Regulatory Framework in PSA - Energy Regulatory Commission
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Transcript of Regulatory Framework in PSA - Energy Regulatory Commission
REGULATORY FRAMEWORK AND POLICIES GOVERNING
PSA APPLICATIONS
1
Points of Discussion
• GENERAL REGULATORY PRINCIPLE
• GENERATION CHARGE AS COMPONENT OF DU’S RETAIL RATE
• REVIEW AND APPROVAL OF RECOVERABLE GENERATION COST
• DRAFT PSA RULES
2
3
GENERAL REGULATORY PRINCIPLE
Guiding Principles
4
GENERATION SECTOR. Generation of electric power, a business affected with public interest, shall be competitive and open.
Upon implementation of retail competition and open access, the prices charged by a generation company for the supply of electricity shall not be subject to regulation by the ERC except as otherwise provided in this Act.
Regulatory Principle
Section 6, Chapter 2 of the Republic Act No. 9136 or the
Electric Power Industry Reform Act of 2001 (EPIRA)
5
Regulatory Principle
Section 4 (e), Rule 5 of the Implementing Rules and Regulations of the EPIRA
“xxx Prior to the implementation of OARC, the prices charged by a Generation Company for the Supply of Electricity shall be subject to ERC regulation on the Retail Rates charged by Distribution Utilities xxx” 6
Regulatory Principle
Section 25, Chapter 2 of Republic Act No. 9136 or the
Electric Power Industry Reform Act of 2001 (EPIRA)
RETAIL RATE. The retail rates charged by distribution utilities for the supply of electricity in their captive market shall be subject to regulation by the ERC based on the principle of full recovery of prudent and reasonable economic costs incurred, or such other principles that will promote efficiency as may be determined by the ERC.
7
Regulatory Principle
Section 23, Chapter 2 of the Republic Act No. 9136
Functions of Distribution Utilities.
A distribution utility shall have the obligation to supply electricity in the least cost manner to its captive market, subject to the collection of retail rate duly approved by the ERC.
8
Regulatory Principle Section 45 (b) of Republic Act No. 9136 or the Electric
Power Industry Reform Act of 2001 (EPIRA)
Cross Ownership, Market Power Abuse And Anti-Competitive Behavior.
x x x
To promote true market competition and prevent harmful monopoly and market power abuse, the ERC shall enforce the following safeguards:
x x x
(b) Distribution utilities may enter into bilateral power supply contracts subject to review by ERC.
x x x.
9
Regulatory Principle
Section 41. Promotion of Consumer Interests
“xxx The ERC shall handle consumer complaints and ensure the adequate promotion of consumer interests. xxx”
10
Generation Charge as Component of DU’s Retail Rate
Biggest component of
the retail rate (around
50% to 60%)
Through the generation
charge, the DUs
recover the generation
costs associated with
their energy purchases
11
Automatic Generation Rate
Adjustment (AGRA)
Mechanism
Translation into the
current billing month’s
Generation Charge
NPC Transition Supply
Contract
Power Supply
Agreement
Price Determination
Methodology
Rate Application
of NPC/DUs Published and served on
LGU Sanggunian
Notice of Hearing
published
Hearing conducted
ERC set NPC-TOU
rates as the TSC rate
ERC approves bilateral
contracts between DU
and GenCo
Regulation of
Generation
Component of
DU’s Retail
Rates
Section 67 Section 45 (b) Section 30
Section 25, EPIRA
Review of DU
bilateral contracts
WESM Price
Determination
Methodology
Retail rates to DU’s captive market, subject to ERC regulation
Full recovery of prudent and reasonable economic costs
PSA rates capped at
TSC rate, if NPC still
has excess capacity
PSA rates to be
determined by ERC if
NPC no longer has
excess capacity
Embodies pricing principles
under the WESM Rules:
Locational pricing
Gross pool concept
Full nodal pricing regime
For determination of
DU’s recoverable
generation costs
WESM
Subject to ERC post-
verification of any
over/under recovery
REVIEW AND APPROVAL
OF RECOVERABLE
GENERATION RATE
13
Generation Rate Structure Review
What does the ERC
look into in its review
and evaluation?
