Asian Energy Advisors

This is NOT rocket science, as they say. But let me try to link a number of disparate pieces together regarding the NPC/PSALM privatization process.

First, consider the following diagram that shows how NPC tariffs are linked to the privatized asset revenue stream. The numbers are illustrative only, in order to communicate a concept.

I won’t walk you through the diagram in detail, but the point is (#1) that NPC has a contract with each of their utility and industrial customers to provide a certain amount of power at a price that is determinable by the ERC and ERC sets this price based on NPC’s cost of service and (#2) NPC transfers some of these contracts - referred to as Transition Supply Contracts or TSCs - to the winning bidders of the auctioned assets.

So, the winning bidder gets a contract that has a revenue stream that is priced at NPC’s cost of service, and the IPPs revenue from these TSCs goes up and down as the ERC changes NPC’s average rates for their residual assets.

Here’s a recent sequence of events I’m linking together:

Calaca Plant auction has not closed after more than nine months.

NPC has filed for a P0.37/kWh increase to reflect that a number of plants have been sold, leaving them with a higher cost portfolio.

I was at the initial ERC Hearing today on the NPC rate increase petition. I was stunned at the paucity of intervenors. More than 100 distribution utilities across the country and a couple of handfuls of large industries get their power from NPC, yet Meralco was the only utility intervenor. In fact, there were only about 30 or so people in the whole hearing room. Once again, the cooperatives are conspicuously absent, but so are the other investor-owned utilities. Do the other customers not care? Is it possible that the other utilities feel the die has been cast and they just don’t want to waste their time intervening in the Hearings?

The NPC Team calmly provided an explanation of their case at the Expository Hearing today. It’s a very weak case. I was astounded that the case is built on utilizing a mix of data from 2000 (I think), 2002, 2004 and current. Is there cherry-picking going on? NPC team seemed unconcerned by initial questions on their approach (I don’t know if that’s a fact, I failed to ask them).

This article says that Suez, the awardee of the Calaca plant “earlier asked the Energy Regulatory Commission (ERC) to approve the P0.37 per kilowatt-hour increase in the basic rate of National Power Corp. (Napocor) before closing the deal with Psalm.”

NPC, in their rate petition, has asked the ERC for Provisional Authority to immediately implement a P0.37/kWh increase, to be implemented while the ERC proceeds to investigate and rule on the merits of the case, subject to refund.

So - you can see how NPC’s actions regarding their own revenues for their residual assets that exclude the auctioned assets are linked to the revenue stream of the IPPs that acquired the sold assets. In fact, NPC actions on its own rates appear to be linked to PSALM’s ability to close on previously auctioned assets.

Here’s something to consider: If the ERC provides NPC with the provisional authority to immediately increase rates, then the IPP’s tariffs under the TSCs they were allocated also immediately go up. However, if the ERC subsequently determines that NPC is not due the increase, or only a partial increase, then NPC will have to refund the over-collections to their rate payers. However, the IPPs are under no such obligation, are they? The IPPs will have to adjust their rates back down whatever NPC rate is ultimately established by the ERC, but may not be obligated to make any refunds.

Here’s something else to consider: Will the ERC make a determination on the NPC rate increase request based solely on the NPC’s cost to serve, or will they invoke (either explicitly or implicitly) a need to increase rates (even provisionally) in order to close a PSALM sale and/or facilitate the privatization process? Just how aggressive will the ERC get with NPC in having NPC demonstrate a justification for the requested rate increase? Not that there is necessarily anything wrong with any of these possible ERC actions - “I’m just saying.”