Asian Energy Advisors

Disclaimer: This is not a post in opposition to, nor in support of, the AGRA. It it is a post in support of clarity.

The ERC claims, in the headline of a news item available on the front page of their website, that “Automatic adjustments [are] mandated by law.”

Well, of course they’re not - at least not explicitly. And I’ve not seen an argument that suggests that they are implied by any law. Except for, perhaps, the vague reference ERC makes in the news item to the concept that the AGRA “is intended to shield consumers from the burden of additional costs arising from deferred charges’ cost of money or interest expense.”

But that’s flawed logic in that it displays a total disregard to the concept of the opportunity cost of money.

Let’s say I owe you P100. If you take that P100 out of my pocket today instead of, say, a month from now, then I am prevented from investing it and earning a month’s worth of interest on it. If you agree to take it from me one month from now, then you can validly argue that I also owe you the interest that I earned, because if I had paid you initially, then YOU could have invested it and earned the interest. So the interest is an opportunity cost to you (as well as me, possibly). There is no net loss to me.

The ERC is implicitly saying: by not allowing the customer to “defer” paying something that the customer owes to the utility, the ERC is saving the customer money.

But the customer is not saving anything through his inability to defer payment. (Is that enough negatives for you?).

The ERC is indeed avoiding a situation whereby the utility customer may have to remit interest to the utility. But in such situations, the customer gets additional value - they get to “keep” the P100, to use my example, for some additional time and that has value to the customer. In fact, it may have very much more value than is measured by any interest they may earn by putting it in savings. The customer may have other very important uses that money for an extra period of time and place a value on that “loan” that exceeds whatever interest charges the ERC may assess. In such cases, the customer is “better” off paying the interest than in not having the money for an extra month (or whatever). I’m sure an economist could say this much more succinctly than I have.

Let me cut to the chase for the benefit of the general reading public of this blog. The real question at hand - ah, excuse me - ONE of the real questions at hand is whether the utilities get to first collect their “claimed” fuel and purchased power costs from customers while the ERC’s review of the claim’s legetimacy is in progress - or does the review need to take place BEFORE the allowed collection?

Interest is a red herring. The ERC’s throwing it out there distracts from the real issue. And quite frankly, AGRA can be legitimately defended, thank you very much, without resorting to the specious argument that it’s “mandated by law.”