ERC Weighs PSALM Rate Hike

Manila Bulletin

By Myrna M. Velasco

February 17, 2013, 2:43pm

Just when big businesses are complaining about high electricity rates in the country, a fresh round of increases from the universal charges pass-on of the Power Sector Assets and Liabilities Management Corp. (PSALM) is expected to be decided this week by the Energy Regulatory Commission (ERC). 

“A decision will be announced this week or anytime within the month,” a highly-placed source has noted.

If the full P140-billion PSALM stranded liabilities will be allowed for pass-on by the industry regulator, the rate hike will amount to P0.39 per kilowatt hour (kWh). This will account for both its stranded debts and stranded contract costs.

By definition, stranded debts should have been those not fully covered by PSALM’s proceeds from privatization; while stranded contract costs would have covered only the price difference between the costs of the supply contracts to that of prevailing market prices.

However, that definition had been altered by PSALM to include other costs, such as those relating to its operations and other expenses.

With government policymakers failing to come up with options on how to improve the dismal financial state of “mismanaged PSALM”, the default policy will always be to let the consumers suffer from burdening additional costs in their electric bills.

PSALM, in its application, proposed an alternative pass-on of its UCs. Instead of reflecting the full P0.39 per kWh over four years, it proposed that the recovery be stretched 15 years at P0.09 per kWh.

The cost pass-on of PSALM will not stop though with the P140 billion because it has been preparing to file for additional recoveries of universal charges.

The company is expecting to fetch additional revenues of P20-P25 billion annually from the approval of its universal charge recoveries. This will then spare it from fresh round of heavy borrowings, which has been its automatic recourse in the past years.

There is also a proposal to stretch its corporate life by another 10 years or until 2036 so it can fully recoup its liabilities.

PSALM is the most problematic state-run energy firm; and its failure on liability management bedevils the entire restructuring process undertaken for the electric power industry.

Lenders, such as the Asian Development Bank, also exert pressure on the Philippine government to enforce immediate solution on PSALM’s fiscal dilemma because it bears an adverse impact on the state’s overall financial stature.   source