The Negros Oriental 2 Electrical Cooperative (NORECO 2) has come out to explain the recent power price hikes that occurred in the first half of 2011.
In a statement released to the DumagueteMetroPost, NORECO 2 said that while its contract with Green Core Geothermal Inc. is being blamed for such rate increases, the rate changes were actually driven by not just one, but by multiple factors, all of which were done to secure power supply for Dumaguete’s growth and development.
NORECO 2 said it used to source its power from the government-owned and controlled National Power Corp. but subsidizing Napocor proved too costly as it lost P261 billion from 1987 to 2004, the statement said.
These losses had to be absorbed and funded by the government, which at some point reached 1/3 of the country’s total consolidated public sector debt.
This was one of the reasons for the passage of RA 9136 or the Electric Power Industry Reform Act (EPIRA), which called for the end of these subsidies being provided to power distribution companies such as electric cooperatives.
Electric power cooperatives are among the key players in the power industry to have felt the impact of the absence of subsidy from NAPOCOR.
An example is the case of NORECO 2 which supplies, Tanjay City, Bayawan City, Pamplona, Amlan, San Jose, Sibulan, Valencia, Bacong, Dauin, Zamboanguita, Siaton, Sta. Catalina, and Basay.
NORECO 2 used to source power from Napocor at a subsidized rate. But without the subsidy and with the uncertainty of power supply, NORECO 2 had to source power from Independent Power Producers (IPPs) at the true cost of generation to ensure that residents and businesses have power supply security in the future.
NORECO 2 initially bought power from Kepco Salcon Power Corp.However, with the increase in demand, the power from KSPC proved to be inadequate, and NORECO 2 was obligated to find another power supplier.
The second IPP that NORECO 2 contracted was GCGI, which offered the lowest power rate from the four available sources in the area. From NORECO 2’s perspective, signing the contract with GCGI could not have come at a more opportune time.
Aside from the fact that GCGI offered the lowest rate, it also assured that NORECO 2’s power supply will always be sufficient in meeting the demand of its clientele both from residential and commercial areas.
However, the transition from subsidized to regular power rate definitely affected NORECO 2’s power prices.
The effect has been felt by the consumers since the beginning of 2011. NORECO 2’s power rate increased by 20% or by 1.46 P/kWh.
From 7.44 P/kWh in January 2011, the rate became 8.90 P/kWh in June 2011, due to KSPC power rate adjustments which are pegged on volatile coal prices, peso-dollar exchange rates, and US and Philippine inflation rates.
The increase continued in July this year when NORECO 2 increased its rate by 1.38 P/kWH. For this period, the increase was driven bya combination of the factors: GCGI power rate adjustment (1.19 P/kWh), KSPC contract quantities and applicable value-added tax (0.04 P/kWh), and transmission cost adjustment (0.15 P/kWh).
Even if GCGI’s power rate adjustment accounts for 1.19 out of the total 1.38 P/kWh increase, NORECO 2 assured that GCGI’s rate is still lower than that of KSPC’s.
GCGI’s rate is 4.85 P/kWh while KSPC’s rate is 5.60 P/kWh (inclusive of VAT).
GCGI’s rate is even lower compared to two other potential suppliers: PEDC @ 7.3464 P/kWh and CEDC @ 6.6640 P/kWh.
NORECO 2 also said customers can be assured of more secure rates with GCGI from here on because GCGI rates only adjust once every year, pegged on the movement in Philippine annual inflation rates, allowing for greater stability and predictability of power rates in the long run.
While the current rates are definitely higher, NORECO 2 claims they are merely reflective of the true cost of generating power, sans the subsidies.
Although NORECO 2’s consumers are still reeling from the unavoidable effect of market forces, NORECO 2 assures its customers of their unceasing commitment to provide secure and cost efficient power supply, just as they have done by entering into the GCGI supply contract which shall benefit consumers in the long run, the statement concluded.