IPPA proceeds to lower Universal Charge for stranded debts

11 Aug 2010

Electricity consumers will benefit from the successful privatization of the contracted capacities of the National Power Corporation in independent power producer (IPP) plants through a lower Universal Charge for stranded debts (UC-SD) to be reflected in their monthly electricity bills.

The Power Sector Assets and Liabilities Management (PSALM) Corporation disclosed that the proceeds generated from the transfer of the management of National Power's contracted capacities to IPP Administrators (IPPAs) amounting to USD3.23 billion would substantially reduce the amount of the UC-SD that would be passed on to consumers to recover the state-owned generation firm's stranded debts.

PSALM computed PhP470-billion stranded debts covering a 20-year period starting 2009 to be collected in a span of 17 years to cushion the impact on electricity consumers. Thus, on 30 June 2009, PSALM filed a levelized UC-SD application to recover the PhP470-billion stranded debts. At the time of application, there was no successful appointment of IPPAs yet. Accordingly, the PhP470-billion projected SD does not include any anticipated proceeds from the selection of IPPAs.

Pending the Energy Regulatory Commission's (ERC) resolution on the levelized UC application of 30 June 2009, PSALM, in compliance with the ERC guidelines to file annually, filed the 2010 UC-SD application on 29 June 2010 amounting to PhP54.89 billion covering only the period January-December 2010. The amount is not on top of the PhP470-billion UC-SD application in 2009, but is an update of the forecasted UC-SD for 2010 only.

PSALM emphasized that for the 2009 filing, the UC-SD forecasted for 2010 was PhP67.33 billion. The PhP12.44-billion reduction in the 2010 UC-SD reflects the impact of the privatization, prepayments and IPPA proceeds that PSALM has implemented and generated.

The amount of the UC-SD to be collected from electricity consumers would further be reduced upon the completion of the sale of the remaining generation assets of National Power and the appointment of IPPAs, PSALM assured.

PSALM made it clear that the UC applications it filed did not include performance incentives as erroneously reported in various publications. When it filed its applications, PSALM submitted all the needed documents that the ERC required, including its audited financial statements which detailed its revenues and operating expenses.

PSALM clarified that the performance incentives, although components of the operating expenses, were never part of the UC-SD applications to recover the stranded debts of National Power. Recent media reports misinterpreted these expenses as part of PSALM's UC-SD applications, but they were only items in the Corporation's financial statements that were required by the ERC.

The UC for stranded debts, as passed by the Congress in 2001 through the Electric Power Industry Reform Act, is necessary, and a viable way of liquidating the debts of National Power.

Corporate Communications Division
Tel. No. (632) 9029067