PSALM wants to recover differential ancillary service charges from NGCP

by Lenie Lectura – March 28, 2016

from Business Mirror

The Power Sector Assets and Liabilities Management Corp. (PSALM) wants to recover nearly P7 billion in so-called differential ancillary service charges from the National Grid Corp. of the
Philippines (NGCP).

If approved by regulators, this will be passed on to distribution utilities (DUs), which, in turn, will result in additional power rates for end-users. Effectively, this is an increase in power bills.

In an eight-page application filed with the Energy Regulatory Commission, a copy of which was obtained by the BusinessMirror, the recovery of P6,888,065,922.01 worth of ancillary services differential for the billing period 2008 to October 2009 will be collected in only a month in the Luzon grid, and six months in the Visayas and Mindanao grids.

Broken down, P2 billion will be collected in the Luzon grid, P2.5 billion in the Visayas and P2.4 billion
in Mindanao.

Of the P2-billion differential ancillary service charge in Luzon, P1.5 billion will be collected by the Manila Electric Co. (Meralco) from its customers.

“On the part of Meralco, we estimate that the rate impact on our customers would be around P0.51/kWh [kilowatt-hour] if the recovery is approved by the commission,” Meralco Head for Utility Economics Lawrence Fernandez told the BusinessMirror on Sunday.

The anticipated P0.51-per-kWh rate increase is equivalent to paying P103 more for Meralco customers who typically consume 200 kWh in a month.

“If the ERC approves the motion, the NGCP will have to bill the DUs nationwide, including Meralco. Then the rate impact will be reflected after one month in the bills of end-users. The impact will mainly be felt as part of the transmission charge.”

However, there will also be some upward effects on the system-loss charge, the value-added tax or VAT and local franchise tax, Fernandez said in an interview.

“For a 200-kWh household, the rate impact is estimated to be P0.51/kWh or P103,” Fernandez reiterated.

Meralco has 5.8 million customers as of end-December 2015, of which 91.6 percent are residential customers. The remaining 2.1 percent are commercial customers and 6.3 percent comes from industrial customers.

Ancillary services

In a nutshell, ancillary services are essential in maintaining power quality, stability and security of the power grid. They stabilize electricity supply and prevent system-wide blackout and regulate the volume of electricity delivered to end-users.

In emergency cases, when a power plant breaks down, for instance, ancillary service providers make backup plants readily available.

NGCP said ancillary services are needed to ensure reliability in the operation of the transmission system and, consequently, in the reliability of the electricity supply in the Luzon, Visayas and Mindanao grids.

“It is the responsibility of NGCP to adequately serve generation companies, distribution utilities and suppliers requiring transmission service and/or ancillary services through the transmission system,” the grid operator said.

An ancillary service charge is recovered by NGCP from its load customers like Dus that, in turn, will bill end-consumers.

NGCP said it was tasked to provide ancillary services to all transmission users of the main grids by the Electric Power Industry Reform Act of 2001 (Epira), its implementing rules and regulations, the Philippine Grid Code (PGC) and by Wholesale Electricity Spot Market (WESM) rules.

NGCP is also mandated to implement the ERC-promulgated Ancillary Service Procurement Plan (ASPP) and the Ancillary Services Cost Recovery Mechanism (AS-CRM).

How it all began

In October 2009 the ERC gave the National Power Corp. (Napocor) provisional authority (PA) to charge the NGCP for the provision of ancillary service, pending approval of the Ancillary Services Procurement Agreement (ASPA) between Napocor and NGCP.

A year later, in March 2010, the ERC made permanent the provisionally approved ASPA rate to be effective from the April 2008 billing period (March 26, 2008 to April 25, 2008) until the issuance of the PA on October 12, 2009.

At the same time, the ERC directed Napocor and NGCP to submit additional recoverable AS differential, which is the difference between the ERC approved AS rate and Transco (National Transmission Corp.) calculated AS rate. They were also asked to submit a collection scheme for the April 2008 to October 2009 billing period.

Napocor and the NGCP both complied.

Napocor, in its compliance with manifestation, seeks to recover P6,048,276,707.00 in AS differential for the period. The NGCP, meanwhile, said in its compliance with manifestation that the AS differential amounts to P5,286,853,359.62. The grid operator also submitted its proposed billing and collection scheme of one month for the Luzon grid and six months for the Visayas and Mindanao grids.

Then, in May 2011, Napocor filed its manifestation and motion for the ERC approval of the AS differential based on updated data submitted by NGCP. In that motion, Napocor noted the principal AS differential of P5,286,853,359.62 now reconciles with the amount submitted by NGCP. Accordingly, in January 2012, Napocor filed before the ERC a motion to resolve its May 2011 manifestation and motion for the approval of the total AS differential amount of P6,888,065,922.01 composed of the principal AS differential, interest and VAT.

“To date, Napocor and NGCP have fully complied with the requirements of the commission’s order to submit the recoverable AS differential amount and collection scheme from NGCP,” NGCP documents show.

In the meantime, by virtue of the asset-debt transfer between Napocor and PSALM, and pursuant to section 49 of Epira, PSALM intervened in the proceeding through a petition for intervention in July 2009.

“Consequently, as owner of all existing Napocor generation assets which provide NGCP with ancillary services, PSALM now comes before the commission and respectfully moves for the approval of the following:

Principal AS differential amount covering the April 2008 to October 2009 billing period amounting to P5,286,853,359.62;
Applicable legal interest;
Imposition of VAT on principal AS differential amount using the average Napocor AS mix covering the periods April 2008 to October 2009;
Collection of one month in Luzon grid and six months in the Visayas and Mindanao grids as proposed by NGCP,” PSALM said.
“Wherefore, it is most respectfully prayed that the commission expediently issue an order,” the NGCP said.