LETTER OF THE DAY

THE EDITOR, Sir:

We ask that you allow the Office of Utilities Regulation (OUR) an opportunity to respond to a letter from W.S. Richardson appearing in your edition published on Tuesday, August 7, 2007 under the heading 'Ivan surcharge a travesty'.

The writer appeared to be referring to a line item - Hurricane Ivan Recovery Charge - appearing on the July 2007 monthly bills dispatched by the Jamaica Public Service Company Limited (JPS) to its customers. The writer contends that the charge is an illegal cost imposed, with the consent of the OUR, on consumers.

Let us review the facts:

JPS sustained damage to its infrastructure (including its transmission and distribution lines) during the passage of Hurricane Ivan in September 2004. The company submitted a claim of approximately $1.43 billion to the OUR. In 2005, guided by the All Island Electricity Licence 2001, which makes provisions for such claims under the 'Z factor', the OUR allowed JPS to recover a total of $457,471,762 from the amount claimed.

postponed cost recover

In September 2005, JPS informed the OUR of its intention to postpone applying the approved rate adjustment for hurricane cost recovery until oil prices on the world market stabilised. Notwithstanding, the company also appealed the OUR's determination on the costs it was allowed to recover (which effectively reflected one-third of its claim).

Although the issue is still before the Appeals Tribunal, JPS has taken the decision to begin recovering the amount approved by the OUR with effect from July 1, 2007. Consequently, JPS customers will see an increase in their bills at a rate of approximately $0.0741 (7¢) per kWH for the next 24 months. At the end of this period, a reconciliation exercise will be conducted to determine any over- or under-recovery with the necessary adjustments where applicable.

It is not our intention to enter into a prolonged debate having due regard to the Appeals Process, which (as mentioned before) is still ongoing.

no insurance in 'hurricane belt'

However, in light of the foregoing, we also submit the following comments:

There is, in fact, no available insurance for transmission and distribution lines in the 'hurricane belt' there is insurance available for generating units. Therefore, the existing situation is not unique to Jamaica.

In the absence of available insurance, the OUR had instructed JPS to begin an insurance fund which could be used to offset some of the costs associated with damage occasioned by the passage of hurricanes. Unfortunately, the fund was immature by the time Hurricane Ivan developed and was insufficient to deal with the damage sustained.

It is possible that even with a mature fund, customers may have to bear some of the costs associated with a future hurricane.

In any business, customers pay for the legitimate expenses incurred by providers/suppliers. This is covered in the costs of the goods or services provided and largely represents tangible and foreseeable expenses. In the case of JPS, the 'Z factor' in the tariff makes provision for expenses that are outside of the control of the company and largely unforeseeable and almost impossible to predict. The provision is necessary because it would be difficult, if not impossible, to attract investors in the electricity sector, where their investment would be vulnerable to the effects of possible hurricanes without necessary safeguards.

We hope that the foregoing will assist the writer and your readers in any discussion relating to the line item reflected on their monthly JPS bills.

I am, etc.,

DAVID A. GEDDES

Director, Consumer & Public Affairs

Office of Utilities Regulation