Fri | Dec 15, 2017

Management jolt at JPS - New CEO rolls out early changes to boost safety and profit

Published:Friday | November 3, 2017 | 12:03 AMHuntley Medley
Emanuel DaRosa, president and CEO of Jamaica Public Service Company.
Emanuel DaRosa, president and CEO of Jamaica Public Service Company.
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Canadian Emanuel DaRosa has just completed his first 90 days on the job as president and chief executive officer of Jamaica Public Service Company, JPS, but he is already clear about his mandate to energise the power utility.

That mandate includes improved customer experience and safety, as well as reducing the amount of generated energy that isn't paid for.

The push for efficiency has already seen DaRosa making some early changes to the company's management line-up that should result in a flatter structure, with divisional heads reporting directly to him.

He has also created a business development division, led by a senior vice-president, as part of the hunt for greater profits for his bosses. Its staff will focus on creating and driving new opportunities for business expansion and energy sales that DaRosa reckons will be good not just for JPS's bottom line, but also for economic expansion in Jamaica.

For 2016, JPS reported an 18 per cent decline in net profit to US$21.8 million and a US$47 million or six per cent fall-off in revenues to US$712.8 million. Acting on the expectations of his bosses, DaRosa intends to drive profits to around US$40 million over the next four years.

The power utility is 40 per cent owned by Marubeni Corporation of Japan, 40 per cent by South Korea-based Korea East-West Power, with the Government of Jamaica having a 19.9 per cent stake and 3,000 shareholders owning the remaining 0.1 per cent of the shares.

Better suited for business

In an interview with the Financial Gleaner on the eve of his first full three months in office, the new JPS head said the new management configuration with cleaner reporting lines is also better suited to dealing with transmission losses, which, he concedes, is probably the greatest challenge confronting him immediately.

For 2016, JPS reported that system losses accounted for some 30 per cent of net generating capacity. DaRosa is bringing management of losses related to engineering, technology, field operations, audit and intelligence gathering under a central command rather than being splintered among various managers.

With electricity theft accounting for much of the power losses with which the new JPS' new head honcho must contend quickly, the company will be rolling out 100,000 smart meters next year. This is expected to come from the US$100-million-a-year capital investment budget earmarked for the next two years.

DaRosa succeeded American Kelly Tomblin at JPS on August 1. Since then, the chief financial officer, Dan Theoc, has resigned from the company, but JPS said Theoc's departure is unrelated to DaRosa's realignment.

DaRosa described the utility's assets as being of "a reasonable state", but said the technology needs upgrading. A more extensive roll-out of smart metering, with added security features, will be part of the technology upgrade.

Investments will also continue to be directed to online customer-facing platforms, even as there is greater emphasis on mobile units getting into communities to serve the companies more than 600,000 clients.

Asked about his mandate from the majority shareholders to ensure greater profits, DaRosa said that the utility's licence provides for a fixed rate of return of 12.25 per cent on owner equity, the ROE, as the only profit margin. Without specifying the current rate of return, the new CEO said it was underperforming.

"That should generate a larger number than we are getting today. Because of leakages and other performance penalties that we are seeing with losses, we are not achieving the target. We are below the target and it is a concern for shareholders," he said.

He added that, realistically, about five per cent of what consumers pay for electricity should be profit for the company. At the moment, he said, JPS is realising only about three per cent of bill payment as profit.

Ramping up equity

While the projections for shareholder returns and profits are now still a matter of negotiation between the new hire DaRosa and the JPS owners, the CEO was clear that shareholders expect to ramp up ROE to the 12.25 per cent within the next four years, taking profits to around US$40 million in the long term.

With regard to return on equity, the JPS Electricity Licence 2016 states: "The Bank of Jamaica will provide guidance on the ROE, which allows the licensee the opportunity to earn a return sufficient to provide for the requirements of consumers and acquire new investments at competitive costs based on relevant market benchmarks prevailing internationally for a similar business as the licensee and adjusted for country risk ... ."

DaRosa acknowledges that neither the intended efficiencies nor the better returns on investment will be possible without workers who are motivated to achieve those objectives.

As a result, the human resources function is being given a higher profile in the organisation, he said, while relating how impressed he has been with the credentials and education levels among his staff.

"This is one of the best-educated utilities that I have worked with," DaRosa said, confident that the JPS' 1,700 workforce is up to the tasks ahead.

However, there is the possibility that not all its current workers might remain on board to see through the changes now taking place at JPS. Asked if the operational changes to be fully rolled out as of November 1 and completed by early January will affect staff numbers, the new JPS boss essentially said it was too early to tell.

"That wasn't the intent of the strategic realignment. It wasn't to drop numbers, it was driven primarily by the need to create a structure that serves the organisation and delivers the greatest value to the business. Having said that, it's always a mandate of every utility to continue to look at itself to see if the numbers are appropriate, so that will be an ongoing initiative," he said.

Noting that there is significant buy-in among the staff and executive management for the refocusing of the business, DaRosa said line managers have been mandated to roll out the efficiency review across their divisions, looking at efficiency in terms of assets, staff numbers as well as processes.

"How we manage projects, the way we do business is not just for cost-cutting, but also to improve service reliability," he pointed out.

The reliability of JPS service remains on track to be improved with hopes of curtailing the still-existing, sporadic load-shedding and lowering electricity cost to customers with the planned retiring of "end of life" generating plants at Old Harbour in Clarendon and Hunts Bay in Kingston. The additional 190MW natural gas-fed plant for Old Harbour, to provide about one-third of the baseload for the 600MW JPS grid, is earmarked to come on stream in late 2019.

DaRosa pointed to the lead role of the State in the addition of generating capacity, saying the "as per the rules of today", it is the Jamaican Government that procures new capacity.

"We work with them through that process, or the government can direct us to put in new generation," he said.

Notwithstanding the Government's lead, the JPS president is aware that modernisation of the entity was among the reasons for its initial privatisation by the Government, and said JPS is doing its own planning in that regard.

"We are looking at planning for solar and wind farms, but we don't have any announcements at this time," he said.

What the new chief executive was willing to announce is that he has commissioned a power system plan to look at all the options for Jamaica regarding power generation and transmission, and basically arranging them in order of priority - from the most cost-effective down to the least. This is expected to be completed by the middle of next year and will go hand in hand with the Government's own integrated resource plan for the country.

huntley.medley@gleanerjm.com