Napocor/PSALM to blame for higher electric bills in Mindanao

A senior official of a local distribution utility has pinned the blame for the unprecedented increase in power rates on the provisional authority granted by the Energy Regulatory Commission (ERC) to Therma Marine, Inc. (TMI) ancillary services procurement agreement with the NGCP for two of the National Power Corporation´s (Napocor) power barges (identified as PB 117 and 118) sold to the company late last year.

"The rates per kilowatt of the ancillary service charge in the April, 2010 bill of NGCP is more than ten times the average rates for A.S. in 2009," said Engr. David A. Tauli, senior vice president for engineering of the Cagayan Electric Power and Light Co. (Cepalco).

"The greater portion (about 70%) of the ancillary service charges in April comes from the recovery of the operating expenses, mainly for fuel, of the power barges in the period March 26 to April 25, 2010," Tauli said.

The Cepalco official said this is a case of "technical smuggling" of operating expenses into the Ancillary Services charge: the expenses were for the operation of the barges as base-load plants and not for the provision of Ancillary Services (which requires very short periods of operation, and not the 24/7 operation of the barges as base-load plants).

"It is definitely illegal on the part of the NGCP to try to collect base-load supply expenses as ancillary service charges," Tauli said, although he admitted the ERC still has to rule on the purported illegality.

Also adding to the ten-fold increase in the ancillary service charges was the asset valuation of the power barges, which increased to almost three times the value of their purchase price.

"There were bought by Aboitiz from NPC for US$30 million, and revalued by them in their ASPA (Ancillary Service Procurement Agreement) contract with NGCP at a total US$84.7 million of for the capital recovery fee of the THERMA-owned barges," Tauli explained.

In addition to the unprecedented increase in ancillary services charges, Tauli also alleged that Napocor failed to assign to the two power barges the base-load supply and ancillary services supply these were previously providing to the grid while they were still owned by Napocor, when ownership was transferred to TMI.

"The assignment of such services by Napocor is required under the Contract for the Supply of Electric Energy (CSEE) of Napocor with its customers, the distribution utilities and directly-connected industries," Tauli said.

The Cepalco official attributed the untimely sale of the two power barges as one of the main reasons for the power crisis which struck Mindanao in the second quarter of 2010.

"We are demanding that Napocor and Psalm explain to the people of Mindanao why it sold the two power barges which formed part of the baseload capacity of the Mindanao grid at a time when it knew very well an El Nino episode was coming in the following year," Tauli said.

"Furthermore, we also want NGCP to explain why it entered into an ancillary services procurement agreement with TMI when it knew beforehand this would result to a substantial increase in the power rates," he added.

"From a distribution utility's standpoint, transmission costs are pass-through charges, (but) there is still the need for us to make sure that these charges are indeed correct if only to isolate consumers from excessive and unjustifiable charges," said Ralph B. Casino, president of the Iligan Light & Power, Inc. (ILPI). "There is a need to get into the bottom of this."

Industry sources who spoke provided they not be identified concurred that "the very big increase in power bill is a result of the power crisis of Napocor, plus they sold the power barges at a time when we needed power badly."

However, they said Napocor and Psalm, rather than the NGCP, should be blamed for the unprecedented rise in power rates.

"Pressured to find a way to soften the crisis from the worst, NGCP went to ERC to offer a transmission solution to a generation problem of Napocor: buy back that lost power from Aboitiz barges as ancillary service. The dictum then was "Kahit mahal basta mayroon, di ba? Thanks to Napocor, NGCP gets the flak for trying to help them find generation. Frankly, NGCP didn´t even make a cent on it. Pass through lang iyon as mandated by ERC."

Tauli noted that the exorbitant Ancillary Service charge of NGCP in April (which will still be charged by NGCP in the May billing unless they are stopped by ERC) is an offshoot of the NPC mismanagement of operations of power plants in 2009 that brought about the Mindanao Power Crisis.