JPS Disaster Centre
RECOVERY FUND
WHEN THE FUND STARTED
In June 2004, the Office of Utilities Regulation (OUR) approved the establishment of a Disaster Recovery Fund as part of the JPS tariff structure. This Fund was established in recognition of the unavailability of insurance for of the Transmission & Distribution (T&D) assets which form a major part of our power delivery system, and the increasing cost of insurance, where available.
WHY THE FUND WAS NEEDED
Due to the devastating effects of hurricanes and flood rains in the region over the last two decades, insurance coverage for Transmission and Distribution (T&D) lines has become almost totally unavailable. Insurers are simply unwilling to accept such high risk due to the susceptibility of the region to those occurrences. The insurers that still offer coverage are few, and their terms are restrictive and prohibitively expensive.
Consequently, most utility companies throughout the Caribbean region, and in the broader Hurricane Belt (including Florida, USA), have operated without formal insurance for their T&D lines over the last two decades. Instead, many utility companies have had to resort to some form of self-insurance as an alternate strategy for covering their risk and exposure.
THE CONCEPT OF THE SINKING FUND
The Disaster Recovery Fund is sustained through a rate embedded in the non-fuel tariff charged to customers. Currently, the total contribution to the fund is approximately US$5 million per annum.
The sinking fund reserve allows us to set aside predetermined cash savings each year as a form of self-insurance (i.e. preparing for a rainy day). These annual savings are accumulated in a ‘special purpose’ bank account for the sole purpose of creating adequate reserve for use in the event of a natural disaster.
Having adequate reserve funds in place allows us to act quickly to repair or replace critical components within our T&D network, following a natural disaster. Adequate funding will also decrease the likelihood of customers being asked to pay additional amounts on their bills each time the event of a natural disaster occurs.
Each year, the OUR reviews the annual contribution needed to ensure that the Fund is adequate. The OUR will also determine when and how the Disaster Recovery Fund is used.
WHEN THE FUND IS INADEQUATE
We could be faced with a disaster that the Fund will not adequately cover.
This was the case in 2004 when Hurricane Ivan caused extensive damage to our Transmission and Distribution lines. Because the Disaster Recovery Fund was recently established, it could not adequately cover the cost of repairs to our network. As a result, in 2005 the OUR approved the addition of a Hurricane Surcharge to customers' bills over a two-year period (2007 - 2009). This surcharge allowed us to recover a portion of the cost of repairing the damage caused by Hurricane Ivan.
The implementation of a Hurricane Surcharge is not unique to JPS. In fact, at least two other utility companies in the region had to implement hurricane recovery surcharges following the 2004 hurricane season for the very same reasons. Florida Light & Power Company (FP&L), which had damage of approximately US$1 billion, and the Cayman Utility Company which had damage of approximately US$30 million, had to apply hurricane surcharges to their customers' bills. While the Cayman Islands did not have a disaster recovery fund, FP&L did have a fund, but it was inadequate to cover the cost of repairs to their power delivery system.
