Sun | Dec 4, 2016

No windfall for JPS

Published:Sunday | January 18, 2015 | 12:00 AM

Sam Davis, GUEST COLUMNIST

Your front-page lead article of Thursday, January 15, 'OUR defends cut', included a statement that "... the OUR has provided the JPS with US$28-million windfall for this year which has not been highlighted by the critics". The statement was supposedly a comment by the director general of the Office of Utilities Regulation (OUR) on the regulator's recent ruling on the Jamaica Public Service Company's (JPS) tariff application.

We are to assume that the use of the word 'windfall' reflected journalistic licence by senior news editor, Arthur Hall, who authored the article, and not a quotation. The director general, to our certain knowledge, would know that the use of the word 'windfall', which in ordinary business use means an unexpected and unusually large gain, normally in relation to profit, would be entirely inappropriate, unfortunate, and misleading in reference to the US$28m in special funds included in JPS's tariffs. Given the context of the statement, surrounded by commentary on the sharp cut in JPS's rate of return, it is important to dispel any public confusion.

The US$28m referred to is split US$13m for the Electricity Efficiency Improvement Fund (EEIF) and US$15m for the Bogue Plant Conversion Fund (BPCF).

The Electricity Efficiency Improvement Fund (EEIF)

Customers will be seeing the EEIF as a line item on bills for the first time when the new tariffs take effect, but the fact is that the fund has been included in electricity rates since the 2009 tariff review. It was a tangible demonstration at the time of the OUR's then concern at the growing scourge of electricity theft.

The fund was earmarked to be used for the implementation of technological solutions in the war on theft, and has financed much of the Residential Automated Metering Infrastructure (RAMI) theft-resistant networks deployed in high-risk communities. JPS is heartened that, after initially withdrawing the EEIF, the OUR reinstated it in its final determination, as reducing resources to JPS to fight losses is surely an unlikely way to accelerate success.

THE BOGUE PLANT CONVERSION FUND (BPCF)

The BPCF will reintensify efforts for conversion of our Bogue combined-cycle plant to burn an alternative gas-based fuel. Converting Bogue to use a cheaper fuel is good for customers, as they benefit from the direct pass-through of lower fuel costs - as they are experiencing now with lower oil prices.

The lower cost also eases somewhat the burdensome and punitive fuel penalty JPS bears, primarily due to theft. This penalty, US$43m in 2013 and US$18m last year, along with foreign exchange losses, is at the root of our financial woes.

How much relief the Bogue conversion will provide customers remains unclear, complicated as it is by the continuing slide in oil prices. However, JPS has always been, and remains, committed to fuel conversion for diversification at that plant. There is no intrigue in the delay.

Bogue's conversion timetable has also been a victim of the decade-long vacillation on a preferred alternative fuel; the reluctance of financiers to spend on unproven commercial technology; and the most recent failed attempt to conclude new baseload and fuel infrastructure arrangements via the previous 381MW gas project. As we have seen, switching to a new fuel with all the infrastructure requirements in a small market is fraught with challenges.

While these are very important and efficient sources of financing for the very capital-intensive initiatives they are intended for, it is an equally important point that the public understands that JPS does not stand to make money from these special-purpose funds. The assets acquired under the EEIF are stripped out of our rate base, that is, the pool of assets on which we're allowed to earn a return. The same is expected of the BPCF.

Sam Davis is head of regulatory affairs at the Jamaica Public Service Company. Email feedback to columns@gleanerjm.com.