regulatory body appointed is the Office of Utilities Regulation (OUR) which regulates the electricity sector through the Amended and Restated All-Island Electric License, 2011.
According to Salvatore (2012) regulation is undertaken to support the operations of businesses and protect consumers, workers, and the environment.
Benefits of Regulating Public Utility companies (Electric company)
The regulation of a utility company ensures that consumers are fairly treated and receive the best service possible from the utility company.
Regulations are also geared towards preventing unfair practices by the utility companies.
The regulation of utility companies ensures that they offer quality service to all customers and to put the necessary plans in place in anticipation of market growth (Michaels, n/k). In cases such as power supply companies, they would be required to ensure that they adequately service existing and new markets as there are rapidly expanding developments. In Jamaica, the power supply company Jamaica Public Service (JPS) is required to provide adequate supply of electricity to all of its customers, and to meet the demand for additional street lighting since there are rapid expanding developments. The regulatory body,(OUR) demands that adequate street lighting is provided in all areas as is demanded.
Another advantage of regulation is that it restricts free entry of competitors in the industry, making it a more controlled market. Entry of competition is restricted by Licensing. In this respect, the regulator can ensure the maximum level of compliance of industry standards which will yield better quality service and products to consumers (Salvatore, 2012).
In a regulated industry, pricing of products can be better monitored to ensure that the customer is receiving a fair price for quality service. The OUR monitors the pricing strategies of JPS to ensure they are charging their customers fair prices and to place a price “cap” on products.
Regulations can also ensure that the utility company benefits financially by offering incentives (subsidies) to reduce cost of production, making the service more affordable to consumers (Vogelsang, 2002). Regulatory bodies set P=LAC so that the company breaks even in the long run without receiving a subsidy (Salvatore, 2012).
Disadvantages of regulation:
Regulation eliminates free entry into a market. Within the utilities market, regulation causes monopolies to exist which eliminate competition. Competition in some cases would allow prices to decrease and innovation to increase.
Regulations place a price cap on products for utility companies and as such negatively affect the rates of return on investment to shareholders (NNRI, 2003).
Utility companies are demanded to keep quality at a high standard. This requires, in the case of water supply companies, research on how to improve water quality. In Jamaica the water supply company, the National Water Commission (NWC) is mandated to do constant testing on water supply and to improve its treatment of water supply to its customers. Whereas this is good for consumers as the quality of the product will improve, it also offers a drawback in the sense that the costs will be directed to consumers through the pricing of the service. Consumers therefore will absorb the costs of the company’s Research and development programmes (NNRI, 2003).
Conclusion:
Regulations as we see can have both a positive and a negative effect. In comparison, it appears that the advantages outweigh the disadvantages and consumers will benefit greatly from utilities being regulated to ensure fair treatment and delivery of quality service.