by Beatriz Marie D. Cruz | September 3, 2023| Published by BusinessWorld | READ THE STORY HERE

The Government needs to remove pass-through fuel cost clauses in power purchase agreements (PPAs) in order to lower electricity prices, an energy policy think tank said.

“The automatic fuel cost pass-through provision is really what causes the high cost of electricity,” Alberto R. Dalusung III, Energy Transition Advisor of the Institute for Climate and Sustainable Cities (ICSC), said in an e-mail.

“Amending the EPIRA (Electric Power Industry Reform Act) only (addresses) a small portion of the price burden,” Mr. Dalusung said, adding that the automatic fuel pass-through has a much larger impact on prices borne by the end-user.

Under a PPA between a distribution utility and coal power producer, fuel costs incurred by the producer are automatically passed on to consumers, with pass-through charges based on the prevailing global coal price index.

“It is high time we prioritize the use of indigenous renewable energy sources, promote genuine competition in the energy sector through the abolition of automatic fuel cost pass-through, and create an enabling environment for all renewable energy players to participate,” the ICSC said in a position paper.

Mr. Dalusung reiterated that EPIRA does not require amendment, and any concerns can be addressed by modifying the implementing rules and regulations (IRR).

“We opt for the issuance of a DoE (Department of Energy) or ERC (Energy Regulatory Commission) circular instead,” he said.

The ICSC also recommended to include in the IRR or the agency’s circular the definition of “least cost.”

“Without defining what ‘least cost’ is, the discretion to determine least cost has been left to distribution utilities,” according to the position paper.

Distribution utilities should also disclose all generation rates to avoid automatic fuel cost pass through or variable fuel costs, the ICSC said.

Removing some items from the power bill will also bring down power costs, he said.

“We support exempting the following items in the electricity bill from the 12% value-added tax (VAT): lifeline rate subsidy, capital expenditure contribution, and the NGCP (National Grid Corp. of the Philippines) franchise tax. This would reduce electricity bills and provide much-needed relief to consumers,” he said.

Eleanor L. Roque, tax principal of P&A Grant Thornton, said changes to EPIRA should include removing VAT for poor households.

“Considering that electricity is an essential service and since they are revisiting this issue, it may be better to look at removing VAT altogether for poor households” she said in a Viber message.

“There may be an issue to recover the input VAT attributable to the VAT-exempt sale. But we need to see the figures to see the actual impact,” she added. — Beatriz Marie D. Cruz