New recovery scheme for power backed

Energy Secretary Vincent S. Perez is in favor of the new recovery mechanism for fuel and power costs as well as foreign exchange costs approved recently by the Energy Regulatory Commission (ERC).

Perez said this new recovery mechanism will provide strict safeguards to protect the interest of electricity consumers.

ERC has directed the National Power Corp. (Napocor) and distribution utilities to stop the implementation of the existing automatic cost adjustment mechanisms – Purchased Power Adjustment (PPA) and the Currency Exchange Rate Adjustment (CERA) – to recoup additional costs of fuel and power and foreign exchange respectively.

"We welcome the ERC’s move to adopt a new mechanism to recover forex and fuel and purchased power costs. This will provide transparency in the recovery of these costs because utilities will have to obtain prior approval from the ERC before they passed on the costs to the consumers," Perez said.

At the same time, he said the mechanisms are deemed accurate and reasonable. "Our electricity consumers are assured that they only shoulder costs that are reasonable as determined by an independent regulatory body and there are no over-recoveries or under-recoveries made," he added.

The ERC has adopted a new recovery mechanism for fuel and purchased power costs called Generation Rate Adjustment Mechanism (GRAM) and the Incremental Currency Exchange Rate Adjustment (ICERA), replacing PPA and CERA.

Under the new scheme, utilities can only pass on these costs – forex, fuel and purchased power – to the consumers upon verification and approval by the ERC. This means that power firms will only recover from consumers costs they actually incurred.

Under the PPA and CERA set-up, power utilities automatically passed on costs to the consumers on a monthly basis before submitting any reports to the ERC for review. Over-recoveries and under-recoveries were subsequently refunded to consumers based on the evaluation of ERC. The new recovery mechanisms, on the other hand, allow adjustments in rates on a quarterly basis.

According to Perez, there is a need to adopt a new recovery scheme noting that the present set up as studied by the ERC "is not implemented uniformly due to the use of different formulas by different utilities." In its order, the ERC also said that the "confirmation process (under PPA and CERA) is conducted long after the costs have already been recovered from customers, adding that "rates are changed without an order from the ERC."