Meralco seeks rate cut

After being allowed to adjust rates for January, the Manila Electric Co. (Meralco) is now seeking a rate reduction of 7.8 centavos per kilowatt-hour (kwh) due to the prepayment of some of its foreign loans.

Sources said that if Meralco files the rate reduction with the Energy Regulatory Commission (ERC) soon enough, the cut can be reflected within the month.

The rate cut is being sought due to the decline in the currency exchange rate adjustment (CERA), a component in the Meralco charges that is passed on to consumers.

Meralco successfully raised some P12 billion worth of fixed-rate and floating-rate corporate notes early last month to partly pre-pay its maturing obligations and beef up capital expenditures.

As a result of the prepayment, Meralco was able to save on interest expenses.

Under the present setup, any increase or decrease in CERA is reflected in the consumer’s bill but only upon the approval of the ERC, the country’s power sector watchdog.

The Implementing Rules for the Recovery of Fuel and Independent Power Producer Costs Generation Rate Adjustment Mechanism (GRAM) and the Incremental Currency Exchange Rate Adjustment (ICERA) issued by the ERC on Feb. 24, 2003 allow the recovery of eligible costs from Napocor’s customers, particularly the costs of producing electricity and the monetary advances to defray the cost of foreign currency exchange adjustments.

ICERA is the term used by Napocor to collect currency rate adjustments from its customers like Meralco while CERA is the term used by the Distribution Utilities (like Meralco) to its customers.

"We will file an application with the ERC and if we get a provisional approval, then we can reflect it as a reduction in the January bills of our customers," a source said.

Meralco has been granted provisional authority to increase its rate to recover its generation costs for the period October to December 2006.

For November to December 2006, the rate adjustments under GRAM, as approved by the ERC, stood at 28 centavos per kWh.

GRAM cost amounting to 26.14 per kWh for the month of October will be recouped by Meralco this month.

Meralco’s provisional authority to raise rates for the past three months came after the ERC denied industrialist and consumer advocate Raul T. Concepcion’s claim that there would be P7.50 per kWh power rate hike this year if the commission approved all of Meralco’s pending rate increase applications.

ERC chairman Rodolfo Albano Jr., in an interview, clarified that Meralco’s latest provisional authority to adjust rates was merely a recovery and not an increase.

"This is a one-month recovery for Meralco. It (Meralco) had already advanced the payment for this and the company is merely recouping it," Albano said.

"The ERC clarified that the provisional approval it granted to Meralco in ERC Case No. 2006-062 RC did not result from a petition for a rate increase per se but for mere recovery of power generation costs paid in advance by distribution utilities like Meralco," Albano said.

"The ERC approved only a temporary adjustment to cover the generation costs and system losses, including the Value Added Tax, incurred in October last year. The said adjustment will even decrease the customers’ bill by, at least, 1.92 centavos per kWh from the P4.7096 per kWh which Meralco also implemented in December 2006," he said.

The adjustment of 26.14 per kWh for January 2007 billing is just a one-time recovery for one month, which will be reflected as Differential Amount for October 2006. 

Echoing Albano’s view, the Department of Energy (DOE) said that such rate adjustments are not changes in the basic generation rate of electricity but recoveries authorized by ERC to cover fluctuations in foreign exchange and fuel costs.  

"As such, these are liable to monthly one-time increases or decreases depending on the movement of foreign exchange and fuel prices," the DOE said.

President Arroyo earlier instructed the DOE to closely monitor the reported adjustments in the generation charges of Meralco to ensure that the public is adequately informed and that consumers are charged reasonably.