Napocor, PSALM not allowed to recover costs from utilities

MANILA, Philippines - State-run power firms were prevented from recovering incurred costs from expired supply contracts with distribution utilities (DUs).

In a decision dated Aug. 10, the Energy Regulatory Commission (ERC) prohibited National Power Corp. (Napocor) and its subsidiary Power Sector Assets and Liabilities Management Corp. from recovering costs from select power distributors.

ERC told PSALM and Napocor to recover costs using kilowatt-hour (kwh) sales of customers under the existing contracts for supply of electricity (CSE) or transition supply contracts (TSCs).

However, ERC ordered the state firms to defer the collection of the approved generation rate adjustment mechanism (GRAM) and incremental currency exchange rate adjustment (ICERA) from customers with expired CSEs or TSCs.

In March, the ERC approved the 69.04-centavo per kwh increase in electricity rates for Luzon, 60.60 centavos per kwh for Visayas and 4.42 centavos per kwh for Mindanao. The cost recovery for DUs started in April. It passed on to consumers last May.

“The recent order directs PSALM and Napocor to implement recovery from existing customers only while deferring the collection from those customers with expired contracts,” PSALM president and CEO Emmanuel R. Ledesma Jr. said in a text message.

This is pending the ERC’s final approval of a recovery scheme that will be submitted by PSALM, Ledesma said.

PSALM and Napocor will recover costs the costs under the GRAM and ICERA mechanisms for the next eight to 10 years.

As allowed by the Electric Power Industry Reform Act (EPIRA) of 2001, Napocor and PSALM could apply for GRAM and ICERA to recover incurred costs from 2007 to 2010, which will then be passed on to consumers.

PSALM used the old quantity in recovering costs, particularly the electricity sales during 2007 to 2010, ERC executive director Francis Saturnino C. Juan said in a text message.

“This amount is bigger because the quantity under the existing TSC of DUs is already reduced because of the privatization of Napocor assets and contracts,” Juan said.

Hence, the peso amount that PSALM tried to recover increased, Juan added.

Under the EPIRA, Napocor will have to privatize its power plants. After the privatization, Napocor would be left with the function of operating those power plants that will not be sold by PSALM.

The GRAM covers the difference between the allowable fuel and purchased power costs and the amounts recovered through the approved basic generated rate during the test period and the balance of previously-approved GRAM applications of Napocor and PSALM.

The ICERA, on the other hand, corresponds to the additional costs or savings from foreign exchange fluctuations in the settlement of debt service and operating expenses and covers the difference between the actual or allowable capacity and infrastructure fees for build-operate-transfer plants and the billed amounts under the basic generation charge, including the corresponding carrying charge for the test period for the Luzon, Visayas and Mindanao grids.