Leonardo Blair, Enterprise Reporter
AFTER MONTHS of verbal threats and orders to the Jamaica Public Service (JPS) over customer billing inaccuracies, the Office of Utilities Regulation (OUR) is yet to extract a credible explanation from the company for billing glitches uncovered in some 21,000 customer accounts after Hurricane Ivan in November last year. Even though by their own admission, the JPS billing system is still open to varying degrees of manipulation.
Mirant, the bankrupt United States-based energy corporation which owns 80 per cent of JPS, has shown in the past, a dodgy pattern of corporate conduct. The corporation was cited by the Office of the Attorney-General in California as one of the biggest offenders in the manipulation of California's competitive energy market in the United States, beginning as early as 1999 through 2001. The office alleged that Mirant engaged that state in sophisticated fraud in the form of games with names such as 'Ricochet', 'Death Star', 'Fat Boy' and 'Get Shorty.'
The state's complaint focused on strategies pioneered by Enron to manipulate their energy market. Enron was also one of two other companies that bid with Mirant for ownership in the JPS.
The games targeted by California's lawsuit against Mirant include strategies to create false congestion and obtain premium prices to relieve the non-existent congestion. The games in this category include 'Death Star'.
The complaint also cited the 'Get Shorty' game in which Mirant paper traded, and collected high prices for reserve power Mirant had no intention of providing. 'Fat Boy' and 'Ricochet' are two other games specifically mentioned in the lawsuit. In 'Fat Boy', Mirant intentionally overstated the amount of power it intended to provide, knowing it would receive the highest possible price for the excess.
'RICOCHET' TRANSACTIONS
In 'Ricochet' transactions, Mirant evaded price caps then in effect on power sold in California. Under this strategy, Mirant bought power in California, sold it briefly to an entity outside the state, repurchased it from the out-of-state entity, then sold it to the state grid operator at inflated prices. The 'Ricochet' game allowed Mirant to evade the price cap, "despite the fact, that as a practical matter, no energy ever left or re-entered the state," the complaint alleged.
But last week, David Geddes, the OUR's director of public and consumer affairs said: "We are still reviewing the matter (billing inaccuracies)." He also pointed out that they had no reason to distrust the monthly reports being filed by the company on its operations since the November billing fiasco. "We get a report from JPS every month, to ensure that they are compliant (with our regulations)," he says. "It depends on the nature of the reports too. When they give us a report that they bought so much fuel for their operations, we match the purchases with Petrojam; when they say they spent so much foreign exchange and at what rates, we check with the Bank of Jamaica to ensure that what they are saying is true. I am not under the impression that the JPS is fabricating reports."
Despite taking steps to limit the vulnerability of the JPS' billing system to manipulation and inaccuracies, however, the OUR has no real power outside of what JPS tells it, to unequivocally verify the paper reports. The company has already, in the past, flouted orders from the OUR and has in some cases, been hostile to organised scrutiny from experts in the know.
There is also still an injunction against any release of the findings of the Bureau of Standards (BSJ) testing on a sample of JPS meters.
In July this year, JPS president Charles Matthews declared that his company had no plans to withdraw the lawsuit against the bureau to prevent it from further testing JPS meters. Sources close to the bureau said the nation would be "shocked" if they ever knew what some of these findings were, but because of the injunction, they could not say a word.
In February this year, the OUR published 'Enquiry into Billing System Practices of the Jamaica Public Service Company Ltd.' and noted that: "The office finds that the reason given by JPS for the elevated level of customer complaints of high billing in November (2004) is questionable.
"While it is recognised that individual customers may see some elevation in consumption during the summer months, the company has not provided a credible assessment or explanation to justify the number of accounts that recorded consumption outside the +/- 80 per cent band."
The +/- 80 per cent band here is the percentage increase or decrease in consumption which the OUR formerly allowed the JPS to charge customers. The band was based on the average consumption patterns indicated on the last two bills. The document indicates that the OUR realised over time that the level of the high/low band was too great and exposed customers to greater risk of receiving inaccurate bills.
