Resolution No. 19, s. 2009ERC issues new rules for more efficient NPC cost recoveries
The ERC (Energy Regulatory Commission) approved on August 3, 2009 the Rules for the Automatic Recovery of Monthly Fuel and Purchased Power Costs and Foreign-Exchange Related Costs by the National Power Corporation (NPC). The Rules govern how NPC may adjust its rates to reflect increases or decreases in its fuel and purchased power costs and foreign-exchange related costs which vary monthly depending on the prevailing economic conditions. Purchased power costs relate to those incurred by the NPC for the power it sources from its Independent Power Producers (IPPs). The Rules were co-proposed by the NPC and the Power Sector Assets and Liabilities Management Corporation (PSALM) on August 14, 2008. Two (2) rounds of public consultations were held leading to the final posting on www.erc.gov.ph on February 25, 2009 for the last round of comments.
The NPC is currently allowed periodic (quarterly) adjustments to its generation rate to reflect changes in fuel and purchased power costs and foreign-exchange (forex) related costs only after a review by the ERC in accordance with the guidelines issued for the adoption of the Generation Rate Adjustment Mechanism (GRAM) and Incremental Currency Exchange Rate Adjustment (ICERA) mechanism.
The new automatic adjustment mechanism is designed to enable NPC to automatically adjust its generation rate in time with the movements in the prices of fuel and forex fluctuations, thus avoiding carrying or cost of money charges. The automatic adjustments would be computed monthly based on an independent reference source or benchmark (Mean of Platts Singapore or FOB Newcastle). However, to ensure that NPC recovers only its actual costs, true-up adjustments would be done annually by the ERC. For a smooth transition to the new system, the Rules require that an application of all unfiled and unverified cost recoveries through the GRAM and ICERA should be filed by the NPC within one hundred twenty (120) days from the effectivity of the Rules.
“The use of the present GRAM and ICERA mechanisms has led to situations where NPC rates were adjusted upwards when the prices of petroleum products were going down and/or during the peso’s appreciation and vice-versa. We can attribute the lag to the prior-verification feature of the existing GRAM & ICERA mechanisms. Such a lag results to the mismatch between the approved adjustments and NPC actual costs at the time of the implementation of such adjustments. The new Rules provide a mechanism that will reflect true or current costs and do away with burdens and confusion on the public caused by the lag,” ERC Chairperson Zenaida G. Cruz-Ducut remarked.
The Rules shall take effect fifteen (15) days after publication in a newspaper of general circulation.
September 9, 2009