ERC Decides on VECO's Unbundling Petition

The Energy Regulatory Commission (ERC) released today its Decision on the petition of the Visayan Electric Company (VECO) to unbundle its electricity rates pursuant to Republic Act No. 9136.

The result of VECO’s unbundled rates as compared to November 2002 actual existing rates yielded an overall average tariff decrease of Php 0.0682/kWh. The main reason for this decrease is the marked decline in the cost of power. It should be noted though that the computed distribution charge is almost revenue-neutral for VECO. The Commission, however, stressed that the modest decrease is not applicable across all customer classes of VECO.

The Commission, in issuing its Decision on VECO, effectively laid down key regulatory policies that will be consistently applied to all the Private Electric Utilities. These policies are in addition to the policies previously set in the unbundling Decisions on four electric cooperatives.

First, Line Losses for utilities will continue to include System Loss and the utility’s use of power for its own operations not to exceed the caps of 9.5% and one percent (1%) of kilowatt-hour (kWh) purchased and generated, respectively. Line Losses shall not include the personal use of its officers and employees.

Second, the Commission allowed depreciation on appraisal to ensure sufficient capital for the current replacement of fully depreciated plant. VECO was ordered to set up a depreciation fund for this purpose.

Third, the Commission excluded income taxes as an operating expense in the calculation of the revenue requirement, consistent with the government’s position with the Supreme Court. Should the Supreme Court reverse the decision of November 15, 2002, VECO may file a petition to adjust its rates to include an appropriate amount of income tax in accordance with the Court’s ruling.

Fourth, two (2) months cash operating and maintenance expenses (exclusive of Taxes and Non-Cash Items) and seven (7) days for purchased power costs were approved by the Commission for cash working capital based on Lead-Lag studies specific to VECO. The number of days worth of purchased power costs included in the cash working capital may vary for each private utility depending on the results of the Lead-Lag studies to be performed by the Commission.

Fifth, the Commission allowed the inclusion of Materials and Supplies and Construction Work in Progress (CWIP) of VECO in the determination of the rate base.

Sixth, on the basis of current jurisprudence, the Commission ruled on the grant of 12% pre-tax rate of return to VECO.

ERC Case Nos. 2001-891 and 2002-06, DECISION

January 29 , 2003