NGCP’s profit ‘robbery’
Cusi lamented in the past that ERC failed to conduct a ‘reset’ to determine the correct Maximum Annual Revenue for NGCP
Daily TribuneCusi lamented in the past that ERC failed to conduct a ‘reset’ to determine the correct Maximum Annual Revenue for NGCP
The Energy Regulatory Commission should investigate the high level of returns allowed transmission network concessionaire National Grid Corp. of the Philippines in its over 15 percent Weighted Average Cost of Capital.
"NGCP is still charging 15 percent for WACC which is too much, that is already robbery," according to former Energy Secretary Alfonso Cusi.
"The ERC should look into the WACC rate since it will be in the interest of consumers," according to Cusi.
Cusi lamented in the past that ERC failed to conduct a "reset" to determine the correct Maximum Annual Revenue for NGCP.
A reset will allow the just and correct profit rates for NGCP and thus electricity users could have enjoyed a significant decrease in their bills from 2016 onward.
ERC's inaction violated its own rules since the reset process is important as it determines the level of profit that the NGCP is allowed to charge consumers for electricity transmission.
The ERC, in 2015, increased NGCP's profit rates to allow its net income to grow from P43.1 billion in that year to P43.8 billion in 2016, and further increased it to P47.1 billion in 2020.
WACC and MAR fix NGCP's yearly profit which has been soaring since it acquired the contract with the government in 2009 based on data provided the Daily Tribune.
ERC's dragging its feet in the recomputation of the allowable net income for NGCP indicated that the agency is not doing its job as it periodically complains of inadequate resources to resolve the issue.
Temporary adjustment
Because of the failure to do the reset, the ERC implemented a profit rate which it termed Interim Maximum Annual Revenue.
One of the determinants of MAR is WACC which comprises around 66 percent of MAR and the others such as the return of capital, operations expenses, and taxes make up 34 percent.
WACC should have gone down in 2016 by about seven percent, which potentially translates to a reduction of about P53.3 billion of MAR until 2020.
This would have meant electricity rates paid for by consumers would have been reduced substantially.
NGCP abused its concession contract with the government, according to Cusi.
Ancillary service row
ERC recently asked NGCP to account for its failure to comply with the government's mandate to contract enough power reserves or ancillary service contracts.
Last 16 September, the ERC issued show cause orders through ERC Cases 129, 130, and 131 SC to the NGCP for failing to follow the policies issued by the Department of Energy in October 2021.
Particularly, the ERC said the NGCP violated the DoE Department Circular No. 2021-10-0031 entitled, "Prescribing the Policy for the Transparent and Efficient Procurement of Ancillary Services by the System Operator."
Cusi said that NGCP failed to comply with its obligations as the System Operator to secure urgently needed Ancillary Services or power supply reserves and reduce its transmission fee, instead of making excuses to justify continued non-compliance with the Department's issuances.
Under Department Circular DC2019-12-0018, "Adopting a General Framework Governing the Provision and Utilization of Ancillary Services in the Grid," the NGCP is mandated to procure 100 percent firm power reserves, as well as engage in the forward contracting of reserve requirements to ensure grid reliability.
He said such steps would help secure the availability of power services during untoward occurrences, such as the simultaneous plant outages and deratings which led to the series of Red and Yellow Alerts on 31 May and 1 June 2021.
"DoE proactively sought to protect and uphold the welfare of consumers through policies and programs. This holds true most especially with electricity prices," Cusi said.
"To prevent electricity price spikes, the power industry players must comply with their obligations to increase the generation capacity. This can be done through the purchase of replacement power by the distribution utilities and the procurement of ancillary services or reserves by the NGCP," he added.
"Having the required reserves is not optional. If NGCP wants to help consumers, be magnanimous, and lower the cost of electricity, they should just reduce their transmission fee, reduce the WACC, and finish the transmission projects on time," he said.