ERC tells DTI to clarify petition for power rate cut

MANILA, Philippines – The Energy Regulatory Commission (ERC) has directed the Department of Trade and Industry (DTI) to clarify the government’s petition on various power rate reduction schemes.

ERC executive director Francis Saturnino Juan said at a pre-hearing on the petitions last Tuesday that the government, represented by the DTI, has yet to explain in detail how it intends to help bring down electricity rates.

As this developed, the Philippine Electricity Market Corp. (PEMC) predicted that prices at the wholesale electricity spot market (WESM) would stabilize beginning this month. PEMC is the operator of WESM.

ERC has set the hearing on the petition for June 3. “The pre-hearing enabled us to clarify with DTI what exactly the government intends to do to bring down the price of electricity,” Juan said.

He said the petition filed by the DTI does not specify how the power rate reduction schemes would be carried out. “We want to see justifications,” he said.

Representatives from Manila Electric Co. (Meralco), National Association of Electricity Consumers for Reform (Nasecore), Private Electric Power Operators Association (PEPOA), Federation of Philippine Industries, and other consumer groups attended Tuesday’s hearing.

President Arroyo recently ordered the DTI to file a petition with the ERC on rate-slashing schemes.

The proposed rate reduction schemes include expanding the so-called lifeline rate, prohibiting Meralco from buying from WESM at peak hours; implementing the preferential treatment for poor households and power-intensive industries in the distribution of the National Transmission Corp. (TransCo) charges by Meralco, and pegging Meralco’s rates on the same level as those of Visayas Electric Cooperative, Cebu Electric Cooperative, and Davao Light rates, and justifying a deviation from the “cost of service” principle in the rate-setting provision of the Electric Power Industry Reform Act (EPIRA).

Earlier, the ERC asked the DTI to publish its petition in compliance with EPIRA and with Supreme Court decisions on the matter.

“Much as the ERC would want to expedite its action on this petition, there are procedural requirements that the DTI has to comply with. Otherwise, it may not be able to discharge its burden of proof during the hearings. Also, it is important for DTI to comply with the procedure in the EPIRA IRR, which, as interpreted by the Supreme Court, is mandatory,” ERC chairman Rodolfo Albano Jr. said.

WESM prices seen to stabilize

Prices at WESM are seen to stabilize as the onset of the rainy season is expected to dampen demand as well as boost hydropower operation.

“All things being equal, and if our anticipation is correct, then it should come down,” Lasse Holopainen, PEMC president said.

“It’s been raining so that increases our hydro availability and also decreases or suppresses demand by keeping things a bit cooler – and again this is just because of the rain,” he said.

“And if it continues all throughout the month then it will be good. The other things we are watching are of course fuel supply and the availability of plants. Having said that, then it should stay stable,” he said.

According to Holopainen, the electricity rate for the past months was relatively lower than in the same period in 2007.

“If you look at it year-on-year the price at the WESM has actually dropped. But the reaction of the public seems to have been much keener now as regards to prices. I think that’s partially because there’s a lot of inflation going on in other things outside electricity – so people are more concerned about electricity prices,” he said.

The PEMC chief also noted that WESM only affects three to five percent of consumers’ electricity bills and that generation charge under the generation rate adjustment mechanism or GRAM has the biggest impact on the billing.

Effective settlement price (ESP) at WESM for the period March 26 to April 25 was P5.72 per kilowatt-hour or lower than the P6.72 per kWh from Feb. 25 to March 25, 2008. For the March 26-April 25, 2007 period, the price was P8.62 per kWh.

The ESP for Meralco’s spot market transaction from Feb. 26 to March 25 amounted to P8.93 per kWh as against the P5.78 per kWh in the same period last year.

Asked about the impact of President Arroyo’s order for the National Power Corp. (Napocor) to lower its generation charge to P4.11 per kWh, Holopainen said it would have “very little effect on the market.”

One way to bring down electricity rates, Holopainen said, is to give incentives to power distributors.

Monday hearing

The Joint Congressional Power Commission (Powercom) hopes to have Meralco president Jesus Francisco explain on Monday allegations that the firm is overcharging consumers.

“We will listen to Meralco and other government officials on Monday on why we are paying very high electric rates. We will not dwell on whether Meralco should be owned by the Lopez Group or the government because that is a private enterprise,” Sen. Miriam Defensor-Santiago said.

Santiago chairs the commission with Pampanga Rep. Juan Miguel Arroyo, chairman of the House committee on energy, as co-chair.

