Review of ‘pass-on costs’ in electric bills pushed

Published January 28, 2018, 10:01 PM By Myrna M. Velasco

https://business.mb.com.ph/2018/01/28/review-of-pass-on-costs-in-electric-bills-pushed/

With escalating consumer agitation over incessantly increasing electricity rates, the Joint Congressional Power Commission (JCPC) will instigate a review and possibly rewrite the policy on “pass-on mechanism” of cost components being reflected in the monthly electric bills of Filipino consumers.

In an interview with reporters, Senate Committee on Energy Chairman Sherwin T. Gatchalian indicated that time and industry developments may already warrant re-writing” of the rate-regulation processes of the Energy Regulatory Commission (ERC) – mainly because in the automatic pass-on of rate components, even the costs incurred on inefficiencies of power utilities may have been shouldered by consumers.

This is an agenda, he said, that the oversight congressional body will have to examine based on proposals to be lodged by the Department of Energy (DOE).

“Maybe it’s about time to look at other rate approval best practices and regulatory formulas… that practice has long been there and had not been reviewed since then,” Gatchalian said.

On the part of the DOE, Energy Undersecretary Jesus Cristino P. Posadas noted that they would also scrutinize if the excise taxes on fuel for power generation under the Tax Reform for Acceleration and Inclusion (TRAIN) Act could be treated as “automatic pass-on costs,” or if the concerned industry players would need to seek regulatory approvals before they can reflect such in the bills of power consumers.

Presently under the ERC rules, fuel costs as well as corresponding foreign exchange rate (forex) adjustments and tax rates are automatic pass-through costs in the generation charge and other components of the electricity tariffs.

Relative to this regulatory process re-appraisal then, Gatchalian said “the JCPC will have to wait for the DOE’s guidelines and frameworks on how to update the regulatory formulas that are currently used in the rates.”

On ERC’s part, the lawmaker opined that it may already be apt for them “to look at other regimes where performance is included in the rates being passed on, so the consumers are not just completely the ones being at the receiving end of all cost burdens.”

He emphasized that “while everything now is being passed on, we want to hear out the DOE what regulatory formulas they can propose,” and for the JCPC to consider what alternatives of rate-setting the ERC can resort to on this sphere.

The rate-setting review may also be properly timed as rate resets under the performance-based regulation (PBR) had been delayed for almost three years already, and this comes to be an “unsettling development” not just for the DOE but the affected industry players as well, such as the National Grid Corporation of the Philippines and the distribution utilities like Manila Electric Company (Meralco) as well as the electric cooperatives.