14
Generation Rate Components
Capacity Fee/Capital Recovery
Fee
Operations &
Maintenance
Fee
Fuel Recovery Fee/Energy Fee
Fixed O&M
Variable
O&M
Fixed
Cost
Variable
Cost
A
B
C
15
Generation Rate Components
Capital Recovery Fee
a capital-related component to recover the cost of
investment (historical cost) over the economic life
of the plant together with a reasonable rate of
return
Fixed for the duration of the project life/plant
economic life
Derived using Discounted Cash Flow (DCF) Model 16
• PROJECT COST (EPC/VERIFIED ESTIMATES)
• PLANT TECHNICAL SPECIFICATIONS (ECONOMIC LIFE/RECOVERY PERIOD)
• RATE OF RETURN (WACC/COST OF EQUITY)
• PLANT DEPENDABLE CAPACITY (BILLING DETERMINANT)
Required Supporting Documents/ Input Parameters
Capital Recovery Fee
17
Generation Rate Components
Operations & Maintenance Fee Fixed O&M
Variable O&M
Refers the recurring expenses related to the operations and
maintenance of the power plant facilities
Fixed O&M – an element to recover fixed operating and
maintenance (O&M) costs. This cost is determined by the
capacity of the plant, not the level of utilization.
Variable O&M - an element to recover variable O&M costs and
which varies with the amount of electricity generated. 18
• GENERAL AND ADMINISTRATIVE EXPENSES
• MAINTENANCE AND INSURANCE
• SUPPLIES AND SPARE PARTS
• GOV’T TAXES AND LICENSES
Required Supporting Documents/ Input Parameters
Operations and Maintenance Fee
19
Generation Rate Components
Regulatory Authority over Expenses Management exercises its prerogative in incurring expenses
The Commission reviews the expenses incurred by management and decides whether or not to allow recovery of these cost from consumers
Prudency and reasonableness of the proposed expenses, and relationship to the provision of service
Operations & Maintenance Fee
20
Generation Rate Components
Formula:
O&M Fee = Total Annual Expenses ÷ Billing Determinant
PhP/kWh = PhP ÷ kWh
Indexation of O&M Fee
A. PhP-Based O&M Fixed Variable
Philippine Consumer Price Index (PH CPI)
B. USD-Based O&M Variable
United States Consumer Price Index (US CPI)
Operations & Maintenance Fee
21
Generation Rate Components
Fuel Recovery Fee/Energy Fee Variable
Cost
Pass-through cost to allow recovery
of fuel consumed to generate power
Cost also depends on the plant heat rate
22
• FUEL SUPPLY CONTRACT/S
• FUEL PROCUREMENT PROCESS
• FUEL COST COMPUTATION (BASIS OF ASSUMED BASE COST/PRICES AND INDEXATION)
• CONSUMPTION RATE/HEAT RATE
Required Supporting Documents/ Input Parameters
Fuel Recovery Fee /Energy Fee
23
Determination of Reasonable Fuel Efficiency level
• Guaranteed Heat rate or consumption
rate under IPP Contracts
• Generator Manufacturer’s Specifications
or Contractor guaranteed efficiency
level
• Benchmark to Heat rate of comparable
power plants
24
Procedure for the Application of the PSA
Receipt of
LGU
Legislative
Body of the
Application/
Publication
of the
Application
Filing of the
Application
Commission
issues Order &
Notice of Public
Hearing
Earliest Date
for the Initial
Hearing
Last Day for
the Issuance
of Provisional
Authority
Earliest Day for
the issuance of
Provisional
Authority (P.A.)
Day 1 Day 10
After 30 days from the (a)
receipt of a copy of the
application by the LGU
Legislative Body or (b)
publication of the application,
whichever comes later
Day 34
Day 75
Issuance
of Final
Authority
Within 1
year from
the
issuance of
P.A.
