DOE orders scrutiny of coal contracts of power generators
By Myrna M. Velasco – January 19, 2018, 10:01 PM
from Manila Bulletin
The Department of Energy (DOE) indicated that it intends to scrutinize the coal contracts of power producers and establish if there are provisions mandating pass on of costs relating to excise taxes.
In a statement to the media, Energy Secretary Alfonso G. Cusi stressed that “we will look into coal contracts and scrutinize provisions as to whether there is a provision on pass-on of excise tax.”
Nevertheless, it is clear under Section 43 (f) of the Electric Power Industry Reform Act (EPIRA) that taxes are part of the pass-on costs in the rates, as the law prescribes that rate-setting “must allow the recovery of just and reasonable costs…”, and in the latter rules set forth by the Energy Regulatory Commission (ERC), recoveries shall cover taxes and government-incurred fees in the delivery of electricity service.
It was further noted that if tax pass-on had been part of the ERC-approved power supply agreements (PSAs) and transmission charges, then in the cost impact pass-on of the excise taxes on coal and fuel for power generation, “automatic mechanism will govern,” and will just be subject to post-audit by the ERC.
The energy department has also been requiring power generation companies to submit their respective coal inventories, so the government can gauge how soon the resulting rate hike from the Tax Reform for Acceleration and Inclusion (TRAIN) Act will be reflected in the electricity bills.
Cusi further qualified that they similarly “directed all distribution utilities to require from their suppliers the basis of any additional charges that may emanate from the TRAIN Law.”
He noted that such must include “explanation on the implementation of excise taxes vis-à-vis the minimum inventory requirement for both coal stocks and diesel products.”
As detailed out by ERC Spokesperson Floresinda B. Digal in a Senate hearing, the various components that will bear cost increases due to the TRAIN’s implementation would be the transmission charge of the National Grid Corporation of the Philippines (NGCP), the generation charge due to excise taxes on coal and other fuel for electricity generation; system loss charge and the subsidy component for missionary electrification.
On the generation charge, Sebastian R. Lacson, president and chief operating officer of Therma South, Inc. of the Aboitiz Group, pointed out that on top of the excise tax on coal, there would also be tax on cost impact on their use of light fuel oil (LFO) for the start-up processes of their power facilities.
“Depending on the contracts that we have, that (tax on light fuel oil) has effect as well,” Lacson said, while adding that for those with lower volume of fuel buffer, pass on of cost increases may come sooner.
Digal, emphasized, that based on data they have on hand, some generation companies may already start passing on higher costs in February billing; while the others could be in March or April this year.
