Philippine Energy Policy Wiki

DC2004-01-001 — Private Sector Participation in Existing NPC-SPUG Areas

Status
superseded
Confidence
high
Effective date
2004-01-26
Parent law
ra-9136

Department Circular No. DC2004-01-001, issued 26 January 2004 by DOE Secretary Vicente S. Pérez, Jr. Prescribes the rules and procedures for private sector participation in existing Small Power Utilities Group (NPC-SPUG) areas pursuant to Rule 13 of the Implementing Rules and Regulations of the Electric Power Industry Reform Act of 2001 (EPIRA-IRR).

Background and rationale

Follows State policy to ensure total electrification of the country [DC2004-01-001, Whereas clauses, 2004-01]. Implements EPIRA Rule 13 §1 mandate that DOE issue guidelines on private capital inflow and third-party participation in missionary electrification [DC2004-01-001, Whereas clauses, 2004-01]. NPC-SPUG, under EPIRA-IRR §3, must periodically assess commercial viability and private sector participation opportunities [DC2004-01-001, Whereas clauses, 2004-01]. Private sector participation reduces burden on the Universal Charge Missionary Electrification component (UC-ME), funded from missionary area revenues and the Universal Charge itself [DC2004-01-001, Whereas clauses, 2004-01].

Scope and key definitions

Applies to all areas currently served by NPC-SPUG [DC2004-01-001, §2(a), 2004-01]. Defines 18 foundational terms [DC2004-01-001, §1, 2004-01]:

TermDefinition
Commercially ViableArea/service where True Cost Generation Rate ≤ Socially Acceptable Generation Rate
Conclusion ProgramProgram setting UC-ME availability duration to NPP from area takeover effectivity
Floor PricePrice at which NPC-SPUG will sell asset to winning NPP; set by independent appraiser (fair value) or book value
GraduateArea where Missionary Electrification Subsidy is removed due to commercial viability
Missionary ElectrificationBasic electricity provision in Unviable Areas, aiming toward viability
Missionary Electrification SubsidyERC-approved subsidy paid to NPP to recover True Cost Generation Rate while charging Distribution Utility the Socially Acceptable Rate; funded from UC-ME per NPC-SPUG petition
New Private Provider (NPP)Competitively-selected entity technically and financially capable to serve/take over NPC-SPUG areas
NPC-SPUGFunctional unit of NPC pursuing Missionary Electrification
NPC-SPUG AreaGeographic area currently supplied electricity by NPC-SPUG
Socially Acceptable Generation RateRate ERC deems socially desirable for Distribution Utility to pay for power; combined with Missionary Electrification Subsidy, equals True Cost Generation Rate
True Cost Generation RateFull efficient generation costs in an area, determined per EPIRA §43(f) basis (just and reasonable costs + reasonable RORB)
Unviable AreaGeographic area within Distribution Utility franchise where immediate distribution line extension is not feasible

Policy declaration and private sector eligibility

All existing NPC-SPUG areas are declared open for private sector participation, defined as “take over of electricity supply via outright purchase or lease of existing NPC-SPUG assets, and/or installation of new power generating facilities including associated power delivery systems” [DC2004-01-001, §2(b), 2004-01]. NPC-SPUG shall endeavor to privatize generation facilities and power delivery systems [DC2004-01-001, §2(c), 2004-01]. When NPC-SPUG ceases area service, it may sell assets or redeploy; asset sales follow government standard accounting procedures [DC2004-01-001, §2(d), 2004-01]. Distribution utilities sourcing wholly or partly from NPC-SPUG are encouraged to seek NPPs via competitive bidding to minimize power purchase cost [DC2004-01-001, §2(e), 2004-01].

Fallback mechanism: where Distribution Utility does not select an NPP, NPC-SPUG assigns its existing Power Supply Agreement (PSA) to a competitively-selected NPP if this reduces total power supply cost [DC2004-01-001, §2(f), 2004-01]. DOE shall promote governance strengthening (investor protection, consumer education) in NPP-taken-over areas [DC2004-01-001, §2(g), 2004-01]. DOE prescribes the Conclusion Program to optimize UC-ME utilization in areas taken over by NPPs [DC2004-01-001, §2(h), 2004-01].

Competitive selection of New Private Providers

Competitive process shall select one or more NPPs to supply each NPC-SPUG area [DC2004-01-001, §3(a), 2004-01]. Process must ensure prospective NPPs possess adequate financial and technical capacity; design shall balance lowest long-term power cost/services, environmental compatibility, and advantageous implementation schedule [DC2004-01-001, §3(b), 2004-01].

Distribution Utilities have three options for managing competitive selection [DC2004-01-001, §3(c), 2004-01]:

  1. Request DOE to secure or engage a Transaction Advisor (at Utility’s own cost) to assist in NPP selection [DC2004-01-001, §3(c)(i), 2004-01]
  2. Allow NPC-SPUG to assign existing PSA to NPP via competitive process [DC2004-01-001, §3(c)(ii), 2004-01]
  3. Manage competitive selection themselves [DC2004-01-001, §3(c)(iii), 2004-01]

Wave-based grouping: Utilities in NPC-SPUG areas are grouped into ‘waves’ based on area suitability for NPP supply [DC2004-01-001, §3(d)(i), 2004-01]. First wave includes areas most attractive to NPPs or causing greatest NPC-SPUG losses [DC2004-01-001, §3(d)(i), 2004-01]. DOE notifies wave utilities to select one of three options; Utilities have two (2) months to notify DOE and NPC-SPUG of choice; failure to notify results in deemed selection of option §3(c)(ii) [DC2004-01-001, §3(d)(ii), 2004-01]. Any Utility may self-nominate for first wave [DC2004-01-001, §3(d)(iii), 2004-01]. Utilities selecting option §3(c)(iii) are monitored for progress parity with options §3(c)(i) or (ii); if significantly delayed, DOE may offer §3(c)(i) or assign §3(c)(ii) [DC2004-01-001, §3(d)(iv), 2004-01].

