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New formula allows Meralco to increase rates


(Update) MANILA, Philippines - The Philippines’ largest electric company will soon charge higher rates this May after the government allowed it to use a new financial formula. Under the performance-based rating (PBR) scheme, the Lopez-led Manila Electric Co. (Meralco) will initially charge customers 25 centavos more, the company said in a statement. While the rates rose due to “inflation, cost of servicing, and higher cost of investments," the new scheme provides “rewards and penalties for performance and non-performance respectively, Jose de Jesus, Meralco president said. Under the said mechanism, Meralco may be required to pay fines should its performance — such as failing to immediately respond to a blackout — fall below certain standards. On Thursday, the Energy Regulatory Commission (ERC) authorized Meralco to finally use the PBR, a decision that will boost the company’s share prices. [see: Meralco shares to rise with approval of new rate formula] Although it already approved its application in October 2008, its implementation was delayed after consumer groups opposed the scheme. As a result, ERC’s Thursday order allowed Meralco to increase rates by 25 centavos to P1.22 per kilowatthour (kWh), the first such rate hike in June 2003, the company said. Previously, Meralco’s distribution charge was at P1.08, when electricity bills was required to be itemized under the Electric Power Industry Reform Act (Epira). The distribution charge is just but one component of the total power costs shouldered by consumers. Meanwhile, lifeline users, or customers using 20 kWhs or less “will continue to enjoy the 100 percent discount granted them but shall pay only the adjusted P5.30 per month metering charge while the other lifeline customers shall enjoy a discount corresponding to the consumption level under the new lifeline program, including the P21 per customer per month minimum charge," the ERC said. The new PBR scheme also replaces the return on rate base (RORB) formula, which charges customers for using Meralco assets — including posts and cables — in bringing electricity to its end-users. Under the RORB, public utilities such as Meralco are disallowed from charging rates exceeding 12 percent of the worth of its total assets. Moreover, the PBR will “improve Meralco’s ability to raise capital...since the rates approved will correspond to the capital and operating expenditure program approved by the ERC," a company official told GMANews.TV in a text message. In October, the energy regulator also allowed the Dagupan Electric Corporation (Decorp) and Cagayan Electric Power and Light Company (Cepalco) began implementing their PBR rates, Meralco said in a statement. The National Transmission Corporation (Transco), whose operations were recently assumed by the National Grid Corporation of the Philippines (NGCP), first implemented PBR rates three years ago, it added. Next: Power bills may fall despite higher rates Power bills may fall despite higher rates Despite the increase in distribution charges this coming May, consumers’ electric bills may decline, Meralco said, citing an ERC order accelerating its refund to clients. Beginning May, Meralco will issue a 14.61 centavo per kWh refund to its customers, the company said. In March, it was required by the ERC to refund four centavos for every kWh used by its clients. The ruling was issued after the company was found to have reportedly overcharged its customers under its Currency Exchange Rate Adjustment (CERA), or fees arising from its foreign obligations. As a result, the refund, which will end in a year, may offset the rate hike. “In addition to accelerating the CERA refund as directed by ERC, transmission charges to our customers will go down by an average of 16.53 centavos per kwh under the annual updating," the company said. The reduction in transmission charges is the result of the annual updating of transmission charges prescribed by the Transmission Rate Adjustment Mechanism or TRAM. Although power generation and transmission costs are collected by Meralco, these fees are remitted to the National Power Corp. (Napocor) and independent power producers, which produce electricity, and the National Transmission Corp. (Transco), which runs power lines that dispatch electricity across the country. - With Robert JA Basilio Jr., GMANews.TV
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