A divided nation

Never in the history of our country has our sense of national unity been eroded at such a disturbing and critical level. Despite repeated calls from concerned citizens for our political leaders to get together and act as one in pushing our country forward, nobody seems to be listening. In fact, everyone seems to be at war.

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Look at that political summit that should have brought all political parties and groups together to plan on how to work hand in hand in nation-building. One major political group refused to attend. Even some influential political leaders refused to show their faces in the meeting hall.

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It may be true that the organizers of the summit had their own selfish agenda. But that should not have deterred or discouraged every ranking leader in the political landscape to show some semblance of a desire to get together and plan how to close ranks, if at all possible, for the nation’s sake. Sayang.

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In raging protests against the proposed electricity rate increases, Meralco is being pictured as blood-thirsty giant out to bleed the public dry. Right now, there are three forms of cost adjustment mechanisms: Fuel Cost Adjustments (FCA), Currency Exchange Rate Adjustment (CERA), and Purchased Power Adjustment (PPA).

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Individuals and groups styling themselves as consumer advocates raise fears that Meralco is out to exploit these automatic cost adjustment mechanisms to amass gargantuan profits. That is not the case, according to the Energy Regulatory Commission (ERC) in a yet to be circulated primer on automatic cost adjustment mechanisms. And the logical conclusion is that Meralco will not gain a single centavo from these adjustments, as is clear in the primer.

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Let us take a peek at some of the important and enlightening Question and Answer provisions of the primer which the ERC is going to circulate:

What are the major components of the electricity rates to the consumers? In general, there are two major components of the electricity prices to the consumers: basic rates and cost adjustment mechanisms. The basic rate recovers the operating and maintenance expenses, cost of purchased power, and the cost of fuel used in operating the electric power plants at the time such rate was filed and then approved by the ERC. The basic rate remains the same for a certain period until the utility files for a change subject to the approval of the ERC.

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What is a cost adjustment mechanism? A cost adjustment mechanism is a method to allow utilities to automatically recover additional cost resulting from factors that are not within the control of the utility such as increases in the price of imported fuel, the devaluation of the Philippine Peso and the changes in the cost of electric power bought from private producers. These are changes in costs, which the utilities cannot recover through the basic rate. The concept of an automatic cost adjustment is a practice accepted among most electric utilities around the world.

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Will the cost adjustment mechanisms result in additional profit for the electric power utilities? No, the real purpose of the adjustment mechanisms is to simply recover increases in costs and the formulae approved for computing the same are so designed so as not to allow additional profit or income to the electric power utilities.

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What are the cost adjustment mechanisms, which are presently being implemented by the electric power utilities? There are presently three types of cost adjustment mechanisms being implemented by the different electric power utilities. These are the FCA, (CERA) and the PPA. The CERA is equivalent to the Foreign Exchange Adjustment Clause (FOREX) of the NPC.

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What is a Fuel Cost Adjustment (FCA)? The FCA is an automatic adjustment in the cost of electric power produced by the NPC, which was developed to incorporate changes in cost due to adjustments in the prices of fuel. These fuels are bunker and diesel oil, steam, and coal which NPC use in generating electricity.

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What is the Purchased Power Adjustment Clause (PPA)? The PPA is an automatic cost recovery mechanism that is intended to reflect changes in the cost of power purchased from private producers. There are a number of Independent Power Producers (IPPs) that currently operate within the country. The IPPs sell the power they produce from their own power plants to the electric power utilities, including NPC. The price of electricity bought from the IPPs fluctuates over a period of time and such fluctuations are not within the control of the power utilities.

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When the current price of electricity bought from private producers or from NPC for distribution utilities increases from what was considered in the utilities’ basic rate, an upward adjustment in the PPA takes place. On the other hand, when the cost of electricity bought from the private producers falls below the level reflected in the basic rate, there is a corresponding decrease in the PPA.

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Does the PPA yield additional profit to the electric power utilities? No. Similar to the FCA, the PPA does not lead to more income or additional profits to the utilities.

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What is a Currency Exchange Rate Adjustment (CERA)? Some electric utilities need substantial loans to finance their own operations which loans cannot be provided by the local banks. Thus, they borrow from international fund sources. The CERA is an automatic cost recovery formula intended to reflect adjustments in the amount of foreign loans when the Philippine currency depreciates vis a vis foreign currencies, notably the US dollar. It is likewise used by the utilities to recover additional cost due to increases in foreign related expenses arising from devaluation. Examples of foreign related expenses are the spare parts and other materials, which are imported from other countries and are needed for the repair and maintenance of the utilities owned by the electric power utilities.

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Does the CERA yield additional profit to the electric power utilities? No. The CERA, like the FCA and PPA, is not meant to increase or add to the profits of the electric power utilities. It does not in any way provide additional benefit to the utilities except as an immediate means of recovering increase in principal amortization.

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How accurate are the computations of the cost adjustment mechanisms? The FCA clause of NPC uses actual and not estimated figures. Moreover, even if these cost adjustments are automatic in nature, the ERC is tasked to review cost adjustments implemented by the electric power utilities and the calculations used the formulae approved by the ERC.

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Thoughts For Today:

There is always one thing
to be thankful for every morning.
That is being able to open our eyes
and see the beauty of being alive
under God’ grace.

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God said: If you need a hand
and there are a hundred steps between us,
you can take the first step to get near me,
and I will take all 99 steps to be there for you.

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My e-mail addresses: [email protected] and [email protected]