“We will talk about why the rates remain high when the government is saying that it has been lowering the price of power (that) it has been selling to Meralco,” Santiago said.

“It might be a violation of the penal provision against anti-trust. The anti-trust provisions are found in the prohibition against restraints in trade or monopoly,” Santiago said.

Also invited to the hearing are Energy Secretary Angelo Reyes, Napocor president Cyril del Callar and ERC chairman Albano, among others. Representatives of militant and consumer groups have also been invited to attend the hearing.

Rep. Arroyo said it does not really matter what Meralco and its supporters think about the hearing because the main issue is the high electricity rates.

“They can harp on whatever spin they want. The bottom line is malaki ang singil nila sa kuryente (they charge high electricity rates) and they are looking for so many issues na takpan iyan (to conceal it). People are crying and we need to do something,” he said.

An administration lawmaker echoed Rep. Arroyo’s contention and said even the Supreme Court found Meralco to be overcharging its customers by P30 billion in 2003.

Quezon Rep. Danilo Suarez said an SC ruling found Meralco to have “illegally passed on to its customers its income tax charges.” The SC ruling included an order for Meralco to refund consumers. Meralco contested the ruling but lost.

“The burden of proof that it is not overcharging us rests with Meralco, and it only has itself to blame,” he said. “Meralco should be reminded that it can only milk the cow to a point, after which it will get nothing more. Worse, it may kill the cow,” he said.

He also lambasted some opposition lawmakers for allegedly defending Meralco.

“To defend Meralco, whose high rates are making life doubly hard for our people, runs against the grain of many of my colleagues’ avowed stance in the past,” Suarez said.

Garcia acting on his own

Malacañang maintained that GSIS president Winston Garcia is acting on his own in his row with Meralco.

“All that I gathered is that he is going to initiate a meeting with the other stakeholders in Meralco and that is specifically Development Bank of the Philippines, Land Bank and for that matter other shareholders of Meralco,” Executive Secretary Eduardo Ermita said.

Garcia’s earlier demand for a management change in Meralco and for the power distributor to present its financial records fueled speculation of a government takeover.

“They are specifically talking about the management of the entire company. Other than that, I guess the GSIS general manager has his own position on the matter,” Ermita said.

The GSIS owns 23 percent of the shares of stock of Meralco and, combined with the holdings of the other government entities such as PhilHealth, Social Security System, Land Bank and Pag-Ibig Fund, the total share of the government would be around 33 percent. The Lopezes own 33.4 percent. The Lopezes also control giant network ABS-CBN, which is perceived to be critical of the administration.

“Let us wait for the action of the ERC on the petitions submitted by the DTI as well as on the one that was submitted to the ERC on the settlement agreement between Napocor and Meralco,” Ermita said in Filipino.

Unimpressed

A consumer group that calls itself People Opposed to Warrantless Electricity Rates (POWER) assailed the “tax on tax” on electricity rates, saying that aside from the 12 percent value-added tax (VAT) consumers also pay local franchise tax, which is a component of the “distribution revenue and subsidies” item in the electricity bill.

“It’s like having a tax on a tax. The 12 percent VAT is levied on the franchise tax when the latter is computed as part of the distribution revenues and subsidies. In effect, the franchise tax is also taxed,” POWER convener Ramon Ramirez explained.

“This really doesn’t make much sense for consumers, to be taxed twice. This adds justification to our earlier calls to scrap the VAT on power rates. This will certainly save consumers a significant amount,” Ramirez said.

POWER also questioned Meralco’s charging of systems losses to consumers.

“There is again an injustice here,” Ramirez said. “We are being charged for a company’s inefficiency, then that same charge is taxed by the government. It’s a double whammy.”

The Freedom from Debt Coalition (FDC), for its part, said the administration’s effort to bring down power rates is “piecemeal and selective” and is unlikely to have significant impact.

“Filipinos, rich and poor alike, pay the second highest electricity rates in Asia. So, any move by the government to reduce exorbitant power rates in the midst of a devastating food crisis and the rising costs of other goods and services is welcome news to our people,” the FDC said in a statement.

“We believe, however, that piecemeal and selective action such as the bid by the Arroyo government to cut down Meralco’s distribution rates will not bring significant reduction in power rates,” it added. – With Delon Porcalla, Christina Mendez, Katherine Adraneda, Marvin Sy, and Christina Paguinto