Napocor's rate cut is actually a refund
DAMPENER: The good news is that the National Power Corp. will cut its electricity rates for six months by 30 centavos per kilowatt-hour in the Meralco area, and by 71.16 centavos/kwh in the rest of Luzon starting with the May-June billing.
The bad news, or the dampener, is that the rate cut is not really a gift of a benevolent Napocor but a refund of some P10 billion that the power firm, through no effort of its own, earned when the peso exchange rate improved and generation costs fell.
In short, there was overcharging. When we were being made to pay exorbitant Nopocor rates, the rates should have been lower to reflect true costs.
The remaining big questions are (1) what will happen to the rates after six months, and (2) when do we get refunded the rest of an estimated P150 billion in foreign exchange and generation savings that Napocor had booked as profits?
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TOO LATE: Napocor’s P10-billion refund is coming too late. The pay-back was delayed, deliberately I think, by its late application for adjustments in the Generation Rate Adjustment Mechanism (GRAM) and the Incremental Currency Rate Adjustment (ICERA).
Acting on the petition, the Energy Regulatory Commission has approved the slashing of Napocor rates to pay back the overcharging from July 2006 to March 2008. The refund will be reflected in the coming billings of distribution utilities, including the Manila Electric Co. (Meralco).
With the peso steadily gaining on the dollar in the last three years, our electricity rates should have been regularly reduced. How come the rate reductions owed to forex gains are not inputted promptly into electric bills?
Still, it is not remote that Napocor will gloat that it is now charging P3.89 per kilowatt-hour in its generation rate for Luzon, or less than what Meralco-related Independent Power Producers are charging.
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FOREX GAINS: Napocor has admitted amassing at least P78.7 billion in forex gains (from yearend of 2004 at P56.267=$1 to yearend of 2005 which closed at P53.067=$1) and about P9.2 billion in GRAM and ICERA deferred accounting adjustments.
In 2006, Napocor posted more than P80 billion from forex gains alone and posted another P80 billion last year since the peso was last traded at P46.50=$1.
Instead of coughing back to consumers the overcharges, the Napocor passed off the billions as income or profit. Napocor reported a net income of almost P90 billion in 2006 due to hefty forex gains. In 2005, it also reported forex gain amounting to P65 billion.
Profits from forex gains cannot be attributed to better fiscal management. They must be given back to consumers.
(GRAM is a quarterly adjustment mechanism that allows public utilities lto recover costs from fluctuations in the cost of fuel and of purchased power. ICERA is a similar mechanism to recover costs related to fluctuations in the foreign exchange rate. A strong peso usually means a reduction in rates.)
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SHORT-LIVED: But the relief could be short-lived. After six months, electricity rates could rise again because Napocor has a pending application for increases that could mean P4.75 per kilowatt-hour in generation charge.
The ERC noted that the Napocor’s latest GRAM and ICERA filings did not cover the period from July 2006 to March 2008, which the ERC earlier ordered Napocor to file for cost recoveries.
Last May, the ERC ordered Napocor to explain why it failed to file a petition for the recovery of around P10 billion in generation and forex-related costs for July 2006 to March 2008, the approval of which would have meant a rate reduction of around 20 centavos per kwh for customers.
With Napocor’s failure to file for recovery of these costs during the 21-month period, the rates reflected on customers’ bills were more than what they should have been. The ERC said Napocor overcharged its customers P10 billion.
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UNFAIR TO DUs: ERC Chairman Rodolfo Albano said that because the latest applications were only good until December 2008, the ERC imposed carrying charges on the amounts that should have been refunded in Luzon to benefit the consumers.
Industry insiders said that by not reimbursing or returning the forex gains that it has booked as profit, Napocor is technically taking away from consumers a benefit or savings due them.
This is also unfair to power distributors or electric cooperatives who are invariably blamed for the delay in reimbursements.
Distribution utilities are merely distribution and collection agents and have no authority whatsoever to dictate to Napocor the price mechanism much less demand for a price adjustment even when there is a need for one.
Power distribution firms are not automatically reimbursed for price cuts they have already implemented as a result of foreign rate changes. It takes them usually 46 months to get reimbursed by Napocor.
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ANXIETY: President Gloria Arroyo should be disturbed that her sudden order to Napocor to offer lower rates to distribution utility firms was met with anxiety.
Many civil society groups saw the order as a political move, a band-aid solution, they said, that still leaves consumers paying more in the long-term.
One reason for this is that the President has not explained how the rate reductions would be offset or financed, and if the corresponding reduction in the earnings of cash-strapped Napocor would be passed on to taxpayers anyway.