OUR knocks JPS as a poor receivables manager
Avia Collinder, Business Reporter
The Office of Utilities Regulation (OUR) has named poor management of its receivables and contracting, which, disregard the problems of a depreciating Jamaican dollar, as the chief cause of the foreign-exchange risk facing the Jamaica Public Service Company Limited.
Further, the OUR said the power utility needed to become more efficient in its collections, particularly the unpaid bills racked up by the Government.
But JPS has pushed back, saying the regulator is ignoring conditions that are not within the company's power to hedge against.
The JPS proposal in its case for higher rates wanted an additional US$14 million annually in the revenue requirement to cover US dollar exposure. It proposed that the figure adjusted at the annual review to account for any under- or over-recovery.
The company also said it was suffering significant losses because it has to settle its debts to oil refinery Petrojam in US dollars and that due to devaluation of the Jamaican dollar, which averaged 14 per cent in 2013, overdue accounts were costing it US$21 million.
The OUR fired its volley of mismanagement at JPS last week following the Private Sector Organisation of Jamaica's contention that the electricity company was badly treated in the last rate determination, especially in relation to foreign-exchange risk and large overdue receivables owed by government bodies. Instead of the average 19 per cent rate hike requested by JPS, OUR decided that the utility should get a rate cut of about one per cent.
JPS has one month from the date of the determination to appeal the decision before the Electricity Appeals Tribunal. The utility did not respond to queries on whether it would appeal.
Meantime, the OUR has been defending its rate cut decision, saying in a statement last week that it takes the position that JPS should exert greater effort to recover its revenues, especially debt owed by the Government, which is a 19.9 per cent shareholder of JPS. And the utilities regulator knocked JPS again for its high system losses, saying it "does not subscribe to the view that such losses are inevitable and must be borne increasingly by paying customers".
System losses were last reported at 26.35 per cent.
JPS collects revenue in Jamaican dollars but pays some of its bills in foreign currency. Its receivables at last disclosure in September 2014 totalled US$188.31 million, compared to US$188.64 million at the same period in 2013, suggesting a slight improvement.
In Jamaican dollar terms however, the position actually worsened from $1.95 billion to $2.12 billion.
The power company took in revenue of approximately $90 billion (US$799m) in the first nine months of 2014, compared to $85 billion (US$819m) in the prior period.
JPS said in a note to its accounts that its foreign-exchange losses totalled US$43 million for the nine-month period to September 2014, which it attributed mainly to the fluctuations in the exchange rate on the settlement of receivables denominated in local currency, as well as debt that is priced in currencies other than the USD.
The OUR said the utility should consider paying its contracted independent power providers (IPPs) in Jamaican dollars, but indexed to the USD.
Agreement With Petrojam
"Since these payments are also in arrears, JPS is aggravating its exposure by choosing to make these payments in United States dollars. In its most recent agreement with Petrojam, JPS created unusual exposure based on its agreed terms. JPS further aggravated this situation by steadily increasing it payables to Petrojam," the OUR said.
JPS said, however, that it gives its customers 30 days credit, and that its forex losses are "simply" the result of settlement risk.
"The fact that we collect in 52 days is largely influenced by the GOJ but doesn't change the fact that we will always have this fundamental settlement risk," the company said in comments supplied by Corporate Communications Manager Winsome Callum.
At yearend 2014, total running receivables for government agencies amounted to about $4 billion. The JPS had wanted to apply a 15 per cent charge on late payments as a disincentive to Government racking up more debt to the utility.
The utility also rejected OUR's suggestion that it pay its IPPs in local currency, saying the settlement of those bills is "in accordance with the contract terms"; nor, JPS added, did it negotiate new terms with Petrojam.
"Since the fuel is imported and JPS is given 30 days credit, it has always had to pay Petrojam effectively in US dollars since the fuel is imported into the country. Fuel alone represents 60-70 per cent of the total cost of electricity," JPS said.
The utility also rejected OUR's assertion that since the entire sum of receivables was included in the rate base determination, the utility was earning a return on the uncollected funds.
"The approved rate base by the OUR includes fixed assets and working capital. The OUR only approved US$3.6m for working capital while JPS has receivables in excess of US$100m. So it should be clear that receivables are not included in the rate base," the company said.
Further, it said, "We are disappointed that the OUR did not agree to charging interest to commercial customers. This would be a useful tool for helping us control receivables and to allocating the charges to the wrongful offenders. Interest charges are widely acknowledged and accepted between businesses as a fair and acceptable way to extend a credit period and routinely negotiate these arrangements."
The utility had hoped to impose a 15 per cent late fee on commercial customers but approval for the penalty was denied.
JPS said the decision both discriminated against residential customers, who are penalised for late payment - a charge of $250 is applied - and compromised its viability, saying the utility itself had to pay interest charges to suppliers when its customers pay late.
"As it stands now, the only tool available to JPS is disconnection, which still does not address our opportunity cost of capital," said the utility. "At the end of the day, we are simply saying the business should be allowed to recover its prudently incurred costs".