Business

JPS goes after $10-b annual return

Electricity distributor seeks up to 93% rate hike

Wednesday, April 16, 2014    

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JAMAICA Public Service Company (JPS) is hoping to clear US$94-million ($10.3 billion) profit a year should its proposed rate hike be approved.

The light and power company applied to the Office of Utilities Regulations (OUR) for a raft of changes to its non-fuel tariff (the rate that recovers cost associated with transmitting and distributing electricity rather than generating it).

Residential customers will see the monthly charge for network access (which up to now has been called the customer charge) increase by a range of 70 per cent to 420 per cent, depending on usage, if JPS gets its way.

What's more, the monopoly electricity distributor hopes to raise the non-fuel, or energy charge to households by a range of 48 per cent to 93 per cent, moving from the lower end of the range to the higher end, the more electricity is used.

For commercial customers, the rates for which JPS has applied, decreases with higher usage, supposedly to promote greater use of electricity for business purposes.

On the other hand, the utility proposes a 65 per cent increase for the smallest commercial users, while enterprises can't realise a decrease in the overall rate until they have consumed some 140,000 kilowatt-hours (kWh).

Indeed, the utility devised creative ways of encouraging more efficient consumption, such as recommending to the regulator that it altogether remove the non-fuel rate charged to large industrial customers.

That would see JPS give up just under $5 billion in revenue, which it would earn back from proposed increases to the demand charge that are applied to bills of consumers with heavy-duty electric machinery.

When factoring in the fuel charge, the rate hikes might not seem so daunting.

JPS figures that using a fuel rate of 23 US cents per kWh, the residential tariff increases, on average, by 22 per cent. Most commerical customers, or 98 per cent of them would see an average increase of 16 per cent, using the same math.

Of course, the proposed non-fuel tariff rates coupled with the fuel rates would put the cost of electricity at 45 US cents per kWh for the average household and 43 US cents per kWh for the overwhelming majority of commercial customers.

In its latest five-year tariff review application, JPS rationalised that it accumulated net profit of US$96 million, or an average of US$24 milion a year, from 2010 to 2013.

"The target profit for JPS, allowed (not guaranteed) through the revenue requirement, has never been achieved, representing an allowed return on equity (ROE) of 16 per cent that was approved in 2009, which should have resulted in a net profit of approximately US$43 million per annum", said JPS of its profit performance over the tariff period that recently ended.

High system losses over the period factored heavily in its shortfall.

The utility company estimated that it was not allowed to recover US$111 million in fuel costs due to penalties from 2009 to 2013.

"The magnitude of the penalty varies with the price of oil and the risk exposure was amplified with the spike in the price of oil over the past two years," said the light and distribution company. "At the end of 2013 losses, technical (8.6 per cent) and non-technical (largely theft --18.04 per cent), stood at a total of 26.64 per cent."

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