UC collections to improve PSALM cash flow

22 Feb 2013

The approval by the Energy Regulatory Commission (ERC) of the petition of the Power Sector Assets and Liabilities Management (PSALM) Corporation to recover the stranded contract costs (SCC) of the National Power Corporation (NPC) from 2007 to 2010 through the Universal Charge (UC) will augment the revenues of the privatization firm in the next four years.

PSALM received the ERC decision on 19 February 2013 authorizing it to recover PhP53.851 billion through the UC-SCC, at a rate of PhP0.1938 per kilowatt-hour (kWh). The amount is lower than the PhP0.3666/kWh PSALM originally proposed.

"Under the Electric Power Industry Reform Act (EPIRA), PSALM is authorized to calculate the UC-SCC and UC for stranded debts (SD) following strictly the ERC guidelines. It is entitled to collect the rates that the ERC approved. However, the ERC set to zero the UC-SD," PSALM President and Chief Executive Officer Emmanuel R. Ledesma, Jr. said.

"The proponents of the EPIRA have recognized the fact that the privatization proceeds will not be enough to cover NPC's financial obligations. PSALM also continues to incur losses from the operations of its remaining generating assets and the IPP plants. The authors of the law allowed the collection of UC to bridge the gap," Ledesma said.

PSALM filed its petitions in June 2011 to recover PhP74 billion through the UC-SCC to be collected over a four-year period, and PhP66 billion through the UC-SD supposedly to be collected in 15 years based on assumptions following the ERC guidelines. The UC-SCC was approved with modification at PhP53.851 billion, and while the ERC determined that no stranded debts were incurred, it allowed PSALM to file for an annual true-up adjustment.

Ledesma also explained that financial obligations forming part of the stranded debts are actual obligations incurred by NPC prior to the enactment of the EPIRA as a result of the need to construct power plants to avoid power outage and to supply the country's electricity requirements. These financial obligations include additional debts incurred by NPC to subsidize plant operations in light of the rate capping measures previously implemented by the government to ensure more affordable electricity costs to consumers at that time.

The EPIRA defines stranded debts as any unpaid financial obligation of NPC that has not been liquidated by the proceeds from the privatization of PSALM's generating assets, and stranded contract costs as the excess of the contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy output of these contracts in the market.

Currently, PSALM is evaluating the ERC decisions and may take appropriate action as it deems necessary to protect the interest of the nation.

Strategic Communications and Partnership Division
Tel. No. (632) 9029067