Is there a conspiracy to raise power rates in Mindanao?

Is there a conspiracy to raise the power rates in Mindanao?

A senior executive of the second largest power utility in the island said it appears that the April 2010 Bill of National Grid Corporation of the Philippines (NGCP) is part of a conspiracy to cheat power customers in Mindanao.

"At the very least, the NGCP has been negligent of the welfare of their customers in entering into the Ancillary Services Procurement (ASP) Agreement which would result in the undue enrichment of Therma Marine, Inc. (TMI) even when considering only the anomalous Capital Recovery Fee," said Engr. David A. Tauli, senior vice president for engineering of the Cagayan Electric Power and Light Company (Cepalco).

"At worst, we could have here a conspiracy to cheat power customers, involving the personnel of major corporate players of the electric power industry in Mindanao. In either case, it is the responsibility of the other stakeholders of the Mindanao electric power industry to stop the unjust April 2010 AS Charge of NGCP and prevent the imposition of similar charges in the future," he added.

Contrary to popular perception, Tauli said the higher billings irate consumers of the Cagayan Electric Power and Light Co. (Cepalco) received this month are not due a power rate hike but rather to a ten-fold increase in the transmission charges billed by the National Grid Corporation of the Philippines (NGCP) to Cepalco and all other distribution utilities in Mindanao.

From 67.3 million in 2009, NGCP´s billing to Cepalco climbed to 111.3-M, higher by 44-M or 65.3%.

"The total bill of NGCP for April 2010 was P111.3M, higher by P44M compared to the March 2010 bill," said Atty. Edgardo Uy, senior vice president for administration. "This increase is mainly due to the increase in the dispatchable reserve [ancillary service] charge of NGCP due to the acquisition by TMI of the two Napocor power barges."

Uy showed a table which broke down or "unbundled" the local residential power rate to its basic components. From PhP7.5963 in December 2009, the average rate increased to PhP 10.0835, with transmission charges accounting for the greatest increase. Interestingly, the table shows that the distribution charges of Cepalco have not increased unlike the generation, transmission and system loss charges.

"Please note that the generation charge and transmission charge are pass-through charges which are paid to generation companies and the NGCP, respectively," Uy noted.

Cepalco has intervened in two applications filed by TMI and the NGCP at the ERC for the approval of the ancillary services procurement agreement between the two entities. These two applications are docketed as ERC Case Nos. 2010-011RC and 2010-014RC.

"The larger portion (about 70 percent) of the total charges of PhP 657.6 million for all Mindanao customers of NGCP is illegal," Tauli said. He noted that 70 percent of the total amount charged by TMI for April 2010 is for the operating expenses of the two power barges in supplying base-load power supply to the Mindanao Grid, and not for the provision of ancillary services.

"Only about 30% of the total charges were the actual expenses of TMI in providing ancillary service to the Mindanao Grid; this should have been the only amount recovered through the Ancillary Service charge," he noted.

Tauli also labeled the ancillary service charge billed by TMI exorbitant.

The effective rate for ancillary services in April 2010 was PhP 560.44 pesos per kilowatt per month, compared to only PhP 49.76 pesos for the same unit in 2009, an increase of more than ten times the rates last year, he said.

"The increase is apparently due to the fact that the new Ancillary Service contract is between NPC and the privately-owned TMI power barges, whereas ancillary services were provided last year by NPC-owned or controlled power plants," he noted.

On top of these, Tauli also labeled the "Capital Recovery Fee" being charged by TMI as "anomalous."

The Capital Recovery Fee was based on asset valuation of the two power barges in the amount of US$84.7 million, while the barges (formerly PB 117 and 118 of Napocor) were bought by TMI from Napocor for only US$30.0 million; thus, the power barges increased threefold in value after being transferred from the government to the private sector, he noted.

On top of this, Tauli said NGCP contracted with TMI for only 100 MW of Dispatchable Reserve from the two power barges (50 MW per barge), but billed its customers in April 2010 for 200 MW of Dispatchable Reserve, or 100 percent in excess of its contract.