Napocor’s skewed perspective

When the National Power Corp. (Napocor) glowingly trumpeted what it termed as “rate reduction” for its customers, hinting at cost efficiencies, it conveniently forgot that the Energy Regulatory Commission (ERC) actually ordered the government behemoth to refund its overbillings to the tune of P10 billion.

These overbillings arose from the profits Napocor earned from the improvement in the peso’s rate vis-à-vis the dollar. The rate reduction, as Napocor is wont to say, is actually a refund that Napocor should have filed with the ERC long ago.

This skewed sense of perspective of Napocor—citing rate reduction as against the refund that the ERC ordered—manifests the way Napocor cavalierly treats its stakeholders. Napocor conveniently forgot that it was the ERC which set forth the return of the overbillings for the period from July 2006 to March 2008. That supposed Napocor rate reduction that translates to 30 centavos per kilowatt-hour (kWh) in the Manila Electric Co. area and the 71.16 centavos per kWh starting with the May-June billings is actually less than what the customers should get because of the strengthening of the peso. This refund, due to be felt by customers in July and August, did not reflect the actual profits Napocor “earned” from the foreign-exchange gains.

ERC Chairman Rodolfo Albano gently reminded Napocor on its skewed perspective and even imposed a carrying charge on Napocor, meaning it should pay extra for the delay in the so-called refund. The overbillings were from the July 2006 to March 2008, yet Napocor filed for rate reduction only for the period from July 2006 to December 2006. In short, the customers have been shortchanged for the strong-peso-induced profits of Napocor for the period January 2007 to March 2008.

A statement from Albano showed how Napocor was chided for its “rate reduction” charade. “The Napocor has been directed to expedite the filing of the application for the remaining period of January 2007 to March 2008 to further help moderate the plight of consumers who are already burdened with high prices of commodities.” And here is the clincher from the same Albano statement: “Also an explanation on why the applications were made partially instead of the full period must be adequately established.” And to prove its point on the Napocor delay, the ERC is set to factor in a carrying charge, according to ERC Executive Director Saturnino Juan, because “had [Napocor] filed the application in 2007 instead of just now, customers would have enjoyed the refunds earlier.”

Under ERC guidelines, there are mechanisms in place related to cost recoveries for Napocor should the peso-dollar rate deteriorate. Every time the peso drops in value against the dollar, the ERC allows rate increases that Napocor applies for. Thus, when the peso deteriorated, reaching the P56-to-$1 level, the Napocor was quick to the draw. But when the peso improved in value vis-à-vis the dollar, the utility giant was too slow in filing for rate reduction.

This delay just goes to show that Napocor has missed out on its mission, its reason for being. By its abject failure to immediately pass on to its customers its foreign-exchange savings, it has miserably failed in delivering the kind of government service required of it as a utility firm. Remember that Napocor is not subject to the vagaries of the business world, where it could end belly up and a colossal failure, much like the way US financial giants were wiped out in the wake of the subprime crisis.

Napocor is allowed to recover whatever additional costs it would have to shoulder. It is allowed to pass on these additional charges to its customers, although its profits are limited to a specified return-on-rate base. It need not care whether it acquires its coal at higher rates than what non-Napocor coal plants get. These additional costs and cost inefficiencies are simply added to the generation charges.

And so, we applaud the ERC when it decided to impose a carrying charge on the amount of refund that should accrue to Napocor’s customers. This is just fair. And to prove its point, the ERC, in its notice of public hearing set on July 17, 2008, it included a matrix of the allowable carrying charge or interest rate which is based on the prevailing 91-day Treasury bill rate. For the July 2006 test/billing month, the ERC said the allowable rate is 9.076 percent, since the T-bill rate was 6.076 percent plus an additional 3.0 percent authorized allowable allowance.

For August 2006, the allowable rate was computed at 8.043 percent and the succeeding months were set at 8.444 percent, 8.469 percent, 7.837 percent and, in December 2006, it is 8.153 percent. The ERC should similarly impose carrying charges for the period January 2007 to March 2008, the months that Napocor conveniently lost in its perspective. At least, Napocor has met its match in the person of Albano, a long-time legislator wise in the ways of the world and who is unafraid to call a spade a spade.

The improvement in the peso-dollar rate as against the allowed generation charge based on certain forex assumptions has allowed Napocor to rake in substantial forex savings. We understand that Napocor made off with P78.7 billion in forex gains from 2004 to 2005, and then by P80 billion in 2006 and 2007, as the peso continually improved on the back of remittances from overseas Filipino workers. The difference between what Napocor set forth as generation charges given an assumed peso-dollar rate and what really prevailed for those periods is what Napocor has been ordered to refund.

Now, there is a harsh reality that stares all of us Napocor stakeholders, which just goes to show the utility firm’s skewed sense of perspective. That ERC notice of hearing set July 17 at 2 p.m. at the ERC hearing room, 15th floor, Pacific Center Building, on San Miguel Avenue, Pasig City, will consider an application for a rate increase by Napocor. The pending Napocor application is for an upward adjustment of P4.75 per kWh. But Napocor is not telling us about it possibly because it has lost its own perspective on the matter. Haha.

E-mail: hugagni@yahoo.com

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