OUR slashes application for water, sewerage rate hike

OUR slashes application for water, sewerage rate hike

• 4% increase for residential, commercial customers and schools • Regulator finds weaknesses, major data gaps in submission

Wednesday, December 11, 2019

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An application for hefty increases in water and sewerage rates by the National Water Commission (NWC) has been drastically slashed by the Office of Utilities Regulation (OUR), which also reduced the requested three-year tariff hike period to 24 months on an interim basis because the agency failed to provide the regulator with all the requested information.

The OUR released its decision yesterday, saying that residential and commercial customers, schools and condominiums will see an overall increase of about four per cent in water rates, which became effective on Monday this week and will be reflected in customers' bills starting next January.

“On average, customers paying water as well as sewerage rates will see an overall increase of between 15.5 per cent and 17.8 per cent,” the OUR said, pointing out that most of NWC's customers do not pay for sewerage.

According to the OUR, it found weaknesses and major data gaps in the NWC's submission, including a cost of service study and an asset valuation report needed for a full tariff assessment.

Consequently, the OUR said it “concluded that it would not now be prudent to establish the normal five-year tariff”.

In giving the background to the decision, the OUR said the NWC had submitted its tariff application on October 2, 2018 for a review to its water and sewerage rates and quality of service standards.

The regulator explained that based on convention, it sets the NWC tariff on a five-year review cycle. However, the NWC had requested that the OUR consider a three-year tariff period for January 2019 to December 2021.

“The proposed tariff was predicated on a revenue requirement of $33.9 billion. This translated to an average increase of 23 per cent for revenue from water charges and 38 per cent for revenue from sewerage charges, relative to NWC's 2017 test-year revenues. The overall requested increase for the 2017 test-year revenues was 26 per cent,” the OUR said.

“In addition to its original tariff application, the NWC in July 2019 submitted a revised tariff proposal which essentially retained all the elements of its earlier submission, but requested an acceleration in its K-Factor programme through an increase in its K-Factor allotment from 16 per cent to 20 per cent,” the OUR added.

Yesterday, the OUR said, based on the NWC's objective to hasten the pace of non-revenue water reduction, it has approved the request to increase the K-Factor from 16 per cent to 20%. However, the regulator has mandated that the NWC refine the priority and the sequencing of its projects and present a revised slate of non-revenue water projects to the OUR for approval within three months of yesterday's determination notice.

The K-Factor is an OUR-monitored facility which allows the NWC to use a pre-determined percentage on customers' bills to implement non-revenue water reduction, sewerage and other specifically approved operational efficiency projects. The K-Factor funds are later repaid to customers as an X-Factor on their bills.

The OUR also said that the NWC will be expected to formally apply for a full tariff review 20 months after the effective date of the current determination notice. That is, by August 2021.

Other decisions made by the OUR pertaining to the NWC's application

1) The consolidation of residential tariff structure from six blocks to four. The NWC had requested a reduction to three blocks. However, the OUR determined that in the absence of more detailed information it would be more prudent to consolidate to four blocks, based on usage.

2) The OUR has approved the introduction of a 'standby charge' for major commercial customers that retain NWC's service connection only as backup supply. The OUR recognises that NWC incurs a cost in making additional capacity available for these occasional consumers, therefore it is only fair that these customers should pay the incremental cost commensurate with the convenience.

Requests the OUR did not approve

1) The introduction of a sewerage service charge to reflect NWC's fixed cost of providing customers with sewerage services. The NWC had proposed the introduction of this new charge for customers who have been disconnected from the NWC's water supply for non-payment of bills, but still benefit from sewerage services. The OUR takes the view that while the proposal is, in principle, reasonable, the NWC's proposal has not passed the concept stage and requires further development.

2) The introduction of a new regime for charging commercial customers who use water as an input to their operations, but who do not return all water as wastewater to the NWC's sewerage network. NWC wanted this charge to replace the Economic Development Wastewater Tariff (EDWT), which allows a lower sewerage rate for these customers. The OUR takes the view that the proposed methodology which places the emphasis on volumes instead of the rate is feasible but the NWC did not present an implementation strategy. Accordingly, the EDWT shall remain in effect.

3) The NWC's proposal to apply a late payment interest charge to commercial accounts that remain unpaid seven days after the due date of the bill. The OUR took the view that the proposal was not presented in sufficient detail, and has asked the NWC to develop and present a proposal to the OUR within six months of the effective date of this determination notice for the OUR to take a final decision regarding this issue.

The NWC's determination notice can be found on the OUR's website: www.our.org.jm.

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