CPGI seeks recovery of P40-M from co-op, NPC
posted 7-Apr-2019  ·  
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Still smarting from the non-renewal of its genset lease in 2017, the Catanduanes Power Generation, Inc. (CPGI) has filed a petition with the Energy Regulatory Commission (ERC) seeking the full recovery of P40 million in previously-approved costs and foregone energy from the island’s electric cooperative and the National Power Corporation (NPC).

In an order posted in its website the other week, the ERC found CPGI’s petition for full recovery of approved costs to be sufficient in form and substance and set the hearing of the case on May 23, 2019 at the First Catanduanes Electric Cooperative, Inc. (FICELCO).

The petitioner is asking the Commission for the re-computation of the approved Capacity Fee to P0.7137 per kilowatthour to recover the total project cost of P40 million approved by ERC in 2012 for the whole 10-year duration of the Electricity Supply Agreement (ESA) with FICELCO.

The ESA was cut short in October 2017 after the National Power Corporation (NPC), which owned the 3.6-megawatt Daihatsu bunker-fuel genset at Marinawa, refused to extend the lease thereby reducing the ESA period to just six years.

To allow full recovery of the P40 million is spent in overhauling and maintaining the NPC-owned power plant, CPGI said it must be paid by FICELCO and NPC the amount of P32,752,808.00 representing the difference between the re-computed Capacity Fee of P0.7137/kWh for the reduced six-year ESA and the approved P0.5471/kWh for the original 10-year deal.

It also asked that NPC pay legal interest of P8,021,557.75 for unjustly withholding standby capacity charges beyond the Subsidized Approved Generation Rate (SAGR) for available energy that CPGI was constrained not to deliver due to priority dispatch accorded for hydropower.

It may be recalled that in October 2007, NPC leased the idle and inoperable Marinawa genset to FICELCO, which subleased the unit to CPGI. It was the company which undertook the completion, uprating, upgrading, periodic repair and overhaul to support full operation, at CPGI’s own expense and risk and at no cost to NPC on a rehabilitate, operate and maintenance basis.

In 2012, or four years after the lease agreement was signed, ERC approved the ESA between FICELCO and CPGI at a total project cost of P40 million and with an economic life of 10 years.

The genset lease, however, expired in October 2017, or four years ahead of the ESA expiration on May 2021.

The petition stated that since the obligation of CPGI under the ESA, as well as its approvel, was confined to the leased genset, it was necessary to seek an extension of the lease to synchronize it with the expiration of the ESA.

In a Memorandum dated Oct. 27, 2016, the Department of Energy (DOE) stated that the lease and sub-lease agreements with certain electric cooperatives and new power providers in Catanduanes, Oriental Mindoro and Palawan must be amended and enhanced to synchronize with the cooperation period of the ESA.

“Those NPPs have been legitimized by undergoing a Competitive Selection Process that has been certified by the Department of Energy and their choice to lease SPUG assets is their business strategy to realize privatization  of the generation function of SPUG,” the DOE emphasized.

Negotiations for the lease extension began in 2013, with the NPC initially having no objection, according to copies of communications between the three parties.

But by December 2016, NPC no longer wanted to extend the lease, pointing to alleged reliability issues of the power plant and raising varying reasons, including alleged necessity of a new CSP due to another supplier’s interest to participate in the privatization of the NPC asset and concerns on alleged adverse audit observations from the Commission on Audit.

Upon request of NPC, the DOE issued a clarification that NPPs such as CPGI are qualified to lease or purchase NPC-SPUG assets during the period of the ESA and that the lease of government propery as lessor for private use are not considered as procurement activities.

CPGI said the NPC did not heed the DOE advise and insisted on not extending the lease, claiming that it is not feasible.

In a letter dated Oct. 16, 2017, CPGI asked NPC to re-evaluate its position due to adverse consequences if CPGI will cease operating the power plant. It argued that the loss of the largest base load supplier in the province would cause massive brownouts and render useless the MDPP since the only party which can operate it is CPGI as it exclusively holds the Certificate of Compliance covering the plant/

A shift to a new power provider, it said, will come with no assurance of competitive pricing and will expose consumers to higher power costs.

Despite the appeal, the lease was not extended and FICELCO informed CPGI on Oct. 20, 2017 that it will no longer dispatch power from CPGI in compliance with the NPC directive.

The private supplier was constrained to stop operation with the power plant still in its possession, resulting in longer power interruptions due to insufficient supply.

On May 25, 2018, FICELCO demanded that CPGI vacate and turn over the power plant, which the latter said was in clear violation of FICELCO’s obligation under the ESA to provide necessary assistance and reasonable support to CPGI in ensuring its compliance with its own obligations under the ESA.

It was only later that CPGI learned that NPC allowed the extension of the lease of its assets in Oriental Mindoro, with the non-renewal of the Catanduanes power plant lease “a blatant act of bad faith to CPGI,” it stressed.

CPGI noted that NPC now again operates the MDPP, benefiting from the rehabilitation works undertaken by CPGI but at the expense of the continued implementation of CPGI’s ESA with FICELCO.

This left the company unable to completely recover its P40 million in expenses and reasonable return, and had to contend with financial challenged due to idle manpower.

In addition, it claimed, CPGI has to obtain interest-bearing advances from an affiliate to avoid default in the repayment of its credit line with a local bank, which was used for fuel purchases and other operating expenses.

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