ERC approves lower Cepalco rates

business mirror

TUESDAY, 21 JUNE 2011 19:28 PAUL ANTHONY A. ISLA / REPORTER

CUSTOMERS of the Cagayan Electric Power and Light Co. (Cepalco) will begin to enjoy lower distribution rates in July 2011, the beginning of the third regulatory period.

The Energy Regulatory Commission (ERC) approved on June 6, 2011 its final determination on Cepalco’s revenue application for the period under its performance-based regulation (PBR).  The approved MAP by the ERC for 2012 (July 2011 to June 2012), which averages to P1.2491 per kilowatt-hour (/kWh), is substantially lower by P0.3214/kWh than the prevailing 2011 MAP, which averages P1.5705/kWh.

Cepalco’s application, covering regulatory years 2012-2015, ranges from P1.6296/kWh to P1.8138/kWh, higher than the ERC-approved MAP for 2012.

On June 18, 2011, Cepalco filed its revenue application. A series of public hearings conducted from July to November 2010 approved Cepalco’s revenues for 2012 to 2015 at P1.04 billion, P1.155 billion, P1.235 billion and P1.298 billion, respectively.

For each of the four years of the third regulatory period, the ERC approved annual revenues for Cepalco. These annual revenues consist of the amounts approved by the ERC representing Cepalco’s efficient operating costs, including taxes and duties other than income tax, return on its invested capital, depreciation allowance, under recoveries for the previous regulatory period, and net efficiency adjustments. 

A regulatory weighted average cost of capital (WACC) of 14.97 percent was used by the ERC to calculate the allowable return on capital for Cepalco.  The WACC is significantly lower than the 16.27 percent used in Cepalco’s previous rate reset application. The ERC disallowed certain projects in Cepalco’s proposed capital expenditures since these were deemed not necessary for the efficient provision of distribution services and not based upon available prices in the international markets. These, together with system efficiencies, contributed to a significant reduction on Cepalco’s return on capital component of the approved revenues vis-a-vis its proposed application.