Power rates can be reduced by at least P2 per kilowatt-hour (kWh) by adjusting regulatory policies and amending the Electric Power Industry Reform Act (EPIRA), a study by University of the Philippines professors showed.

The study, “Reducing Power Rates By at Least P2.00/kWh”, showed that a combination of regulatory policy adjustments can lower electricity prices of MERALCO consumers by at least P2.0913.

These policy adjustments are:

• reduction of National Power Corporation’s (NAPOCOR) basic average generation charge;
• an optimal power mix for MERALCO;
• removal of Value-Added Tax (VAT) on systems loss;
• amendments on the some provisions of the EPIRA law.

The study, written by professors Allan Nerves, Edna Espos, Ivan Benedicto Nilo Cruz and Rowaldo del Mundo of the UP College of Engineering, said that the amount of reduction that may be estimated at this time using MERALCO’s current supply mix (40% from NPC, 35% from MERALCO IPPs and 25% from others, including WESM), are as follows:

“MERALCO’s least-cost power supply to its customer is P.88/kWh lower than the effective rates that it passed on to its customers,” the study said. Of this amount, the power purchased by MERALCO from IPPs has contributed to P0.65/kWh while its participation in the WESM contributed P0.23/kWh.

Interventions to lower electricity rates, the study said, must focus on the reduction of generation charges since it accounts for 58 percent of electricity rates. Its share on the electricity rates reaches 70 percent if systems loss and taxes are to be included.

The study said that the basic generation charge of the NAPOCOR should be lower today than the level set in 2004 by the Energy Regulatory Commission because of the appreciation of peso and sale of the generating assets, which are included in its rate base.

Espos said that there should be reduction in the basic average generation charge because when the 2004 level was set, the exchange rate was still at P52 per dollar level. “The exchange rate has gone down.”

The NPC’s rate base, the study added, still includes the value of assets that were sold by the Power System Assets and Liabilities Management (PSALM).

“Consumers continue to pay NAPOCOR the 8% return on assets, operations expenses (OPEX), fuel costs, depreciations and payroll expenses for these plants even if NPC is no longer supplying electricity from them,” the study said. It estimated the removal of these plants from the rate base would reduce NPC’s basic service charge in Luzon by at least P.08/kWh.

Meanwhile, NAPOCOR president Cyril del Callar said that they never collected incremental currency exchange rate adjustment (ICERA) and generation rate adjustment mechanism (GRAM). “We are still waiting for a ruling from the ERC,” he said.

MERALCO President Jesus Francisco said that among the possible sources of savings cited by the study, it is only the 10-centavo distribution charge that pertains to MERALCO.

The study also recommended stopping the collection of the expanded VAT on the franchise tax, the incremental currency exchange rate adjustment (ICERA), and on system loss.

“Applying the E-VAT on systems loss penalizes the consumer twice: first, they are made to pay for electricity that is not received; second they are made to pay tax on electricity that is not received,” the study said.

The authors of the study estimate that monthly VAT revenues on generation and transmission system loss ranges from P.50-P.60/kWh in Luzon depending on the level of generation charge. (abs-cbnNEWS.com/Newsbreak)

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