ERC to start PEMC, NGCP audit

by Lenie Lectura – January 19, 2016

from Business Mirror

THE Energy Regulatory Commission (ERC) will start looking into the operations of the Philippine Electricity Market Corp. (PEMC) and the National Grid Corp. of the Philippines (NGCP) to make sure consumers are getting reliable power service and reasonable rates.

ERC Chairman Jose Vicente B. Salazar told the BusinessMirror that the conduct of an audit on the PEMC is expected to be finished in April, to be followed by the release of a similar audit on NGCP before the year ends.

Salazar, in an interview, said the agency has tapped Reyes Tacandong & Co. to conduct the audit on PEMC, operator of the country’s trading floor for electricity.

He said the agency has concluded the procurement process for the engagement of an independent auditor before the end of 2015. “Reyes Tacandong won the bidding conducted in December last year,” Salazar said.

The auditor, he added, is about to start preliminary works on the audit. The project is expected to be completed in three months.

An audit on PEMC was first raised by Senator Sergio Osmeña II, chairman of the Senate Committee on Energy, in October last year. He called on the ERC to conduct an independent audit since PEMC is not subject to audits by the Commission on Audit (COA), being a private corporation.

The PEMC board is a 15-man body made up of representatives from each sector of the electric-power industry, as well as independent members. It is chaired by the secretary of the Department of Energy (DOE). The DOE also appoints the members of the board.

SGV & Co. has been engaged by PEMC as external auditor since 2006.

Under the Electric Power Industry Reform Act of 2001, the PEMC is supposed to last for only one year and would transition to an Independent Market Operator (IMO). The PEMC has existed for 12 years now.

Osmeña said the energy secretary should be out of PEMC or IMO as its chairman, because it cannot be a real independent body if the chair is the DOE chief, which issues policies, some of which becomes part of the rules of PEMC and Wholesale Electricity Spot Market.

PEMC President Melinda Ocampo, when sought for comment, said her office would comply with whatever the ERC tells them to do. “We are transparent, as far as I know,” she said.

When asked if the conduct of an audit was necessary, Ocampo said, “I can’t say it’s unnecessary because they are the regulator, but we will comply,” she added.

On the NGCP audit, Salazar said the Grid Management Committee (GMC) of the ERC is now in the process of drafting the audit procedures.

“The ERC ROS [Regulatory Operations Service] will conduct the system-operator audit, with the assistance of the GMC,” said the ERC chief in the same interview.

Salazar added that the NGCP audit will be awarded to a third party and the selection of the third-party auditor will start as soon as the terms of reference and audit procedures have been finalized.

“The turnaround time for the audit will be six months from award of the contract,” the ERC chief said.

When sought for comment, NGCP Spokesman Cynthia Alabanza said the NGCP will “assess once it has received a copy of the order.”

In February 2015 the ERC issued a resolution ordering the NGCP audit through the GMC.

The ERC is looking into the grid operator’s performance as a system operator (SO) under the WESM rules for a competitive energy market.

The ERC said that as an SO, the NGCP balances the supply and demand of electricity to efficiently serve all of its customers: power generators, private-distribution utilities, electric cooperatives, government-owned utilities, eco-zones, industries, as well as directly connected companies.

The NGCP provides the central dispatch to all generation facilities and load connected, directly or indirectly, to the transmission system, according to the dispatch schedule submitted by the market operator.

The NGCP is a private consortium that holds the 25-year concession to operate the country’s power-transmission network. The Sy-led consortium is composed of State Grid Corp. of China (40 percent); One Taipan Holdings Corp. (30 percent); and Calaca High Power Corp. (30 percent).

Salazar said the audit on the PEMC and the NGCP are meant to ensure that both entities comply with existing rules and regulations relevant to their respective operations. “Both audits are being undertaken by the ERC in connection with our clear mandate under the law.

“The objective is to ensure reliable power service and more reasonable rates for the consumers.”

The PEMC, as the market operator, ensures the optimal dispatch of generation based on the submitted offers from generators, bids from customers and conditions of the grid from the NGCP, from which a spot price for electricity throughout the grid is set.

The PEMC facilitates the settlement of financial accounts of the trading participants based on the same sources of information.