OUR shocks JPS
THE Office of Utilities Regulation (OUR) has delivered a shocker to the Jamaica Public Service Company (JPS), ruling that it was granted too much in the foreign exchange-net interest surcharge determination in its 2021 annual review and will seek to claw back the overcharge following the 2022 review scheduled for August.
The utilities watchdog, in a determination notice dated December 28, 2021, stated that “the JPS’s revenue requirement shall be adjusted downward by $326.43 million in the 2022 annual review to compensate for the overrecovery”.
In addition, the OUR rejected the JPS’s request to reconsider seven of its decisions in the 2021 annual review.
However, in giving further details on the surcharge, the OUR wrote: “Consistent with good regulatory practice, the Office reconsidered the determinations and concluded that all but one of its decisions made in the 2021 annual review should remain unaltered. Specifically, the annual foreign exchange-net interest surcharge overstated JPS’s revenue requirement.”
According to Ansord Hewitt, director general of the OUR, in the determination notice, based on its original calculation the OUR had determined that the JPS had a revenue requirement of $421.57 million, including the weighted average cost of capital.
But in its revision the OUR determined that the revenue requirement was actually $95.14 million, “which means that in the 2021 Annual Review Determination Notice, JPS was overcompensated by $326.43 million. Therefore, this amount must be returned to customers in the 2022 annual review by a commensurate reduction in revenues,” said Hewitt.
Hewitt further stated in an interview with the Jamaica Observer that JPS has the right to appeal its decision if it disagrees, but added “I haven’t seen any notice that they have appealed the decision to the Electricity Appeal Tribunal.”
Additionally, the OUR, in keeping with the tariff framework set out in the Electricity Licence 2016, conducted the 2021 annual review of the JPS which, among other things, measured the company’s actual performance against 2020 targets.
Among the issues, the JPS questioned the OUR’s inclusion of the net unrealised foreign exchange (FX) gains in the calculation of the FX losses incurred by the company in 2020. The gains which are held on the books were used to offset some of the company’s FX losses, effectively reducing those losses and therefore the amount the light and power company was allowed to recover from customers.
Said Hewitt: “The JPS took the view some years ago, that ‘Look, we want [the financials] done in US dollars because our settlement risks are in US dollars.’ So [the OUR has] made that kind of designation. What [the OUR has] said to them though is that, having done that, you [the JPS] must manage that risk. Don’t tell the consumers that they must insulate you by making sure that the things are computed in US dollars or the equivalent and then tell the consumers that they must manage your US-dollar risk whether you realise it or you don’t realise it.”
Further, the JPS argued that the interest income on deposits and bank accounts for 2020 amounting to $276.9 million (US$1.94 million) should not be included in the OUR’s computation of the interest surcharge. Doing so resulted in the JPS showing higher income and therefore resulted in the OUR granting them a lower revenue target.
The JPS also took the view that the 2020 capital expenditure (capex) revenue reduction of US$2.285 million for underinvestment should be returned.
The OUR had also awarded the JPS a revenue gap adjustment for a six-month period, July–December, but the company argued that it should have been for the entire 12 months of 2020.
The JPS also proposed that the OUR’s timeline for the roll-out of the Time of Use (TOU) rates for residential and small commercial customers be suspended to allow the company to address concerns related to, among other things, revenue losses and the tax methodology.
In addition, the JPS took the position that the OUR should omit the non-firm category from the standby rates and that the ratio of the non-technical losses that it has full control of and the non-technical losses that the it has partial control should be adjusted to reflect the target in its submission.
But in its response the OUR said it found the majority of the requests from the JPS unreasonable and declared that it would maintain its original decisions.