ERC sets capex guidelines for distribution utilities
Sunday, February 26, 2006
By MYRNA M. VELASCO
The Energy Regulatory Commission (ERC) is now finalizing guidelines on determining cost allocation for capital projects embarked upon by distribution utilities.
The proposed capital expenditure (capex) guidelines will detail out the rules on submission, evaluation and approval of capital projects of power distribution companies; primarily those which have not yet applied for revised tariff setting under the prescribed performance-based regulation (PBR) scheme.
The ERC however clarified that "capital projects which have already been included in the DUs’ approved rate base are not anymore covered by said Guidelines."
ERC chairman Rodolfo B. Albano explained that with such set of rules comes an assurance on the orderly procedures in the approval of DUs’ capital projects in line with the Philippine Grid and Distribution Codes set out for the power industry.
The Guidelines prescribed that "any plan for expansion or improvement of distribution facilities is subject to the review and approval of the ERC." Regulators noted that this would be one way of ensuring that proposed capital projects are being optimized and that procurement of equipment, assets, and services go through transparent bidding and purchasing processes to protect public interest.
The Guidelines ought to classify projects to be implemented in the category of either major, minor or emergency ventures. This shall apply to all electric cooperatives, privatelyowned utilities, local government unit owned-and-operated distribution systems, entities duly authorized to operate within the Economic Zones, and Qualified Third Parties operating in waived areas of a franchised DU.
A defined, major capital projects are those electric or non-electric projects with costs that are substantial in terms of the nature and scope of work. Given such circumstance, splitting of major projects, by way of division, separation or partition of one project into several phases, or stages in order to classify it as minor project shall be strictly prohibited under the Guidelines, "unless there is a prior authority from the ERC."
But the regulatory body has clarified that connection assets covered by the Distribution Services and Open Access Rules (DSOAR) are to be excluded from this classification.
Minor capital projects, on the other hand, are those ascertained as procedurally less burdensome because no formal application for approval is required. Under this set-up, the DUs will only need to notify the ERC in advance before the start of project implementation. However, these projects are subject to verification by the ERC in order to determine significant discrepancies or deviations from the submitted documents.
On one hand, emergency capital projects are deemed provisionally approved by the ERC upon their implementation owing to the urgency in maintaining a continuous supply of electricity during calamities.
In case of emergency capital projects classified as major projects, a formal application is necessary within 60 days after the start of construction.
For every approved major capital project, the ERC requires DUs to report their actual project costs after completion. "Any substantial change from the original design or project cost beyond the allowable percentage cumulative variation order on top of the allocated contingency has to be approved by the ERC prior to its implementation," it was prescribed.
Major projects that are in progress or completed and have not yet been included in the rate base and have not been covered by any application must be submitted to the ERC for approval within three (3) months from the date of effectivity of the prescribed guidelines.
posted by philpower @ 8:38 PM,
