JPS 2k13 Tariff Adjustment – impact analysis part 1

This has never been done before, at least not by me! In this post I will attempt to break down and assess, for the purpose of the readers, JPS’s Annual Tariff Adjustment Submission to the OUR (Office of Utilities Regulations) for an increase in the Non-Fuel Base Rates for electricity for the period June 1, 2013-June 1, 2014. JPS is permitted under the ambit of their exclusive All Island Electric License (2001) to make annual filings to the Office (OUR) for adjustment in the rates charged for electricity. The annual adjustment allows JPS to adjust its rates to reflect the general movements in inflation, improvements in productivity, changes in service quality provided by the company, changes in the base foreign exchange rate and where applicable an adjustment for unforeseen occurrences beyond management control not captured in the other elements of the OUR’s Performance Based Rate-Making Mechanism.

In its latest submission to the Office, dated April 3, 2013, JPS applied for an adjustment of 10.35% (overall) through its Non-Fuel Base Rates. This adjustment, whilst at first glance might seems overly burdensome to customers that are already bearing the brunt of high pass-through oil prices, will be weighted and spread across the different class of customers (tariff). Simply put, no one group of customers will see an increase in electricity rate as high as 10.35% – I certainly hope that adds some clarity. The following table illustrates the OUR’s approved Non-Fuel Tariffs for 2012-13. If you look closely, the left most column list JPS class of customers as Rate 10 (residential), Rate 20 (small commercial) , Rate 40 (large commercial), Rate 50 (industrial) and Rate 60 (street lighting):

The overall effect of the proposed 10.35% is to enable the company to increase its 2013 revenue by said amount over that of 2012 assuming sales remain unchanged, thus putting the company in a more viably financial position, this is expected. I know what you are thinking at this point – why should you care if JPS viability? The answer is obvious, because you need JPS’s service just as much as JPS needs your money! As a side note JPS is currently in default to some of its creditors, as reflected in its audited 2012 financial report!

The 10.35% nominal increase in the non – fuel tariffs includes the impact of the resetting of the Base Exchange Rate from J$87.5:US$1 to J$98.5:US$1. The increase attributable to the resetting of the Base Exchange Rate is already reflected in customer bills through the foreign exchange adjustment clause. Accordingly, the real impact of the annual price adjustment factor is an average increase of 0.8% in the non- fuel tariffs. The following table gives a summary of JPS proposed 2013-14 Non-Fuel Tariffs:

Also in its latest submission to the OUR is a proposal to introduce a new Wholesale Tariff (WT) class for qualifying customers in its rate 20, 40, and 50 classes. The intention of this classification is to provides an incentive for customers that fall within these groups with the potential to self-generate to remain on the grid thereby keeping downward pressure on per unit cost of electricity for all other customers using their network. The company in trying to sway the OUR, explained that it is critical in Jamaica at this time to spurring economic development and to ensuring growth in these critical businesses that use a substantial amount of energy.

A quick analysis demonstrates that the total bill impact for the typical JPS residential customer will result in an increase of 0.26%, whiles for that of commercial customers will range from a decrease of 7.49% for wholesale customers to an increase of 2.78% for small commercial customers.

Other adjustments requested where: