So you may better understand the Universal Charge . . .

The Universal Charge (UC) is the government’s necessary action to reduce the financial obligations of the National Power Corporation (NPC) that were transferred to the Power Sector Assets and Liabilities Management (PSALM) Corporation, an agency created under Republic Act No. 9136, the Electric Power Industry Reform Act (EPIRA.

Why will PSALM file a petition for the Universal Charge?

The privatization activities of PSALM are supposed to pay off a “portion” of the financial obligations of NPC. But the proceeds from the privatization of NPC’s generation assets “may” not be sufficient to settle the debts of the state-owned power firm, a fact recognized by the lawmakers when it crafted the EPIRA. Thus, the lawmakers incorporated the collection of the UC in the law to allow the government, through PSALM, to recover the stranded costs.

As the instrument of the EPIRA that created it, PSALM is fulfilling its mandate stipulated in the law by filing the UC application with the Energy Regulatory Commission (ERC), the government body tasked to regulate the Philippine power sector. Through the mandatory collection of the UC, PSALM will raise the needed funds to efficiently manage the liabilities of NPC.

PSALM is mandated under the EPIRA to “calculate the amount of the stranded debts (SD) and stranded contract costs (SCC) of NPC which will form the basis for the ERC in determining the UC.” The ERC will determine and approve the final amount to be collected from electricity consumers.

Why will consumers share the burden of paying PSALM’s obligations?

Part of the debt obligations transferred to PSALM came from subsidies provided to consumers through power rates that were lower than the true cost of producing electricity. In maintaining these subsidies, NPC had to borrow to sustain its operations. These were the loans that were transferred to PSALM.

The EPIRA stipulates that the UC will be imposed on all electricity users. To soften its impact, the collection of the UC may be implemented through a number of years subject to ERC approval.

How much is PSALM’s outstanding loans and obligations?

PSALM’s current total obligations stand at USD15.821 billion, of which independent power producer obligations amount to USD8.798 billion, while total NPC debts add up to USD7.022 billion.

Why does PSALM continue to incur debts when most of the assets of NPC have already been privatized?

PSALM continues to incur debts because the privatization proceeds are not enough to pay maturing debts as these proceeds have yet to be fully collected. In addition, PSALM continues to incur losses from operating the expensive IPPs in its portfolio. Thus, PSALM needed to borrow to prevent defaulting in its contractual obligations with creditors, suppliers and investors.

When will PSALM file a petition with the ERC?

The Amended Rules for the Recovery of the NPC Stranded Contract Costs and Stranded Debts Portion of the Universal Charge were released by the ERC last 7 March 2011. On 4 March 2011, PSALM requested that it be allowed to file on or before 30 June 2011. This was approved by the ERC on 11 March 2011.

How will the Universal Charge affect electricity consumers?

Assuming a PhP0.15 per kilowatt-hour (fifteen centavos per kilowatt-hour) for UC is approved, the amount will form part of the consumers’ electricity bill. For households consuming 1401 kWh of electricity per month, this means an additional PhP21.00 in their monthly electricity bill.

This is roughly equivalent to 10.5 cigarette sticks2 a month, or 21 text messages in the same time period. Additionally, (benefit to consumers)

The UC will not pose an unnecessary burden to electricity consumers as this will be paid based on actual electricity consumed. As such, the “burden” will be higher for users with many appliances. It will also penalize indiscriminate users of electricity.

1 Based on the 1678 kWh average annual household consumption of electricity from the 2004 Household Energy Consumption 2 Survey Final Report, “Department of Energy” and “National Statistics Office.”

2 At Php2.00 per stick.