Sat | Dec 10, 2016

JPS loses bid to recover $4.27b in salaries

Published:Thursday | April 2, 2015 | 12:00 AMMcPherse Thompson

Jamaica Public Service Company (JPS) has failed in its bid to recover $4.27 billion incurred in salaries for employees as a result of a reclassification exercise.

The utility had turned to the courts after the Office of Utilities Regulation (OUR) rejected the claim in JPS' application for an increase in its price cap.

More recently, JPS challenged the decision of Justice James Thompson, who had dismissed its application for judicial review of the decision of the All-Island Electricity Appeal Tribunal, which determined that the OUR was correct in refusing the utility's 2009 claim.

JPS had relied on the Z-factor clause, which is the allowed percentage increase in the price cap index due to events that affect the licencee's costs but are not as a result of the licencee's managerial decisions, and are not captured by the other elements of the price cap mechanism.

However, the Court of Appeal found that the OUR was correct in determining that JPS' claim could not be considered under the Z-factor provision because the reclassification/ salary review exercise was effected as a result of managerial decisions.

Justice Hilary Phillips, in outlining the case, noted that the events giving rise to the appeal spanned more than 10 years. The case was completed in March.

JPS was controlled by the Government, the majority shareholder, up to 2001. In 1999, the power utility commenced a reorganisation of its operations by way of a job reclassification and salary re-evaluation in order to improve efficiency. As a consequence, the staff complement was reduced by 20 per cent.

JPS also commenced discussions with the trade unions in relation to the reclassification and salary evaluation process for the remaining employees.

In April 2001, United States-based Mirant Corporation acquired the majority shareholding in JPS. The terms of the acquisition coincided with the issuing of the JPS 2001 all-island electricity licence.

JPS and the unions continued their discussions, but a dispute arose concerning the salary structure to be employed with respect to the job evaluation and reclassification and the effective date of payment of the new rates.

The dispute traversed from the negotiating table to the Industrial Disputes Tribunal (IDT), and then the courts.

In May 2008, JPS and the unions reached an agreement under which the salaries were adjusted to conform with a 2003 IDT award. This comprised increases in salary and related costs retroactive to 2001, amounting to $4.27 billion. The figure was inclusive of the opportunity cost of capital of $721.54 million.

In March 2009, JPS filed a claim with the OUR to recover the $4.27 billion in its application for an increase in the price cap, relying on the Z-factor provision of the 2001 licence. OUR rejected the claim.

In the Court of Appeal's judgment, Justice Phillips noted that JPS accepted that the decision to undertake the job and reclassification exercise, and to re-engage consultants for a second job evaluation and compensation review, were all managerial decisions.

The utility had contended that the managerial decisions addressed in the Z-factor clause would not refer to decisions taken before the issue of the licence, but to those made subsequently.

The judge disagreed.

"In my view, in reading the clause as it exists, there is no ambiguity, there is no commercial absurdity, and in any event, it would have been JPS who would have had to prove that one exists, which in my opinion, it has failed to do," Justice Phillips said.

"Additionally, in my view, there was no basis on which one could have implied that the managerial decisions referred to in the Z-factor clause must relate to those decisions occurring before the implementation of the licence, without which the new regime would lack efficacy," she said.

mcpherse.thompson@gleanerjm.com