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We Take a Stand

Look Before You Leap, Senator

4 min read

By Butch Junia | Published: October 15, 2020

 

A recent item in media carried this eye-catching headline: Power subsidy para sa mahihirap sa ilalim ng EPIRA LAW, palalawigin ni Gordon.

That goes into the gut of the power issues – promising relief to those most affected and, intended or not, it highlights the problems that have plagued electricity supply since the light bulb was invented.

The good Sen. Richard Gordon proposes to extend the present lifeline subsidy, already on a 10-year extension, by another 20 years.

All told, the subsidy will subsist for 40 years or up to 2041, if I reckon Sen. Gordon’s SB 1583 correctly.

The Scheme. The subsidy was created under Sec. 73 of the Electric Power Industry Reform Act (EPIRA) passed in June 2001 which provides: “A socialized pricing mechanism called a lifeline rate for the marginalized end-users shall be set by the ERC, which shall be exempted from the cross subsidy phase-out under this Act for a period of ten (10) years, unless extended by law. xxx”

The last four words of that provision already sired a 10-year extension that emanated from the House.

Now we are looking at a 20-year extension coming out of the Senate, both deserving hearty claps from the marginalized beneficiaries.

Without being clear on who should pay the piper, Sec. 73 closed the grant off with this mandate to the Energy Regulatory Commission (ERC): “The level of consumption and the rate shall be determined by the ERC after due notice and hearing.”

Present ERC guidelines set the subsidy at a discount rate of 50 percent for those consuming between 21-50kwh per month, 35 percent for 51-70kwh, and 20 percent for 71-100kwh.

ERC also committed to “keep the costs associated with such subsidy between P0.05 to P0.10 per kWh.”

 

The Subsidizing Consumer

And who is going to pay that cost?

Every other electricity end-user who consumes 101 kWh or more per month, unequivocally described by ERC as the subsidizing customers.

In another provision of EPIRA (Sec. 70. Missionary Electrification.) where we are obligated to pay yet another subsidy we are quaintly described as “all electricity end-users”, but that will have to be for another discussion.

No matter what descriptive you use, the end result is that we are paying for what the government should pay for its safety nets and social amelioration programs.

I am sure the good Senator is aware that we – NOT THE GOVERNMENT – are paying for this subsidy that he wants extended for another 20 years.

But I am not sure if he finds it apt that he should first ask us if we want to pay this for 20 years more, or if we wanted to pay it in the first place, if we knew.

There is such a thing as informed consent and this is certainly one time that that comes to mind.

The Cost. Mine is a modest, 300-kwh household, and my MERALCO bill for this month (Aug-Sept consumption) is around P2,800.

Of that amount, 10.7 percent  is taxes at P300.34, all VAT except for P18 for a Local Franchise Tax. I paid a total of P82.92 for subsidies such as the Universal Charge, FIT All, ACRM, Senior Citizen Discount and the Lifeline subsidy (P20.42).

The subsidies, except for Missionary Electrification, were all subject to VAT in various  percentages. Total government take, direct as tax and indirect as subsidy, is P383.

 The Q’s. If the good Senator Gordon or any of his colleagues in Congress is keen on doing something for consumers, particularly the electricity end-users, here are a few policy questions they may want to address and resolve.

First, why should the tax bite be as high as 10 percent to 12 percent?

When we know that the cost of electricity is already high, why compound it with indiscriminate taxing: System Loss is taxed; Local franchise Tax is taxed; involuntary subsidies are taxed. Before expanded VAT, electricity was VAT exempt.

Second, how can government line its coffers with utility taxes (10 percent  to 12 percent ) while it makes consumers pay the cost (equivalent to 3.5 percent  of our bills) of its safety nets and social amelioration projects?

Third, why is the letter and the spirit of EPIRA not implemented and honored. Sec. 74 mandates the phase-out of the subsidies in three years, four years maximum, from the time Universal Charge and other subsidies are adopted.

EPIRA is now on its 19th year and we are talking of extending a subsidy for another 20 years! One of the fundamental aims of EPIRA is the elimination of cross subsidies in order that the cost of electricity is true and market driven.

Fourth, the exercise of regulatory powers under EPIRA has spawned rate setting methodologies that are fundamentally flawed in that they have yielded rates that are disadvantageous to consumers, as enunciated by the Supreme Court in National Association of Electricity Consumers for Reforms  v. ERC and Commission on Audit  (GR No. 226443, October 8, 2019).

What will Congress do to see that this Decision is implemented by ERC?

When this Decision is enforced and applied to rate setting, the cost of electricity will drop dramatically!

PBR or Performance Based Regulation under EPIRA is a failed rate regime in need of a real fix – Go fix!

 The Leap. Walk with us through these issues, Senator, and with the immense powers of your Blue Ribbon Committee, let us dig and delve into what lies under the veneer of regularity and propriety that mask the industry.

We may be surprised by what we find, but we must not be deterred.

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