ERC OKs Napocor power rate hike

The Energy Regulatory Commission (ERC) gave provisional approval yesterday for the National Power Corp. (Napocor) to increase its generation charge by an average of 97.98 centavos per kilowatthour starting Sept. 26.

The new rate, which is 40 percent higher than the old one, is half of the P1.87 per kwh increase sought by Napocor.

Under the ERC’s order, the rates will vary for each grid. In Luzon, the rate will go up by 48 percent or P1.23 per kwh; in the Visayas by 7.8 percent or 22.02 centavos, and in Mindanao by 15 percent or 26.65 centavos.

At present, the existing rates of Napocor for the entire Philippines is P2.44 per kwh; Luzon, P2.57; Visayas, P2.81; and Mindanao, P1.80.

ERC Chairman Rodolfo Albano told a press conference they expect to come up with a final decision on Napocor’s rate increase petition by the end of the year.

Albano said the ERC will continue to hold more public hearings to receive additional evidence from all interested parties before the issuance of its final order.

The ERC chief said the customers under the lifeline rate scheme, or those consuming below 100 kwh, will continue to enjoy a 50 percent discount on their rates.

"The commission is working hard to assure the public that the rates they pay for electricity reflect the true cost of providing such service and nothing more," Albano said. "Hopefully, with this decision, it will give some relief (to) the financial problems of Napocor and will eventually reduce the budgetary deficit of the national government."

Albano said the order will also effectively lift the 40-centavo cap imposed on the company’s purchased power cost adjustment on May 2002. PPCA is a cost recovery mechanism that allows Napocor to pass on to customers costs associated with foreign-currency denominated obligations under its existing contracts with independent power producers.

According to ERC’s computations, the newly approved generation rate will result in additional revenues of P110 billion for Napocor.

While respecting the ERC decision, Napocor president Rogelio Murga said they will still continue trying to convince the regulatory body to reconsider its decision of taking out some of the items that they will need to recover under its application.

In its decision, the ERC cited the following reasons for granting Napocor a lower adjustment than the firm sought: The ERC used a lower foreign exchange index; Napocor charges for ancilliary services should be annualized; and foreign exchange adjustments should be recovered through the Incremental Currency Exchange Rate Adjustment (ICERA).

"Napocor and Power Sector Assets and Liabilities Management (PSALM) shall abide by the decision of the ERC. We respect the regulator’s decision, although the count granted is considerably lower than what we were asking for," he said.

PSALM president Raphael Lotilla said the rate adjustment would give Napocor the much-needed revenues to achieve financial viability and continue with its operations, until all its assets are fully privatizatized.

"These are solutions to the fiscal concerns of Napocor. Also it would help us in our current efforts to privatize Napocor’s generation assets," Lotilla said.

PSALM, an entity created to handle the finances and privatization of Napocor, is in the process of selling the generation and transmission assets of the power firm, which is expected to raise about $5 billion additional revenues when completed.

The ERC also said the new rate increase will enable Napocor to meet the eight percent return-on-rate base (RORB), one of the factors being considered by creditors in granting loans to the company.

But Murga believed otherwise. "We think we will not meet the eight percent RORB because they cut the rate hike application by half," he stressed.

Based on Napocor’s estimates, the rate adjustment would earn an additional P2.9 billion a month for the power firm. For this year, the state-owned power firm is expected to have additional revenues of P8 billion from the new rate increase. For 2005, they estimate P68 billion more in revenues.

With the increase, the company would be cutting its projected loss for 2004 of P114 billion to P106 billion.

For Meralco customers, the rate increase will be reflected in their bills in January 2005 after the Lopez-controlled power utility firm has completed its generation rate adjustment mechanism (GRAM) applications for June to November this year with the ERC.

Meralco’s latest GRAM application was for February to May 2004 for an additional 17 centavos per kwh.

The ERC said the distribution utilities should first apply for GRAM to enable the ERC to verify how much power is being sourced by these distribution utilities from Napocor before they can apply the new rates.

As of today, Meralco is reportedly getting 45 percent of its power requirement from Napocor, while the rest is sourced from independent power producers (IPPs).

Distribution utilities or electric cooperatives that get 100 percent power from Napocor can immediately apply the new rates. This means that the impact of the rate increase will vary from various electricity end-users depending on where the distribution utilities get there power requirement.

On the time-of-use (TOU) mechanism that was included in the Napocor rate hike application, the ERC said the implementation of the TOU will be optional. TOU is a rate design methodology that approximates the true cost of electricity at the different times of the day (over a 24 hour period) and different days of the week. This will enable the generators and distribution utlities to shift its load from peak periods to lower cost.

As this developed, Albano announced that Rauf Tan, a former Napocor official, has been appointed as a member of the ERC. Tan worked with Napocor for over 15 years in various fields that include treasuryship, controllership, internal audit, information systems, marketing, utility economics and public relations.

The government has been trying to privatize Napocor but the company’s massive debt, which stands at $8.9 billion, along with large operating losses have resulted in little investor interest.

Energy Secretary Vincent Perez warned that Napocor’s debts will balloon to P600 billion this year if the government does not make progress in privatizing its assets and raise power rates.

Napocor’s net loss is expected to rise to P115 billion this year from P100 billion in 2003 as its struggles to fund foreign borrowings made bigger by the weak peso.