PSALM seeks NPC okay to charge P27.67-billion stranded debt to consumers as power rates rise

Philippines: PSALM seeks NPC okay to charge P27.67-billion stranded debt to
consumers as power rates rise

THE Power Sector Assets and Liabilities Management Corp. (PSALM) is seeking
regulatory approval to pass on to end-users the stranded debt of the
National Power Corp. (NPC) amounting to P27.67 billion through the universal
charge (UC).

This developed as power rates in areas being served by the Manila Electric
Co. (Meralco) are expected to go up by P0.29 per kilowatt-hour (kWh) this
month, mainly on account of higher generation charge.

The rate increase is roughly equivalent to P58 for residential consumers
with an average consumption of 200 kWh a month.

Plea

PSALM, in a 21-page petition filed before the Energy Regulatory Commission
(ERC), proposed to collect P0.0283 per kWh for nine-and-a-half years to
mitigate the impact on consumers.

It said the 2015 UC-stranded debt (UC-SD) adjustment was calculated based on
the projected energy sales of 977,206 gigawatt-hours (GWh) for January 2017
to June 2026.

As provided under Section 34 of the Electric Power Industry Reform Act
(Epira), UC will be imposed on all electricity consumers to cover payment of
NPC's stranded debt and stranded contract costs.

Stranded contract costs refer to the excess of NPC's contracted cost of
electricity with independent power producers over the actual selling price
of the output. Stranded debt refers to NPC's unpaid obligations that were
not liquidated by proceeds from the sale of its assets.

The UC, which is a separate line item in consumers' electric bills, has
different subcomponents, depending on the utilization of the funds as
specified in the UC collection.

"As PSALM has vigorously pursued its mandate of privatizing the generation
assets and the power facilities, revenues from the sale of electricity of
the remaining assets are not enough to cover its operations and provide
funds for the payment of NPC debts and obligations," the PSALM said.

Stop-gap measure

To address the funding gap, PSALM is forced to resort to temporary solution
by borrowing that entails borrowing costs, which, in turn, will form part
of the UC-SD, effectively increasing the UC burden of all electricity users.

But if PSALM would be allowed to immediately recover the UC-SD under its
petition through provisional approval, new loans and refinancing to service
maturing debts and lease
obligations would lessen.

"This would redound to the benefit of electricity end-users due to reduced
borrowing costs, effectively reducing the UC burden," PSALM said.

PSALM, the state agency tasked to privatize NPC's power assets to help
generate funds to pay off NPC's debts, is authorized to impose UC from all
end-users to compensate for any remaining deficit.

It is also mandated by law to calculate the amount of the stranded debts and
stranded contract costs of NPC, which shall be the basis for the ERC in
determining the universal charge.

The culprit

The increase in the rates was primarily due to the generation charge, which
increased by P0.34 per kWh from last month's level of P3.72 per kWh, which
was the lowest since October 2004.

Generation charge now stands at P4.06 per kWh. The upward adjustment in
generation charge was primarily due to the higher charges from the Wholesale
Electricity Spot Market (WESM), which went up by P4.49 per kWh after dipping
to P3.97 per kWh last month. This was the result of higher generation
capacity on outage during the June supply month compared to the previous
month, resulting in five instances of yellow alerts in June (June 13, 14,
17, 21 and 22).

It will be recalled that several power plants went offline in June. Those
that went on scheduled outage were Pagbilao-2, San Lorenzo Mod 50 and 60,
Santa Rita Mod 40 and iPower. Meanwhile, those that went on forced outage
include Sual-1, San Gabriel, Calaca 1 and 2, GN Power 1 and 2, Limay A and
B, Santa Rita Mod 10 and 30, SLPGC 1, SLTEC 1 and 2, San Roque 2, Pagbilao 1
and Ambuklao 2.

In contrast, the Luzon grid did not experience any yellow or red alert in
May, when peak demand reached the record-high mark of 9,727 MW.

Due to the increased incidence of plant outages, too, Malaya 2 was
dispatched for around half of the June supply month, when peak demand in
Luzon dropped to 9,260 MW. The Malaya plants are "must-run units" and are
typically instructed by the National Grid Corp. of the Philippines (NGCP)
to be dispatched when reserve levels in the grid are very low.

Costs of energy sourced from independent power producers (IPPs) also
registered a slight increase of P0.03, mainly due to the lower dispatch of
QPPL. Cost of power from plants under the power supply agreements (PSAs),
meanwhile, decreased by P0.02 per kWh. This was driven primarily by the
higher dispatch of Ilijan.

The share of PSAs and IPPs to Meralco's total power requirements stood at
49.2 percent and 42 percent, respectively. Meanwhile, the share of WESM
went down from 12.8 percent the previous month to 7.8 percent in June.

Meanwhile, transmission charge registered a decrease of P0.08 per kWh,
mainly due to lower ancillary charges. Taxes and other charges increased by
P0.01 and P0.02 per kWh, respectively, following the increase in generation
charge.

Meralco's distribution, supply and metering charges remain unchanged, after
it registered a reduction a year ago. Meralco reiterated that it does not
earn from the pass-through charges, such as the generation and transmission
charges. Payment for the generation charge goes to the power suppliers,
while payment for the transmission charge goes to the NGCP.

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Link to Original Article:
http://www.businessmirror.com.ph/psalm-seeks-npc-okay-to-charge-p27-67-billi
on-stranded-debt-to-consumers-as-power-rates-rise/

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com