25
ERC CASE NO. 2013-005RM In the Matter of the Promulgation of the Rules
Governing the Execution, Review and Evaluation of
Power Supply Agreements Entered into by Distribution
Utilities for the Supply of Electricity to their Captive
Market
• Article I: Objectives
• Article II: Definition of Terms
• Article III: Procurement Process
• Article IV: Requirements and Review Procedures
• Article V: Final Provisions
26
Draft Rules Governing Execution, Review and Evaluation of PSA Applications
Key Provisions
of the Draft
Rules
27
ARTICLE III
• Section 1. Award of PSA to Generation Company
PSA shall be awarded to the winning Generation Company following a successful transparent and Competitive Selection Process or by Direct Negotiation as provided in Section 3 below. A CSP is successful if the DU receives at least two (2) qualified bids from entities with which the DU is not prohibited from entering into a contract for power supply in accordance with Rule 11, Section 5 (b) of the EPIRA IRR.
• Section 2. Competitive Selection Process
A DU shall undertake a transparent and competitive selection process before contracting for the supply of electricity to its captive market in accordance with Appendix “A” of this Rules.
Highlights/Key Provisions
28
ARTICLE III
• Section 4. Benchmark Rate
The ERC shall in the future endeavor to establish a benchmark rate that shall serve as reference price that may be used to assess the price that a Generation Company may offer. Such benchmark rate shall consider the type of generating plant, type of operation, installed capacity, and location, among others.
Highlights/Key Provisions
29
ARTICLE IV
• Section 1. Filing of the PSA
The PSA shall be a joint responsibility by the generation company and the DU. Following the execution of the PSA, the parties thereto shall file with the ERC, within thirty (30) days therefrom, a joint application for the approval of said PSA and for the determination of the reasonable generation costs that the DU can recover from its captive market as part of its retail rate.
Highlights/Key Provisions
30
ARTICLE IV • Section 2. Review of the ERC
ERC’s evaluation of the PSA and the generation rate will be based on its satisfaction of the following:
a. That the PSA was awarded in accordance with the prescribed procurement process prescribed under Appendix A of the rules, as applicable;
b. That the PSA guarantees suppliers compliance with the required technical, environmental and financial standards set out in the bid documents; and
c. That the PSA have substantially complied with the PSA Template under Appendix “C” that accords the parties with equitable rights and that the risks associated with the supply of electricity such as those pertaining to the tariff structure, economic indices, foreign exchange fluctuations, volatility of fuel prices and the like are efficiently allocated between the parties.
Highlights/Key Provisions
31
ARTICLE IV • Section 3. PSA Pricing Structure.
– The ERC shall determine the reasonable generation cost under the
said PSA, taking into account the following fees:
Capital Recovery Fee
Operating and Maintenance Fee
Fuel Fee
In support of the prosed pricing under the PSA, the Following shall be
required:
a. Executive Summary
b. Sources of Funds / Financial Plans
c. Details of the Purchase Power Rate
d. Details of Cash flow
e. Details on the procurement of fuel
Highlights/Key Provisions
32
ARTICLE IV • Section 6. ERC Action on the Application
Any PSA submitted to the ERC shall be reviewed and approved as to its “reasonableness” in terms of costs, risk allocation, and other contractual terms.
In the exercise of its discretion and on the basis of all the submissions made, the ERC shall determine whether or not to approve the full pass through or prohibit some or all energy costs from being passed on to the DU’s captive market and whether or not to disapprove or modify certain contractual stipulations of the parties.
The ERC’s decision and judgment shall bind both parties and shall not be rendered ineffective or nugatory by any termination or “walk-away” clause incorporated in the PSA.
Highlights/Key Provisions
33
Competitive Selection Process
Benchmark Rate
Joint Application
Walk-away Clause
NEXT… Discussion of Major
Issues/Comments