ERC Decision on 4 Coops Unbundling Sets Key Policies

The Energy Regulatory Commission (ERC) issued the first batch of unbundling decisions for four electric cooperatives (ECs) on November 15, 2002.

The Commission decided on the applications of Pampanga I Electric Cooperative, Inc. (PELCO I), Pangasinan I Electric Cooperative, Inc. (PANELCO I), Sorsogon I Electric Cooperative, Inc. (SORECOI), and Zamboanga Del Sur II Electric Cooperative, Inc. (ZAMSURECO II). The unbundling of rates of said ECs resulted in an overall rate reduction primarily due to the decrease in power cost purchased from NPC.

In issuing its decisions on the four ECs, the ERC effectively laid down key policies that will be consistently applied for the remaining 115 applications of electric cooperatives.

The policies related to the determination of total revenue requirement and rate structure/design determination are as follows.

First, the Commission maintained the System Loss caps prescribed in R.A. 7832. Electric coops are allowed to recover only up to 14% system loss and up to 1% of company use. The Commission emphasized, however, that company use should not include the personal use of its Board of Directors, officers and staff.

Second, the Commission adopted the policy of adjusting the payroll account to current salary levels of permanent employees when found justified, even if the basis for other costs was year 2000.

The Commission also removed the Wage Adjustment Clause (WAC) Formula authorized by the previous Energy Regulatory Board through ERB Case Nos. 94-25 and 94-96. The WAC can be recovered by the ECs through improvements in efficiency and revenue growth.

Third, for operation and maintenance expenses, disallowances, with material impact in the calculation of rates per customer class, were made on expenses found to be excessive and unnecessary in the electric operation.

Fourth, on the policy on debt service, the cooperative shall apply for a rate reduction under the Guidelines for the Implementation of the Reduction in Rates of the Electric Cooperatives Due to the Condonation of Debts, as amended, issued by the Commission on October 21, 2002 and amended on November 15, 2002.

Fifth, the Commission, as general rule, granted a provision for reinvestment equivalent to five percent (5%) of the Gross Revenue which shall be used by ECs to finance expansion and rehabilitation/upgrading of its existing electric power system. This Fund, however, will be closely monitored so that it is used only for capital expenditures. It shall not be utilized for operating expenses.

Sixth, the Commission deducted the Other Revenue Items from the revenue requirement used to calculate the rates for the end-users to ensure that customers benefit from other income sources of the cooperative. In the case of prompt payment discounts, the Commission ruled that the cooperative can keep half, while the other half is passed on to consumers.

Seventh, the Commission pegged specific lifeline consumption maximum levels for each of the ECs. In order to maximize the benefit to as many marginalized end-users as possible, the Commission adopted the graduated scale for lifeline discounts. The graduated scale is based on the recognition that individual end-user consumption levels may slightly vary from month to month.

The Commission also considered the impact that the Subsidized Lifeline Rates will have on non-lifeline consumers of the EC who will carry the costs associated with such subsidy. As a general rule, the subsidy on lifeline consumers shall not exceed PhP 0.10/kWh.

Eighth, the Commission acknowledged that cost-causation rate design principle suggests the recovery of customer-related costs associated with the metering and supply functions through fixed monthly charges. However, the Commission considered other factors in determining the rate design to protect the below-average end-users.

Ninth, the Commission ordered that the distribution charge provided on the approved rate schedules be likewise utilized as distribution wheeling charges available to the future competitive generation. However, other distribution utilities requesting to wheel power across the EC’s facilities shall pay wheeling charges equivalent to distribution wheeling charges for industrial end-users.

Tenth, pertaining to the Other Charges of the ECs, these are pegged at their existing levels until such time that the Commission set new rates on the same. In this connection, the ECs were ordered to make a compliance filing on its Other Charges a year from the date of the Decision. The compliance filing for approval of Other Charges shall include rates that are cost-based, as well as, all supporting cost justification for the rates.

December 4 , 2002