Electricity rates set to go down by 36.26¢ per kWh

Electricity rates are likely to go down by as much as 36.26 centavos per kilowatt-hour (kWh) this month as the National Power Corp. (Napocor) filed a petition with the Energy Regulatory Commission (ERC) to adjust its 8^th Generation Rate Adjustment Mechanism (GRAM) and its 7th Incremental Currency Exchange Rate Adjustment (ICERA).

Napocor president Cyril del Callar said the rate adjustment Napocor applied for was similar to the rate cut petition it filed for the November 2006 period, which resulted in a 30 centavo rollback in power rates.

In its November 2006 petition, Napocor sought a rate reduction of P0.0430 per kWh for Luzon, P0.3151 for the Visayas, and P0.0045 for Mindanao.

ERC approved the November 2006 rate cut petition, which reflected in its March 2007 billing cycle.

Del Callar said the rate cuts are expected because the peso strengthened against the US dollar from February 2006 to June 2006, the period covered by 8th GRAM and 7th ICERA petitions. Del Callar said that during the period, Napocor reduced its use of oil-based fuel.

"The stable foreign exchange rate and the minimal use of oil-fired power plants were also the main reasons why the state-owned power company was able to file twin reductions in the GRAM and ICERA last November," he said.

Napocor earlier said the quarterly adjustments in the GRAM and ICERA were "revenue neutral," meaning they would not result in additional profits for the company.

"These cost adjustments are only aimed at recovering actual, allowable incremental (savings) costs on Napocor’s power purchases from its suppliers (in the case of GRAM) and fluctuations in foreign exchange used for its operations (in the case of ICERA)," the company said.

ERC earlier asked Napocor to file a new application to reduce its rates by as much as P2 per kWh in view of the P79 billion foreign exchange gains it registered in 2005.

Napocor specifically said it had already filed for the 8th GRAM and 7th ICERA last March 30 and April 2, respectively, before the ERC.

GRAM represents recoveries for the actual incremental costs of fuel and power sourced from Independent Power Producers (IPPs).

On the other hand, the ICERA takes care of the effects of the fluctuations in foreign currencies on Napocor’s cost of currency-denominated debt services and operating expenses such as spare parts, insurance costs and other generation related costs.

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

The effect of foreign currency fluctuations can readily be seen in Napocor’s financial statements. However, due to the delayed nature of these recoveries, Napocor customers cannot immediately feel the effects of forex improvement.

"The current appreciation of the peso will naturally bring down the cost of borrowing of (Napocor) and the cost of our servicing our foreign debt. Over 90 percent of our financial obligations are foreign currency denominated, usually in US dollars. Hence, the gain or loss in foreign exchange brought about by the improvement or depreciation of the peso as against the US dollar is reflected in our books," Napocor said in a statement. Napocor further explained that such forex gains are non-cash.

"We do not receive any actual cash revenue from forex gains. It is only the savings that are reflected in our books; as such they are non-cash gains," it said.