Distribution firms urged: Gear up for change
Wednesday, November 10, 2004
By LENIE LECTURATODAY Reporter
Energy Secretary Vincent Perez on Monday urged distribution utilities to shape up in preparation for the reforms that are about to take place in the power sector.
“The reforms are ongoing to create a competitive and strong electricity industry sector. Instead of putting up strong resistance in the midst of these changes, distribution utilities should embrace these reforms mandated in the EPIRA [Electric Power Industry Reform Act] to better serve the consumers,” he said.
Among others, the EPIRA calls for the implementation of an open access regime that will eventually allow electricity consumers to choose where they can buy their electricity.
At present, residential consumers are not allowed to directly connect to power generators such as the National Power Corp. or independent power producers (IPPs). Electricity consumers source their supply from power distributors like the Manila Electric Co. (Meralco) in the case of Metro Manila and nearby areas and rural electric cooperatives for those in the provinces.
Several legislators have pushed for the acceleration of the open access, saying such a move will give the bulk users such as the electronics industry reprieve from higher cost of power contracted by certain utilities.
Also, the Energy Regulatory Commission (ERC) will soon set a rate that DUs are to charge to their customers.
The ERC announced that it recently completed consultations with the stakeholders in the distribution sector on the proposed Distribution Wheeling Rates Guidelines (DWGR) using a performance-based rate setting (PBR) method.
The implementation of a PBR scheme is one of the reforms pushed with the enactment of the EPIRA to provide a more efficient delivery of electricity to consumers. EPIRA authorizes the ERC to adopt alternative forms of internationally-accepted rate-setting methodology to ensure a reasonable price of electricity to enable companies to operate viably and at the same time provide consumers with an efficient and reliable power supply.
“We thank the ERC for speeding up the introduction of a new performance-based rate-setting scheme for the distribution utilities. As envisioned, we believe that this will create a more efficient distribution sector responsive to the needs of the consumers as well as the investors,” Perez said.
In its statement, the ERC said the proposed DWRG is a “win-win proposition for both investors and consumers as foreign-exchange risks are shared by investors and consumers.” It noted that several countries such as Australia, Canada and the United Kingdom have already adopted PBR.The ERC recently held a public consultation to discuss the Regulatory Reset Issues Paper on the TWRG.
Section 7.1.2 of the TWRG requires ERC to draft the issues paper that contains the commission’s initial views on the issues to be discussed during the pending regulatory reset process and to specify the information required to be delivered by National Transmission Corporation (Transco) for the regulatory reset process and the time by which such information must be delivered to ERC.
The major issues discussed include the grouping, classification, valuation, and economic life of assets, the Transmission Development Plan (TDP) and its planning horizon, the treatment of income tax, as well as the levels of regulatory Weighted Average Cost of Capital (WACC) and operating and capital expenditures.
In May 2003, the ERC adopted a TWRG which had been developed through a public consultation process during 2002 and early 2003. The final TWRG dated May 29, 2003 outlines a PBR framework which imposes a revenue cap on the Transco’s revenue recovery from its customers and adjusts Transco’s tariff rates accordingly.
The TWRG was adopted by ERC as an alternative form of internationally-accepted rate-setting methodology under Section 43(f) of Republic Act 9136, the EPIRA, and Rule 15, Section 5(a) of its Implementing Rules and Regulations (IRR).
The performance-based rate-making regime departs from the traditional return on rate base methodology which has been used in the Philippines for over 80 years.
The PBR methodology will benefit both investors and consumers by improving efficiency of utility operations and ultimately bring about long-term benefits to consumers in terms of providing more affordable electricity rates and greater quality and reliable electric service.
“The TWRG will set the tone for predictability and stability of our regulatory policies. The paradigm shift in rate-making is well-timed as the government is now focusing on the privatization of the transmission sector. A stable regulatory environment will encourage more investments into this sector and accelerate the modernization of the transmission and distribution sectors,” the ERC said.
posted by philpower @ 10:29 AM,
