Meralco customers get 56¢/kwh refund

The Manila Electric Co. (Meralco) is set to refund 56 centavos per kilowatt-hour (kWh) next month to consumers after it implemented a generation charge adjustment for November and December 2006.

Meralco head for utility economics Ivanna de la Peña said the refund stemmed from the "mistake" in the collection scheme based on the provisional authority granted by the Energy Regulatory Commission (ERC).

The ERC had found a "technical slip" on its part that prompted Meralco to submit a proposal on how to refund the "mistake in collection."

The 56-centavo increase was included in the bills of Meralco customers under the category "other charges."

The total amount of adjustments were calculated to represent November 2006 generation charge adjustment; December 2006 generation charge adjustment; November 2006 system loss charge adjustment; December 2006 system loss charge adjustment plus applicable value added taxes.

Dela Peña, however, clarified the amount of refund would depend on the consumption of the customers during the period.

The provisional authority given to Meralco by ERC to collect the 56 centavos per kWh was an offshoot of the increase in generation costs brought about by the spikes in Wholesale Electricity Spot Market (WESM) during these periods.

With the "mistake," the Meralco bill indicated in its April 2007 billing that the generation charges would be brought down to P4.42 per kWh.

It was noted that in the cost adjustments, the November generation charge was temporarily adjusted to P4.71 per kWh and December to P4.69 per kWh from the reference rate of P4.42 per kWh.

This is because of the automatic adjustments in generation costs was stalled in August stemming from the Supreme Court (SC) ruling requiring a public hearing and publication of all applications for Generation Rate Adjustment Mechanism (GRAM).

The GRAM is a pass-through mechanism, which means Meralco just collects the charges and remits it to its power suppliers, that included the National Power Corp., WESM and independent power producers.

There was a move initiated by Meralco to change its application for cost adjustments in generation charges.

A petition on the proposed change in recovery mechanism has already been re-filed with the ERC.

For his part, ERC chairman Rodolfo Albano Jr. has assured Filipino consumers that the application of Meralco will be thoroughly reviewed before any ruling could be rendered.

Meralco has warned that any inability to recoup under-recoveries from generation would result in cash flow problems and subsequent failure to pay its suppliers, which may in turn lead to poor service to consumers.

As this developed, Napocor will also be filing a 36.26 centavos per kWh drop in rates for July.

Napocor president Cyril del Callar said they are set to file the application with the ERC for the decrease in GRAM recovery by middle of June.

Napocor earlier filed two similar rate adjustments after its GRAM and Incremental Currency Exchange Rate Adjustment (ICERA) dropped in the latter part of 2006 due to appreciation of the peso.

"We will be filing soon with the ERC. We hope it would be a similar drop in GRAM and ICERA as our two previous applications," Del Callar said.

The ERC had earlier asked the Napocor to file a new application to reduce its rates by as much as P2 per kWh to fully pass on to its consumers 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, 2007 and April 2, 2007, respectively, before the ERC.

In a statement, Napocor said these recent filings will have a combined impact of lower deferred accounting adjustments (DAA) in the bills of the state-owned power generation company’s customers.

Napocor explained the GRAM represents recoveries for the actual incremental costs of fuel and power sourced from Independent Power Producers (IPPs) both local and foreign currency-denominated.

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

To enable the power firm to recover its previously incurred costs through GRAM and ICERA, the ERC has ordered that all adjustments in power rates must pass through the process of evaluation, hearings and approval before its actual implementation in compliance with the Supreme Court ruling pursuant to Section 4 (e) of the Implementing Rules and Regulations (IRR) of RA 9136 or EPIRA.

"Currently, there is a delay of more than a year in the recovery of incurred costs by Napocor under these ERC-approved mechanisms. Thus, for this particular filing, National Power is only recovering GRAM and ICERA expenses for the period February 2006 up to June 2006," it said.

The effect of foreign currency fluctuations can readily be seen in Napocor’s financial statements through the accounting of the costs of borrowing every end of the year.

Due to the delayed nature of these recoveries, Napocor’s customers however cannot immediately feel the effects of the improvement of the peso.

"The current appreciation of the peso will naturally bring down the cost of borrowing of National Power 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.

Napocor further explained that such FOREX gains are of non-cash financial nature as they relate to the company’s outstanding loans.