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REACTING
to a proposed amendment to the Electric Power Industry
Reform Act (Epira) that will require verification and
confirmation of the Energy Regulatory Commission (ERC),
the Philippine Independent Power Producers Association
Inc. (Pippa) said that disallowing the automatic
pass-through of adjustments will endanger the
reliability of power supply.
“The
mechanism for automatic pass-through of adjustments to
the basic charge of electricity has been subject to
stringent regulatory review of the ERC, and disallowing
it will endanger the reliability of electricity supply,”
Pippa said in a position paper.
Pippa
quoted the proposed amendment to Section 43(f) of the
Epira as saying, “The ERC, acting as quasi-judicial
body, shall conduct public hearing on all applications
for basic rate increases only. Henceforth, no
provisional authority for electricity rate increase may
be issued.”
The same
provision noted that pass-through charges shall be
subject to subsequent verification and confirmation by
the ERC to deter or prevent over/under recovery of
charges.
For this
purpose, the proposed amendment defined basic rate as
the regulation of distribution rate using the
return-on-rate base methodology, the performance-based
regulation or other internationally accepted rate
methodology; and that any adjustment resulting from the
volatility of fuel prices and foreign exchange shall be
considered pass-through charges.
It added
that the requirement for basic rate increases provided
in the preceding paragraph shall not apply in cases
involving recovery of pass-through charges. Provided,
that the determination of the applicable formula for the
computation of authorized pass-through charges shall be
subject to at least one public hearing after compliance
with the publication requirement.
Pippa
said fuel accounts for 30 percent to 60 percent of the
total cost of power generation. In particular, imported
fuel accounts for 35 percent of the fuel mix for the
energy generated in Luzon, adding that higher taxes for
natural gas vis-ŕ-vis other baseload fuels like coal or
bunker further contribute to the increase in fuel price.
All the
foregoing components of the generation charge, according
to Pippa, including the changes in foreign currency
exchange rates, are beyond the control of the
generators.
Pippa
pointed out that the ERC devised a mechanism by which
the methodology of determining these components are
scrutinized and adjustments are accordingly allowed
under strict conditions.
Applying
this mechanism, Pippa said that changes in cost of fuel
and foreign exchange rates, which can be downward or
upward, can be passed through automatically. And as
these changes are based on international indices, the
adjustment can be easily scrutinized and verified.
Pippa
said that the automatic pass-through adjustments are not
determined arbitrarily, and these are results of
applying the objective methodology approved by the ERC
in a proper proceeding observing the due process
requirements of notice and public hearing.
Pippa
said automatic adjustments have undergone prior
regulatory review, and further review or hearings every
time a change occurs would essentially be redundant and
inefficient. |
