TRAIN-2 to drive electricity rates higher

Published April 3, 2018, 12:00 AM

by manilabulletin_admin

By Myrna M. Velasco

The second package of the Tax Reform for Acceleration and Inclusion (TRAIN-2) Act of the Duterte administration will further strain consumers pockets as some provisions are anticipated to be causing further escalation in electricity rates.

Fundamentally, it is seen that the proposal to modify the franchise of the National Grid Corporation of the Philippines (NGCP) for it to be levied with income tax, would be driving up its tariffs two-fold: One would be on its regulated transmission wheeling charge; and second, the ancillary services charge, being the other fraction of its pass-on rate.

Ancillary services would refer to the power supply and services necessary to support the transmission of electric power from NGCP’s high-voltage lines to its load customers.

A major component of it also is the mandated power reserve requirement to spare power grids from breakdown or sudden outages.

Under the mandated Ancillary Services Procurement Plan, NGCP will need to procure regulating reserve, contingency reserve, dispatchable reserve, reactive power support, and black start service.

A prudently operated transmission system will have to strive for at least 26 to 30 percent reserve so power consumers can be efficiently and reliably served.

The ancillary services component of NGCP charges moves on a monthly basis in the electric bills – same with the pass-through generation charge in power supply cost swings.

NGCP generally procures ancillary services from power generators, and it uses such to power its lines and facilities so it can deliver service to customers.

Last year, it was gathered that for customers served in the franchise area of the Manila Electric Company (Meralco), ancillary services accounted for 29 percent of the pass-through charges in the utility firm’s bill to subscribers.

Essentially under the TRAIN-2 package, it is being propounded that NGCP’s tax exemptions be scrapped.

At this stage, the actual rate impact of this policy proposal is still being calculated by the transmission firm and other affected segments of the industry.

Given the proposed policy shift, it was expounded that this might also entail changes in the performance-based regulation (PBR) scheme being enforced by the Energy Regulatory Commission.

Under the current PBR framework, income tax for NGCP is set at “zero,” hence, once the company is enforced with income tax, that building block in the rate regulation set-up may also change.