Napocor set to hike power rates by October

The Energy Regulatory Commission (ERC) has allowed the National Power Corp. (Napocor) to increase its rates — reaching as much as 74.25 centavos per kilowatt-hour (kwh) — starting as early as October to enable the state-run power generation firm to recover deferred foreign exchange gains.

In the ERC decision on Napocor’s rate hike petition, customers would be charged higher rates of 74.25 centavos per kwh in Luzon, 16.79 centavos per kwh in the Visayas and 3.04 centavos per kwh in Mindanao.

Napocor asked for a rate hike in November 2006 to recover deferred accounting adjustments (DAA) on its ICERA, or incremental currency exchange rate adjustment, worth about P78 billion from November 2005 to January 2006.

The ICERA is an ERC-approved adjustment mechanism intended to recover Napocor’s actual generation costs based on its purchases of fuel and power. It is considered revenue-neutral, and could either be in the form of an increase or a decrease in the adjustments in billings to customers.

For the whole of 2006, Napocor’s forex gains registered at P68 billion, it said.

The increase, however, runs contrary to expectations that Napocor will reduce its ICERA due to foreign exchange gains posted over the past months as the peso strengthened significantly against the dollar, industry sources said.

Moreover, they added the power rate hike is seen as a blow to the Arroyo administration’s efforts to bring down electricity rates in the country, considered as among the highest in Asia.

But it was learned that while the ERC docketed the rate hike decision in July 2007, it already allowed Napocor to charge the increased ICERA rates starting on the February-March 2007 billing cycle.

Under the ERC’s approved ruling, Napocor can collect the ICERA for Luzon within six to 10 months, in the Visayas within three months and within 18 months in Mindanao.

“Napocor was granted authority to recover the DAA-ICERA rates for the Luzon, Visayas and Mindanao grids within the corresponding periods, to be added to its existing approved return on rate base – time-of-use (RORB-TOU) rates,” the ERC said.

In justifying its ICERA recovery application, Napocor said these adjustments would improve its revenues by P17.13 billion.

It noted that these can lead to a capital infusion of P16.415 billion from the forex rate hike passed on to Luzon customers, P461.479 million in the Visayas and P251.130 million from Mindanao end-users.

Based on the ERC ruling, the DAA recovery would account for fluctuations in Napocor’s settlement of debt service and operation expenses and the difference in the actual and billed amortization of capacity and infrastructure fees for its build-operate-transfer (BOT) plants.

According to the ERC, “the proposed recovery periods in Luzon and Mindanao grids are longer than the maximum allowable recovery period of six months provided for in ICERA’s implementing rules in order to mitigate the financial impact to power customers within the said grid.”

Napocor said the increases would represent the recovery of carrying charges that it missed to recoup on its previous ICERA applications.

These, it added, warranted the sudden increase in the amount it needs to apply for with the ERC.

Included in the recovery sought by Napocor are forex costs pertaining to its BOT obligations for the Bakun and San Roque power plants which were not part of the approved cost components on its TOU rates.