ERC sets hearings on Napocor’s rate hike petition

The Energy Regulatory Commission (ERC) will conduct a public hearing for the 18.59-centavo average power rate hike under the generation rate adjustment mechanism (GRAM) of the National Power Corp. (Napocor) covering the period May 26 to June 25, 2007.

In its petition filed with the ERC, Napocor asked the commission to approve with finality the provisionally approved inclusion of the almost 19-centavo GRAM adjustment in the rate for the Luzon grid to represent the recovery of its costs for the purchase power agreement of the Caliraya-Botocan-Kalayaan (CBK) build-rehabilitate-operate-transfer (BROT) power project.

Napocor had already applied these rate adjustments and will have to convince the ERC in a public hearing on Jan. 24, that these were “just” rate movement on the part of the state-owned power generation firm.

The increase, Napocor said, will result to additional revenues of P1.5 billion for the company.

The GRAM, inclusive of the CBK BROT recovery cost of 18.59 centavos was provisionally applied in March and April 2007; and 30.80 centavos per kwh in May and June 2007.

If these will be applied, the effective selling rate of Napocor will be P5.055 per kwh in March and April 2007; and P4.97 per kwh in May and June 2007.

The GRAM represents recoveries for the actual incremental costs of fuel and power sourced from Napocor’s independent power producers (IPPs), both local and foreign currency-denominated.

The ERC earlier said it expects lower rates for Napocor customers over the next few months due to the improved foreign exchange performance reflected in the incremental currency exchange rate adjustment (ICERA) mechanism.

The GRAM and ICERA are ERC-approved cost adjustment mechanisms that allow a delayed recovery by Napocor of its incremental generation costs from operations and servicing of its foreign borrowings.

ICERA takes care of the effects of the fluctuations in international currency exchange rates on Napocor‘s cost of currency-denominated debt services and operating expenses such as spare parts, insurance costs and other generation related costs.

In order to protect the interest of the electricity consuming public, the ERC places caps or limitations on Napocor’s recovery in both mechanisms.

For Napocor to recover its previously incurred costs through GRAM and ICERA, the ERC has ordered that all adjustments in power rates must pass through the process of evaluation, hearings and approval before actual implementation.

There has been a delay of more than a year in the recovery of incurred costs by Napocor under these ERC-approved mechanisms.

Thus, the recovery of the GRAM covering the period March to June 2007 has yet to be subject of a public hearing and approval by the ERC.

In its GRAM application, Napocor noted that its cumulative cost of purchased power covers the entire

CBK complex since the commencement of construction and rehabilitation activities in 2001 amounted to P26.78 billion or an average of about P4.46 billion per year.