ERC submits proposals to lower power rates
Outgoing Energy Regulatory Commission (ERC) Chairperson Agnes Devanadera is submitting her proposals to the incoming administration to lower power rates, including suspension of excise tax on coal and petroleum and removal of double VAT imposition in pass-on costs.
Devanadera, whose term will end on July 9, is pushing for the temporary suspension of excise tax on coal and petroleum products to immediately address the impact of increasing international fuel and coal prices and supply disruption due to the Ukraine-Russian War.
She said this is the most effective way to lower power rates since it can be felt immediately by electricity consumers and has the least impact to stakeholders, other than electricity consumers.
Citing Manila Electric Co. (Meralco), its generation rate pre-Tax Reform for Acceleration and Inclusion (TRAIN) Law was P5.8623 per kilowatthour, which increased to the current P5.8724 per kWh.
“If excise tax under the TRAIN Law will be temporarily suspended, the rate reduction that can be felt will be at P0.101 per kWh,” she said.
The TRAIN Law imposed a tax rate of P150 per metric ton on coal divided into tranches over 2018 to 2020.
Meanwhile, Devanadera said the TRAIN Law’s impact for missionary areas, which are mostly powered by diesel/ bunker-fired power plants, is significant. Based on computations, P1.50 per kWh will be reduced in the generation rate if the P6 per liter excise tax is removed.
“Note, however, that this will be seen as a reduction in subsidy since customers in the missionary areas pay a subsidized generation charge (SAGR) and the difference in the actual cost is source through the Universal Charge,” she said.
Meanwhile, the ERC chief is also pushing for the clarification of value-added tax computation on gross receipts and the temporary reduction of VAT charges on the generation rate.
She said that under Section 6 of the Electric Power Industry Reform Act of 2001 (EPIRA), the generation charge is originally zero-rated. But due to the manner of implementing Bureau of Internal Revenue (BIR) rules on VAT computation on gross receipts, Devanadera said the generation charge is subject to VAT when billed to distribution utilities (DUs) and is subject to another round of VAT when included in the billing statement of DUs to customers.
As an example, for a Meralco billing of P16,000 per month, around P1,700 represents the VAT imposition based on BIR rules.
But if the billing statement only covers VAT for the distribution charge, the VAT imposition should only be reflected at around P400 to P600, Devanadera said.
“We’re saying you don’t tax again the generation, the transmission, you don’t tax the system loss,” she said.
“We don’t need a law to be passed. It’s a matter of interpretation of the agency [and that agency] that can do this is the BIR. That will give us a reduction of about seven percent so that’s a lot,” the ERC chair added.