Services hearing gives consumers a break
Power company ordered to pay $1.36B compensation
Utilities body slams failure to cut losses
By Gitanjali Singh
July 25, 2002
The Public Utilities Commission (PUC) yesterday ordered the power company to pay $1.36 billion in compensation to consumers at a rate of $4.70 per kilowatt hour from October 1st because the company failed to reduce commercial and line losses as agreed in its licence with the government.
The Commission also ordered the Guyana Power and Light (GPL) to bring down commercial and line losses to 24% in six months and to submit to the PUC at the end of each quarter the status as it relates to these losses. The compensation order allows GPL to credit consumer’s accounts each month and stipulated that the company file with the PUC at the end of each month, starting in October, a statement showing the total amount credited and paid over to consumers.
“From what we have heard from GPL, we are not satisfied that they have made the best efforts to reduce the losses. If more effort and attention were paid to that aspect of the operation, they surely would have reduced the losses. But their best efforts were not up to standard and there has been no improvement in the losses,” the PUC said in its order released yesterday.
The commission found that the losses were due to the “inefficient manner” in which the company was being run and said the losses did not affect the revenue of the company as the tariff structure allows it to recover the full cost of generation and not just billed sales.
“So we see that the consumers are bearing the brunt of the inefficiencies of the (company),” the PUC order said.
When GPL took over the old Guyana Electricity Corporation (GEC) operations, technical (transformer and line losses) and commercial (defective meters, administrative problems, unauthorised connections or thefts) losses were 40%.
The firm undertook to reduce these to 16% by 2005, targeting loss rates of 34%, 29%, 24%, 20% and 16% for the years in between, starting in 2000.
The firm admitted to the PUC that the combined losses were exceeded by 9.3% at the end of 2001 and the figures submitted to the commission show that the losses increased between September 1999 and June 2001 as less power was being billed to consumers. Additionally, the audited accounts of 2001 submitted to the PUC said the losses in 2000 were 40% and in 2001 42%, showing that the losses were exceeded by six and thirteen per cent respectively.
The Commission on its own motion began earlier this year to investigate GPL’s maintenance of its property and equipment and the impact of this on consumer services as well as losses in the system; outages and load shedding. It found GPL to be in breach of Section 25 of the PUC Act which stipulates that the property and equipment of a utility should be maintained in such a condition as to provide safe, adequate, efficient, reasonable and non-discriminatory service to consumers.
The PUC held a public hearing into the issue on March 12th and GPL filed a presentation setting out its case. Several members of the public also spoke at the hearing, including former GEC chairman, Ramon Gaskin. GPL in April filed another memorandum with the PUC on the issue seeking to deal with concerns raised by the public and other issues relevant to the investigation and submitted further documentation in May in response to a letter by staff.
The question of most concern to the PUC during its deliberations was whether GPL carried out faithfully the obligations it undertook and what sanctions if any, the commission could impose to effect compliance.
GPL’s case has been that the firm had great difficulty in obtaining debt financing for its planned capital programme to reduce losses and said even if funding was available, the company’s experience suggests that the availability of suitable skills in Guyana and the drawn out procurement process may have delayed implementation.
However, the Commission said GPL has furnished it with no evidence to suggest that it has had difficulties in obtaining funding, having raised US$28M from the National Bank of Industry and Commerce Limited (US$7M), the Banco de Credito of Panama (US$3M) and the European Investment Bank (US$17M.) The PUC also found evidence of funds available in the company’s bank accounts.
In the case of commercial losses, the Commission found that instead of replacing wires and meters on a system-wide scale, GPL chose to focus on an inspection and rectification programme thereby avoiding the need to replace equipment and avoiding the upward tariff impact associated with capital expenditures.
The PUC said GPL found on examining 50% of its large customers’ installations under recording of about three per cent which was rectified and a single case of over-billing. The commission said the company claims that meter installations were inconsistent in design and implementation but made no provision for safe checking of metering accuracy. Further, the body said GPL feels that customers ought to be re-metered but is reluctant to do so because of high costs.
The commission said every effort has to be made to correct the economic and technical losses and noted that while GPL complains that customers steal electricity, the firm is not really affected as the tariff setting mechanism allows it to recoup these losses as the mechanism is based on generation and not billed sales.
“GPL does not appear to have much interest in correcting what they perceive as power stealing,” the PUC said, noting the company’s statement that the cost of replacing a meter is large compared to the individual loss as well as the lack of skills to deal with complex metering.
The Commission said it thoroughly reviewed the presentation by GPL and is not satisfied that GPL did not have the funds or the facilities to invest in reducing the losses for which consumers suffer on account of the utility not providing an efficient and reasonable service. The PUC argued that the licence granted to GPL acknowledged the need for significant investment to reduce technical losses but did not anticipate significant investment to reduce commercial losses. GPL says that it achieved its target in respect of technical losses but failed to improve on commercial losses.
The PUC found that the power company did not meet the standards set out in its licence and sought to justify this or excuse it on the lack of funding.
However, the commission contended that the company did not intend to spend sufficient funds to meet the targets they agreed to.
“One would have expected in normal prudent business practices the management, under contract, would have run the utility in such a businesslike manner to cover operating expenses and that the investors’ contribution would be used for capital investment in the interest of the company,” the noted. It added that this was the intention behind the move to invite in and involve a strategic investor to develop the electricity sector.
“We find that the consumers have suffered loss as a result of the utility not making their best effort to provide a reasonable and efficient service. We do not think that the consumers should be held to ransom for the inefficient functioning of GPL,” the PUC said.
The PUC also sought to make it clear in its ruling yesterday that its hearing into GPL’s maintenance of its property and its impact on customer services was not influenced by extraneous considerations and in particular public concerns that GPL’s rates were high.
The PUC said it accepts that “we have no jurisdiction to investigate or interfere in that area, since the agreement and other relevant related documents have provided a formula and in which the PUC has no role”.
GPL had undertaken to spend US$8.2M (G$1.5B) in 2001 on a transmission substation, transmission lines and distribution but only spent G$543M.
GPL’s investors - the Commonwealth Development Corporation of the UK and ESBI of Ireland had paid US$23M for majority shareholding in GEC. The deal also covered a management contract under which GPL forks over a hefty sum to ESBI managers.
This has been the subject of stern criticism in light of GPL’s inability to cut its losses.