To plug budget shortfall on fuel procurements, Energy Secretary Raphael P.M. Lotilla prefers that state-run National Power Corporation (NPC) will resort to borrowings despite escalating interest rate that will eventually be shouldered by consumers in their electric bills.
Instead of allowing the Energy Regulatory Commission (ERC) to rule on NPC’s pending applications for rate adjustments under its universal charge for missionary electrification (UCME), the DOE secretary opted to just delay the bad news for consumers as the mandated borrowings will also be passed on eventually in the power firm’s charges.
NPC has several applications with the ERC for aggregate P30 billion worth of cost recoveries – but the regulatory body has not been acting on these petitions for fear of social backlash because this will likely result in power rate hikes.
To operationalize the NPC borrowing plan as a politically convenient solution, Lotilla announced that a legal opinion has been issued by the Department of Justice (DOJ), stipulating that “NPC has the legal authority to borrow funds or contract loans to fulfill its missionary electrification function.”
In DOJ’s Opinion No. 20 Series of 2022 issued last week, the energy chief stated that “the favorable opinion will allow the NPC to establish a credit line with local banks that would enable it to manage the fuel price increase that has significantly affected the NPC’s financial position.”
He said “the funds of NPC sourced from the UCME is not sufficient to support NPC’s current operation.”
The energy chief is being cautioned, however, that his excessive leaning to legalities to solve an ‘economic regulation problem’ will not be helpful to the power industry; because that will just drive NPC into deeper troubles of indebtedness, that in the end, will also be reflected as additional cost burden in the bills of consumers.
And as NPC borrowings would pile up, this will not only result in more expensive rates for the Filipino consumers but this may commit the state-run firm into another round of bankruptcy which would have been the scenario avoided in the passage of the Electric Power Industry Reform Act (EPIRA) in 2001.
The ERC has long been prodded to act on NPC’s pending petitions to solve the worsening blackouts in the provinces, but the regulators seem fidgety on exercising their mandate – which should not have been the case if they would want all relevant players in the industry to stay financially afloat and for the consumers to be accorded with improved electricity services.
The Small Power Utilities Group (SPUG) or island-grids being served by NPC have long been crying over their blackout quandaries and they have been batting for ERC to exercise its regulatory power on the cost recoveries of their servicing power utilities, but that has been falling on deaf ears until now.
The ‘loan procurement’ strategy being espoused by Lotilla had been generally perceived as ‘bad economics’ because that will eventually inflate the UCME, which is a separate line item being passed on to all ratepayers.
Still, the DOE chief opines that this option will make NPC current with its payments to new power providers (NPPs) and this will also help “ramp up renewable energy sources in the off-grid areas.”