According to the document, in March 2003, a memorandum was signed between the OUR and the JPS requiring them to tighten the high/low rejection criterion to +/-70 per cent by the end of August 2003, and later to +/-65 per cent. JPS was also to submit an impact assessment of the new criterion and the company failed to honour the agreement. The current high/low criterion recommended by the OUR is +/-30 per cent.
IMPACT ASSESSMENT
"The company (JPS) did not follow through on its commitment to submit an impact assessment and as it has now turned out, also failed to implement the directive to lower the high/low rejection criteria.
"The office has come to the conclusion that the previously established high/low criteria ... is now too wide as it provides a greater risk for incorrect bills to be rendered to customers."
Dr. Zagros Sadjadi, professor of economics at the University of the West Indies, explains that: "The high/low criterion exists, in the first instance, to protect customers from possible inflation of bills due to negligent meter reading. In most cases, this will signal to customers to examine the meters themselves. The customer can then either initiate a request for rereading or certify as to the accuracy of the reading."
He described the lowering of the high/low rejection criterion as a positive step in the implementation of meter testing. "This is a much more appropriate figure than that given to JPS in the past. Seasonal variation should be rather low in Jamaica when compared with other jurisdictions due to the following factors: (1) Similar climactic conditions throughout the year; and (2) Similar hours of daylight throughout the year."
COST RECOVERY PROGRAMME
He also pointed out that Mirant's cost recovery programme in Jamaica is extremely high compared to what happens in the rest of the world and urged the Government to consider investing in burying power lines underground in light of the country's high exposure to hurricanes.
In May this year, the OUR threatened to drag the JPS to court over its failure to indicate how it intended to compensate customers who were overbilled last November. Their investigations had found, through information supplied by the JPS, that the company was at fault in reading the meters of the 21,000 customers. The JPS was given until February 28 to outline exactly how it planned to compensate the 21,000 customers and they failed to meet that order too.
In recent times, the Opposition Jamaica Labour Party (JLP) has also called for a judicial review of the Jamaica Public Service Company's operating licence and for an independent audit of JPS billing and metering systems to be done by international light and power experts, and not by the OUR, whose performance it described as 'abysmal'.
The call came against the background of what it said was JPS' disproportionate contribution to the profits of its Atlanta-based parent company, Mirant Corpor-ation. The Jamaican light and power company contributed US$16.7 million to the US$99 million profit of its parent company in 2004, although JPS only contributes 600 megawatt (mw) or 11 per cent of Mirant's 5,500 mw capacity, the JLP noted.
REGULATORY-APPROVED RATE
Since last year, JPS customers have been complaining about spikes in their electricity bills which they say frequently outweigh consumption. The Opposition pointed to Mirant's recent report of US$7 million ($430 million) increase in its Caribbean gross margin due to regulatory-approved rates in non-fuel tariffs.
Quoting recently from an OUR report, Clive Mullings, the JLP spokesman on mining, energy and telecommunications, accused JPS of being "dishonest" and said JPS had been less than forthright in its recent successful bid to gain a rate increase, based on the effects of Hurricane Ivan on its transmission and distribution lines.
According to him, some pieces of other equipment JPS claimed were not insured, had indemnity coverage.
"I'll describe that as dishonest," the JLP spokesman said of the alleged $181.4 million overstatement. "It is an attempt to price gouge and that is one more indication that we ought to have an enquiry as to what is happening at JPS."
But Winsome Callum, public relations manager at JPS, said it was unfortunate that the Opposition should make such erroneous statements, unsupported by facts. "It must be noted that the international consultants - Axis International - hired by the OUR, corroborated the JPS claim, indicating that $1.3 billion of the JPS claim for J$1.46 billion in hurricane damage was substantiated," she said.
