ERC revises financial capability benchmark for genco

MANILA, Philippines — The Energy Regulatory Commission (ERC) has revised the minimum financial capability standards for generation companies (gencos) after more than a decade to ensure efficiency and financial performance in the power sector.

In a new resolution, the ERC has set the financial capability benchmark to 1.25x minimum annual Debt Service Capability Ratio (DSCR) throughout the period covered by a genco’s certificate of compliance (COC), which has a five-year duration.

This is lower than the 1.5x DSCR set way back in 2005.

The DSCR refers to the measure of the genco’s ability to fulfill its debt obligations computed as the ratio of earnings before interest, depreciation, and amortization (EBITDA) to debt service.

State-run genco, the National Power Corp. (Napocor) and Power Sector Assets and Liabilities Management Corp. (PSALM),  new owners of Napocor generation assets for missionary electrification, and own-use generation facilities are exempted from compliance with the financial capability standards set.

The ERC said there is a need to amend and update the Financial Guidelines promulgated in 2005, “considering the significant changes in the economic conditions in the Philippines vis-à-vis the ERC’s mandate under the EPIRA to ensure quality and reliable delivery of power services to the public.”

Based on the study conducted by the power regulator, only 32 percent of the total number of generation companies with issued COCs are compliant with the required 1.5x DSCR.

“After a thorough review of all information gathered by the ERC, the ERC finds merit on the proposed amendments to the financial guidelines particularly on the financial standard previously set by the ERC in 2005 at a level of 1.5x DSCR, with the end view of promoting overall financial stability of the generation sector, safeguard against the risk of financial non-performance, and encourage efficiency to ensure the quality and reliability of supply which will ultimately redound to the protection of public interest,” it said.

Under the new guidelines, gencos are required to submit a certified true copy of a complete set of their audited financial statement and their DSCR calulation 150 days from the end of their calendar or fiscal year.