What are Ancillary Services, and what is the Ancillary Services Procurement Agreement (ASPA)? In order for the grid to be functioning securely, effectively and reliably, ancillary power is needed. This power is used for regulating frequency in the grid as well as providing reactive power reserve/support or stand-by power during cases of emergencies to prevent the grid from crashing, which could result to grid-wide blackouts.
The ASPA is the contract that covers the agreement between NGCP and TMI for the procurement of ancillary services. Under the deal, NGCP, in behalf of all the customers connected to the grid, will utilize TMI power barges and use these as ancillary power for the benefit of all consumers of Mindanao. The ASPA started in 2010 and expired in February 2012.
What is the Capital Recovery Factor (CRF)? Aboitiz Power and Therma Marine invested millions of dollars to buy the power barges from the national government. The fair and reasonable recovery of this investment is allowed through a mechanism called the capital recovery factor. This mechanism is added to the total cost of power produced by TMI.
Why did the Energy Regulatory Commission (ERC) order TMI to refund NGCP? The ERC recalculated the CRF of TMI when it sold power to NGCP through the ASPA between 2010-2012. The regulator decided that the CRF should be lower than what was earlier agreed by NGCP and TMI under their ASPA contract. As a responsible player in the power industry, Aboitiz Power and TMI will immediately follow the order and set a mechanism for the refund.
How much will the consumers get as a refund? The refund will impact 100 to 192 MW of TMI’s capacity that is utilized as ancillary power by NGCP over the period from 2010 to February 2012. The TMI ancillary power was less than X percent of the total demand of the grid at that time. Since all consumers in Mindanao benefitted (and paid for) the ancillary power, the refund will also be shared by all consumers, but only for the ancillary power portion of their consumption. The computation of the refund amount to the end user will be approved by ERC and will be distributed by the electric cooperatives and distribution utilities.
Will consumers get the refund directly from TMI? Since NGCP was the primary customer of TMI, the refund will be given to NGCP, the Mindanao system operator. NGCP will then have to find a way to pass on the refund to their customers – the electric cooperatives, distribution utilities and industrials in Mindanao. All these power industry players will have to set up a mechanism to implement the refund to the end consumers in the most reasonable, prompt and effective manner.
When can the consumers expect to get their money? There are several steps to be followed, involving TMI, NGCP, and the Electric Cooperatives and Distribution Utilities, all under the governance of ERC in issuing the refund. Pending any concerns, the process should hopefully take 4 to 6 months. It is the intention of TMI to start the refund process promptly.
When will TMI issue the refund? TMI is coordinating with the concerned parties to fulfill all regulatory requirements. TMI and NGCP will reconcile all records and come up with the agreed ancillary amount to be refund to the consumers. The ERC will then approve the amount, thereafter, TMI will immediately pay the refund amount to NGCP.
What happened to TMI after the ASPA expired? TMI is now supplying power to 23 electric cooperatives, distribution utilities and industrials in Mindanao. Because of TMI, some areas of Mindanao, which used to have up to 10 hours of brownouts a day, now have minimal or zero power outages. This has great impact to the economy and the lives of millions of people in Mindanao.
TMI power is providing short and medium-term solution to the ongoing power crisis in Mindanao by providing the cheapest and most reliable peaking power while the island waits for the entry of bigger power plants by 2015. These new power plants include 354 MW from other Aboitiz Power subsidiaries like Therma South, Inc. and Hedcor, Inc.
Does TMI produce very expensive power? TMI is powered by bunker fuel so this affects the cost of the power produced. However, 90% of TMI’s cost is on fuel and this is a pass-through cost, something TMI has no control of. The remaining 10% of the cost is for the salaries, spare parts, maintenance costs, capital recovery and others. TMI’s team is making sure the power plant is very efficient and cost-effective as this translates to savings in terms of energy costs. Compared to other power plants in Mindanao using similar fuels, TMI is the most efficient, reliable and therefore, produces the cheapest power.
If TMI’s power costs more, then why operate it? Oil-based power plants like TMI have a role to play in the grid. Since these power plants can be run or turned off quickly, they are ideal for back up power during peak hours, when the demand for power is higher. Oil-based power plants are also ideal for ancillary services. Due to its unique capability and cost, oil-based power plants are designed to run for a few hours a day. But Mindanao is suffering from a short supply of power so TMI and other oil-based power plants are forced to run on extended hours.
Prepared By: Jay S. Abrogueña Dikaiosune Hesed B. Rebuta
Marjohn S. Ysulan