The Market Monitor Minding the Nation's Business
By Riza Lozada
The absence of an all-purpose reinsurer for the operator of the electricity network National Grid Corp. of the Philippines (NGCP) has contributed to the high cost of electricity, as natural accidents that result in damages in the transmission grid are always charged to electricity users, instead of the state-operated insurer.
Its current reinsurance policy with state pension fund Government Service Insurance System (GSIS) does not cover damages from typhoons or other natural calamities.
Another problem is the lack of local experts on rate setting in the electricity industry to determine costs from a “force majeure event,” which the Energy Regulatory Commission (ERC) is holding public hearings to fix the amount that grid can claim during a typhoon.
“No intervenor, no oppositor came to the hearing,” ERC Chairman Zenaida Ducut said regarding a hearing on force majeure held in May that, in effect, showed lack of interest or awareness on the issue within the local electric sector.
The ERC has issued an order to hold next month another hearing, this time with participation from the Office of the Solicitor General, the Commission on Audit and the Committee of Energy of both houses of Congress.
An ERC official said Congress may have to be consulted on whether or not the NGCP, which is partly owned by China’s state grid firm, would be allowed to avail the so-called Industrial All Risk (IAR) insurance through its reinsurance firm, the GSIS, or it (NGCP) would have to stick to its traditional insurance excluding typhoon from coverage.
NGCP Spokesman Cynthia Perez-Alabanza, in a phone interview with The Market Monitor, said “we will support any move in the government that will make electricity cheaper” indicating that the ball is with the ERC on whether or not a more comprehensive reinsurance policy for NGCP is needed.
She said that the NGCP can’t choose on which reinsurer it can get since it is “bound by law to have GSIS as the reinsurer.”
At stake is the occasional typhoon damages that the electricity grid is expected to incur yearly and which it charges electricity users as a result of more frequent and stronger typhoons brought about by climate change.
Last January 14, the NGCP petitioned the ERC to declare a force majeure event as a result of Typhoon Agaton in Mindanao, in which it seeks the recovery of the net fixed asset value of transmission assets and other related facilities worth P1.7 million to be passed to electricity charges under the rules for setting transmission wheeling rates (RTWR).
Agaton, which hit the country on January 17 and had maximum winds of 35 kilometers per hour (kph) and gustiness of 50 kph, toppled transmission lines and facilities mostly in Mindanao.
The NGCP said the cost of additional capital expenditure (Capex) for the repair, restoration and rehabilitation of its transmission assets and other related facilities including the recoverable values of the assets destroyed amounted to P6.9 million.
The amount being sought for additional charges with the ERC would be equivalent P0.18 per kilowatt hour this year and for every year from 2016 to 2020 at P0.04 per kwh.
“The damaged transmission assets and other related facilities are not covered by Transco and the Power Sector Assets and Liabilities Management Corporation’s (PSALM) Industrial All Risk (IAR) Insurance Policy with the GSIS for the year 2014 and is therefore not compensable,” the NGCP claimed.
A document obtained by The Market Monitor revealed that the GSIS insurance policy for the power industry sector is called “Property And Engineering Risk Excess of Loss Treaty.”
The document said: “The PSALM and Transco-NGCP as well as NPC accounts are included, except for transmission and distribution lines beyond 1,000 meters of an insured structure (see Transmission and Distribution Lines Exclusion Clause), and the Machinery Breakdown/Boiler Explosion Cover Non Operating Plants.”
The agreement provided certain compensation from power firms with the PSALM, the power assets holding firm of the government, providing cover but limited to P2.25 million for each calamity.
The National Transmission Corp. (Transco) also gives compensation to NGCP but limited to $50 million for each occurrence. the National Power Corp. (Napocor) extends P700 million cover for any one occurrence.”
The NGCP concessionaire started operating and maintaining Transco in 2009, and since that period the insurance policy of the GSIS has been elusive in terms of transparency and direction, this according to previous ERC hearings which noted that the GSIS would have to explain why it was not availing the all industrial risk insurance for the country’s transmission assets.