Focus on ancillary!

After all the brouhaha over systems losses being blamed for rising electricity bills, the best that our government can do is to offer to remove the 12 percent VAT on systems losses. That’s peanuts. Our government can certainly do more.

As I had written in a previous column, they should be focusing on the ancillary services (AS) being contracted by NGCP which unnecessarily inflates the cost of transmission that we pay.

The DOE-mandated excessive firm take-or-pay AS contracts force us consumers to pay for idle capacity fees or power that most of the time we don’t even need and don’t use.

As I explained in a previous column, the average utilization of firm AS contracts mandated by DOE for January to June 2026 is extremely low. It’s a high of 20 percent in the Visayas and less than one percent in Mindanao. In Luzon, it is between 13 and one percent.

Global benchmarks for ancillary service costs are just 10 percent of transmission costs or about P15 to P20 a month for a typical 200 kWh household. Our AS at 60 percent of transmission costs is shockingly excessive. It’s estimated to add roughly P120 to P260 per month to the average household electricity bill.

Structural, transparency and market rule reforms can quickly reduce our electricity bills if only the DOE had some balls.

The problem is, the oligarchs owning power plants are strongly represented in BBM’s Council of Economic Advisers. They probably convinced BBM against changing the policy and the DOE, even if it knows better, is too scared to say otherwise.

Worse, the DOE mandate also creates a seller’s market. Since the oligarchs owning the power plants know the grid operator must contract 100 percent firmly amid thin available reserves, they can demand exceptionally high-capacity fees.

AS, in our case, is an expensive layer built into consumer bills. The actual cost to simply transport electricity is low, but the cost of AS that may or may not be needed is extremely high.

Reforming AS is an obviously effective means for lowering consumer bills because AS charges now make up the bulk of transmission costs.

The ERC and the DOE must accelerate the prequalification of Battery Energy Storage Systems (BESS) as fast-frequency reserves.

Injecting massive competition from fast-acting batteries dramatically reduces the “idle capacity fees” paid to large coal or gas plants just to sit on standby. Batteries can inject power in milliseconds, making them cheaper and more efficient for primary regulation than running a giant turbine at suboptimal levels.

Even better, is to allow the NGCP to build and operate its own BESS dedicated to grid stability. This would significantly reduce household electricity bills. However, a DOE rule forbids NGCP from using its own batteries.

But allowing NGCP is good for consumers. NGCP would buy the batteries as a one-time capital expense passed through regulated wheeling rates, entirely removing the infinite, monthly availability fees paid to private power plants.

Unlike relying on oil- or gas-fired plants for rapid reserves, batteries do not burn fuel while waiting on standby. This helps isolate the transmission bill from global fuel price shocks.

Batteries respond to grid fluctuations within milliseconds. Traditional plants take minutes to ramp up, meaning NGCP currently over-procures total reserve volume just to compensate for slow physical response times.

Instead of paying private conglomerates to sit on idle capacity, with BESS, the grid operator utilizes an in-house asset optimized purely for engineering stability rather than market profit.

It is claimed that EPIRA bars NGCP from acquiring BESS assets because batteries are defined as generation. But BESS was non-existent when EPIRA was written. It was DOE that categorized BESS as a generation asset because it supposedly technically “injects” power into the grid.

In reality, a battery is a storage device; it cannot create net-new energy and can only return what it previously absorbed from the grid.

The DOE ruling encouraged the private power generators to build massive battery fleets they then lease back to NGCP via lucrative Ancillary Services Procurement Agreements (ASPAs), keeping reserve prices inflated.

To unlock this cost-saving mechanism, Congress must urgently amend EPIRA to explicitly define energy storage systems as transmission grid infrastructure rather than generation assets, provided they are used solely for frequency regulation and voltage support. This would permanently lower electricity rates.

Other countries have created distinct regulatory classifications that treat grid-scale batteries either as a dual-use asset or specifically as a Transmission Asset Providing Wholesale Services.

By rewriting outdated laws to recognize that batteries do not generate new net electricity, many countries allow grid operators to use batteries for stabilization without violating unbundling or anti-monopoly laws.

In the United States, the Federal Energy Regulatory Commission allows batteries to be classified as Storage as Transmission Assets (SATA) if they are used to manage grid bottlenecks, maintain voltage or mimic a transmission line’s stabilization function.

Under the SATA framework, transmission utilities (the equivalent of the NGCP) are allowed to own and operate batteries, even though US law also strictly unbundles transmission from generation.

The cost of the utility-owned battery is recovered through regulated, predictable grid tariffs (cost-of-service rates). To protect fair competition, when the utility’s battery is acting as a transmission asset, it is banned from selling active energy for commercial profit into the spot market; it exists purely to protect grid reliability.

This simple legal reclassification removes the ban on NGCP owning BESS purely for ancillary or grid stabilization, allows the ERC to strictly regulate the battery costs via wheeling rates and terminates the expensive 100 percent “firm contract” availability fees paid to private power plant owners.

It is simple. But our officials are beholden to the commercial interests of the big power generators to dare threaten the highly lucrative, long-term NGCP ancillary contracts required by DOE.

Consumers welcome the removal of VAT on system loss. But please focus on the waste in AS too.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco