Power taxes scrapping to cut rates by

The combined scrapping of value added taxes (VAT) and universal charges in the electric bills will cut power rates by as much as R0.96 per kilowatt hour (kwh), according to industry calculations.

If based on the average power rates in the Manila Electric Company’s (Meralco) franchise area as of end-2015, the reduction from VAT removal in the rate components would be at R0.61 per kwh. That will already include proposed ditching of the VAT charges for system loss. Meralco’s average rate in 2015 was at R8.26 per kwh from R9.42 per kwh in 2014.

And once the universal charge (UC) components in the rates will be dropped, there would also be an additional R0.35 per kwh reduction in power rates.

In last week’s Senate committee on energy hearing on the recurring dilemmas of the industry, Senator Ralph Recto restated the ‘inconvenient truth’ that the power sector is a heavily taxed industry – and the subsidies just keep piling up in the bills.

Aside from VAT and franchise taxes, the electric bill is also swamped with subsidy charges – including the lifeline rate (for subsidizing end-users), the feed-in-tariff (FIT) charges for renewable energy (RE) developments and various line items on universal charges.

It has been opined that universal charges are “effectively taxes” underpinned by the Electric Power Industry Reform Act, the enabling policy that set forth the restructuring and privatization of the industry.

When asked on plans about mitigating consumers’ burden over taxinflated power rates, Energy Secretary Alfonso G. Cusi indicated that his department has been “dissecting the various charges’ and had been exploring ways on how and where to reduce some of the cost components.

He said one sphere already being studied is on eliminating the UCs on stranded debts and stranded contract costs – that both the Departments of Energy (DOE) and Finance intend to accomplish by tapping into the Malampaya fund to pay off the power sector’s residual liabilities.

“On the universal charge, we would like to take that out really and we want to pay that universal charge,” Cusi said.

The current UC for stranded contract cost in the electric bills is at R0.1938 per kwh, but that is anticipated to go up once the new cost recovery applications of the Power Sector Assets and Liabilities Management Corporation (PSALM) would secure regulatory approvals.

Further on getting rid of the UC charges, Cusi stressed “we believe that we should give it to the people so that we can lessen the burden that they are paying for in their electric bills.”