Once NPP is selected, NPC-SPUG assigns, amends, or terminates PSA with Distribution Utility to provide smooth, efficient transition [DC2004-01-001, §3(e), 2004-01]. NPC-SPUG must prepare and submit proposed groupings/waves to DOE within one (1) month of Circular effectivity [DC2004-01-001, §3(f), 2004-01].

Asset disposal procedures

NPC-SPUG disposes of surplus assets once NPP is in place and NPC-SPUG phases out area supply [DC2004-01-001, §4(a), 2004-01].

Generation assets: Generation and other NPC-SPUG assets (excluding subtransmission) are disposed via three-step process [DC2004-01-001, §4(b), 2004-01]:

  1. NPC-SPUG offers winning NPP right to purchase at Floor Price (set by independent appraiser per fair value or book value); purchase option and Floor Price included in PSA bidding documents [DC2004-01-001, §4(b)(i)–(ii), 2004-01]
  2. If NPP declines purchase at Floor Price, NPC-SPUG may redeploy asset to another NPC-SPUG area [DC2004-01-001, §4(b)(iii), 2004-01]
  3. Otherwise, within two (2) months, NPC-SPUG auctions assets via open, ascending bidding; winning NPP may participate [DC2004-01-001, §4(b)(iii), 2004-01]

Subtransmission assets: Four-step process [DC2004-01-001, §4(c), 2004-01]:

  1. NPC-SPUG first offers to relevant Distribution Utility per EPIRA §8, EPIRA-IRR Rule 6, and ERC guidelines (17 October 2003) on TRANSCO subtransmission asset sales/franchising, including revenue-potential-based disposal value determination [DC2004-01-001, §4(c)(i), 2004-01]
  2. If Distribution Utility declines, NPC-SPUG offers to Distribution Utility consortium or TRANSCO at same price [DC2004-01-001, §4(c)(ii), 2004-01]
  3. If no buyer found, NPC-SPUG endeavors to enter O&M contract with relevant Distribution Utility; Utility assumes operating/maintenance responsibility [DC2004-01-001, §4(c)(iii), 2004-01]
  4. If NPC-SPUG retains ownership, it reviews/optimizes operating costs and petitions ERC for rate increase to cover full O&M costs [DC2004-01-001, §4(c)(iv), 2004-01]

Regulatory framework for NPP participation

NPC-SPUG shall petition ERC for regulatory regime encouraging private participation, with eight key characteristics [DC2004-01-001, §5(a)(i), 2004-01]:

  1. NPPs supplying taken-over NPC-SPUG areas may charge True Cost Generation Rates [DC2004-01-001, §5(a)(i)(1), 2004-01]
  2. Rates established via competitive bidding for least cost, or via Best New Entrant tariff benchmarking where competitive bidding ineffective [DC2004-01-001, §5(a)(i)(2), 2004-01]
  3. Where DOE deems True Cost Rate too high for social acceptability, NPC-SPUG petitions ERC to set Socially Acceptable Rate and Missionary Electrification Subsidy (difference between True Cost and Socially Acceptable); subsidy funded from UC-ME [DC2004-01-001, §5(a)(i)(3), 2004-01]
  4. Socially Acceptable Rate may increase with area development; Subsidy correspondingly decreases [DC2004-01-001, §5(a)(i)(4), 2004-01]
  5. Area is deemed Commercially Viable (and “Graduated”) when Socially Acceptable Rate ≥ True Cost Rate; NPC-SPUG no longer petitions subsidy [DC2004-01-001, §5(a)(i)(5), 2004-01]
  6. ERC determines subsidy to be paid NPP serving area and corresponding Socially Acceptable Rate [DC2004-01-001, §5(a)(i)(6), 2004-01]
  7. If subsidy is provided, NPP required by regulation and/or PSA terms to reduce charges to Distribution Utility commensurate with subsidy; tariff revenue + subsidy together equal True Cost Rate [DC2004-01-001, §5(a)(i)(7), 2004-01]
  8. NPP serving taken-over NPC-SPUG area always retains right to charge True Cost Rate if not receiving subsidy covering difference between True Cost and Socially Acceptable rates [DC2004-01-001, §5(a)(i)(8), 2004-01]

NPC-SPUG shall assist Distribution Utilities in entering PSAs with NPPs [DC2004-01-001, §5(b), 2004-01]. NPC-SPUG shall ensure New Missionary Areas are served by Qualified Third Parties (QTPs) where possible, by NPC-SPUG directly otherwise [DC2004-01-001, §5(c), 2004-01]. NPC-SPUG shall ensure payment of UC-ME subsidies to entities qualified per ERC determination [DC2004-01-001, §5(d), 2004-01].

Non-retroactivity and effec tivity

Circular does not apply to PSAs where tariff rates were approved by ERC before Circular’s effectivity date [DC2004-01-001, §6, 2004-01]. Effective upon complete publication in a newspaper of general circulation [DC2004-01-001, §9, 2004-01].

Full text: Cleaned copy