Amended Rules for NPC Stranded Costs Recovery

Republic Act No. 9136 (Electric Power Industry Reform Act of 2001, EPIRA) authorizes the imposition of a Universal Charge (UC) determined, fixed, and approved by the ERC for specified purposes including recovery of NPC stranded costs.
Sections 32 and 34 of Republic Act No. 9136 provide for a UC and PSALM’s role in handling NPC stranded costs and stranded debts.
ERC bases the definitions of NPC Stranded Contract Costs and NPC Stranded Debts on Section 4 (vv) and Section 32 of Republic Act No. 9136 and the IRR rules cited in the resolution.
ERC relies on the IRR provisions requiring recovery verification and a fixed recovery duration range under Rule 17.
ERC adopts amendments to the prior ERC Resolution No. 4, Series of 2007, which adopted rules for recovery of NPC Stranded Contract Costs (SCC) and Stranded Debts (SD) Portion of the Universal Charge.

The resolution adopts amended recovery rules to implement Universal Charge recovery of NPC Stranded Contract Costs and NPC Stranded Debts.
The resolution anchors the UC recovery framework on open and transparent handling of PSALM disbursements through a Special Trust Fund.
The resolution establishes a regulatory process consistent with EPIRA and the IRR for verifying claims and determining the manner and duration of recovery.
The resolution provides guidance for NPC and PSALM in their future filing of SCC and SD.

NPC Stranded Contract Costs are defined as the excess of the contracted cost of electricity under NPC’s eligible contracts with Independent Power Producers (IPP) over the actual selling price of the contracted energy output in the market.
These eligible NPC-IPPs contracts are those approved by the then Energy Regulatory Board (ERB) as of December 31, 2000.
NPC Stranded Debts are defined as unpaid financial obligations of NPC that have not been liquidated by the proceeds from the sales and privatization of its assets.

The UC is a non bypassable charge collected from all End-Users.
The UC is collected under rules governing UC collection applicable to end-users.
The UC is imposed for purposes including recovery of NPC stranded contract costs and stranded debts under Republic Act No. 9136.
Self-Generating Facilities registered with the ERC and PSALM are excluded from UC imposition for a period of four (4) years from its imposition.

The ERC verifies the reasonable amounts of claims petitioned by PSALM.
The ERC determines the manner and duration by which full recovery of Stranded Debt and Stranded Contract Costs of NPC is attained.
The recovery duration is constrained to not be shorter than fifteen (15) years and not be longer than twenty-five (25) years.

Section 34 of Republic Act No. 9136 mandates PSALM to create a Special Trust Fund.
Disbursements from the Special Trust Fund are limited to the purposes specified.
Disbursements must follow an open and transparent manner.
The disbursement framework is governed by the Revised Guidelines and Procedures Governing Remittances and Disbursements of the Universal Charge promulgated by the ERC on January 5, 2006.

The proposed amendments to the recovery rules were posted at the ERC Website on November 23, 2010.
The deadline for submission of comments was set for December 24, 2010.
Manila Electric Company (MERALCO) submitted comments on December 23, 2010.
PSALM submitted comments on December 29, 2010.
After deliberation, the ERC approved and adopted the Amended Rules as an ANNEX 1 integral part of the resolution.

The UC non-bypassability and the collection approach apply pursuant to the Rules Governing the Collection of the Universal Charge referenced under Rule 18 of the IRR.
The UC remittances and disbursements operate under the Revised Guidelines and Procedures Governing Remittances and Disbursements of the Universal Charge promulgated by the ERC on January 5, 2006.

The resolution provides that the adopted recovery rules take effect in accordance with the resolution’s publication timing and statutory-administrative process for effectivity.