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The Jamaica Public Service Company (JPSCo) has reiterated that not having windstorm insurance for its transmission and distribution equipment was not due to negligence on the part of management, but because of the inability to locate insurance providers to cover such a policy.
“We did hunt for the insurance. In fact, we have been hunting for that insurance from before MIRANT bought JPS,” Nigel Grant, Vice President of Sales and Marketing said at a recent JIS Think Tank.
He explained that no country in a hurricane belt had been able to obtain windstorm insurance that covered damage to transmission and distribution assets caused by storms and hurricanes.
“You cannot get economic insurance for transmission and distribution assets. Nobody in the Caribbean, given the recent history probably starting from Hurricane Andrew [1992] has been able to get affordable insurance,” he informed, noting that insurers have concluded that hurricanes in the Caribbean were sure events, so there was a reluctance to take the risk to provide coverage for the obvious damage that would occur.
“In any event, if you had paid for this insurance, it would be a premium that would have been added to the cost [reflected in bills],” he pointed out.
Mr. Grant was speaking against the background of the recent decision by the utility company to delay passing on an increase to customers, which was granted to the company by the Office of Utilities Regulation (OUR) as a means to recover assets lost during Hurricane Ivan last year.
He noted that some utility companies in Florida were experiencing the same challenge and Entergy New Orleans, a subsidiary of the Entergy Corporation utility giant, was forced to file for reorganisation under Chapter 11 of the United States Bankruptcy Code, in the wake of the extensive damage to assets caused by Hurricane Katrina.
In the meantime, the Vice President said that JPSCo had to find ways to prepare for events like hurricanes in light of OUR’s approval of just $467 million out of the $1.4 billion claim filed by the company in the wake of damage associated with Hurricane Ivan.
Prior to becoming a private entity, the JPSCo was operated by the government, which absorbed the cost of damage caused by natural disasters through taxpayers’ dollars and grants, among other provisions.
When the company was privatised, a Z factor was included in the regulatory framework to allow the entity to claim for costs that have been incurred because of external forces including acts of God and other disasters.
“We are allowed to make a submission to say that we have had abnormal costs due to this factor and the regulator makes a decision to admit them or not into the rates paid,” Mr. Grant expounded.
The company however, chose not to include the adjustments into the rates this month, given the confluence of events such as spiralling fuel cost and the general economic environment. “With all of the price pressure, we thought that it would be the straw that breaks the camel’s back,” Mr. Grant acknowledged.
“We decided that it was not a good time to put it on. So even on our appeal of the claim, if we get the $1.4 billion, we will still have to time the implementation in this type of climate,” he further noted.
If the JPSCo had imposed the $467 million granted by the OUR, the consumer would be required to pay seven cents per kilowatt per hour. “Not even a dollar,” Mr. Grant said, adding that, $467 million would be spread over 2.8 million kilowatts an hour over a two-year period.