Electricity rates may likely increase – the burden to be shouldered by power consumers in the next 17 years – unless the Energy Regulatory Commission (ERC) intervenes.

This, after the Power Sector Assets and Liabilities Management Corporation (PSALM), a government owned and -controlled corporation tasked to undertake the privatization of the assets of the National Power Corporation (Napocor), filed before the Energy Regulatory Commission (ERC) its bid to pass on to electricity consumers the P80.9 million bonus it gave to its employees.

The hefty bonus was packaged as “performance incentive” for privatizing power assets and were booked as “other maintenance and operating expenses” (in 2008 alone), on top the P80.5 million salaries for its 165 personnel.

PSALM also sought to recover P18.4 million covering night shift differential for its trading team then at the Wholesale Electricity Spot Market (WESM) and P118 million for professional services that were paid to its consultants on privatization. These were all inserted in the company’s filing for stranded debts recovery totaling P470.865 billion.

Section 32 of the Electric Power Industry Reform Act (EPIRA) clearly defines stranded debts as referring to “unpaid financial obligations of National Power Corporation.” There is nothing in the law prescribing that stranded debts will include employee compensation or bonuses.

The component in Napocor stranded debts, along with the power firm’s stranded contract costs, shall be passed on to electricity end-users as universal charge (UC) and reflected as separate item in the electric bills. Once the UC is approved by the ERC, this will serve as additional charges that will inflate bills to be paid by electricity consumers in the next 17 years or until PSALM’s end of corporate life in 2025.

Based on the 153-page stenographic notes on the case’s hearing at the ERC, PSALM Vice President for Finance Lourdes S. Alzona admitted that “performance incentives”, which are equivalent to roughly six-month bonuses, were indeed given to all PSALM employees.

She told the ERC that the incentives covered all 165 personnel – from the top to the lowest position, “including the contractual that we hire to support the operations of PSALM.” The PSALM official added that the entire P80.9 million bonanza “includes not only performance incentives given but also the terminal leave because we are allowed to monetize our earned leaves.”

Alzona added that the program was approved by the PSALM Board, and the amount initially covered bonuses given in 2008. “This is not only for plantilla positions, this includes all contractual that we have,” she emphasized.

Apart from employee compensation, PSALM also integrated other expenses in the stranded debt recovery filing, including payments for utilities (i.e. water and electricity), finance charges and operating expenses. The company told the ERC that the collected proceeds from asset privatizations were made to settle financial obligations, including advances made for its operating expenses.

In PSALM’s filing for universal charge recovery accounting for stranded debts, it batted to pass on via the electric bills levelized P0.3049 per kilowatt hour (kWh) as additional charges in the bills; provided that its recovery period will last only until 2025.

Apart from the initial filing of P471 billion in June 2009, PSALM filed for another P54.897 billion stranded debt recovery last month wherein it sought to pass on P0.8677 per kWh additional charges in the electric bills.

These filings were on top of the company’s bid for pass-on of stranded contract costs. The latest filing in June (this year) amounting to P26.685 billion will redound to P0.1879 per kWh additional universal charge in the bills; while initial stranded contract cost filing in 2009 will translate to P0.5024 per kWh rate recovery.

When EPIRA was still being deliberated in Congress, the intent of the policy advocates then would be to privatize the Napocor assets and correspondingly use the proceeds to retire its monstrous financial or loan obligations.

As it appears today though, PSALM has just paid down part of the NPC debts and even had to incur new batch of loans to refinance other loans and bankroll operating expenses.

As far as the universal charge for stranded debts is concerned, PSALM noted this has been fixed to the P48 to one US dollar exchange rate “considering that any foreign exchange rate fluctuations may be recovered through Incremental Currency Exchange Rate (ICERA) cost recovery mechanism.”

However, the exchange rate as of Tuesday was P46.275 to one US dollar.

It was specified that the application also factored in prospective privatization proceeds from the Agus and Pulangui plants by 2012; and set debt service based on the amortization schedule with various creditors.

Among the “smoothing mechanism” considered by PSALM was to calculate that “the revenues for calendar years 2009-2029 will merely cover variable and fixed-operating costs excluding capacity fees.”

PSALM first filed cost recovery applications for universal charges on stranded debts and stranded contract costs several years back, but it opted to withdraw the application as it first concentrated on its mandate to privatize the Napocor assets.