THE Energy Regulatory Commission (ERC) said Tuesday that a recent resolution has eased the financial eligibility requirement for generation companies (GenCos), in a bid to encourage investment in the sector.
The resolution, posted on the commission’s website Monday, featured a reduction in the debt service capability ratio (DSCR) of GenCos holding certificates of compliance (CoCs) to 1.25 times from 1.5 times. If the GenCo’s financial or loan agreements require a higher DSCR, which is a measure of a project’s ability to generate cash flow to service debt, the higher value will serve as the minimum requirement.
“The minimum financial capability benchmark of 1.25x DSCR for GenCos is a level that could ensure that the operations will (generate sufficient funds) to pay off its financial obligations… this revision aspires to encourage investment in the generation sector which could lead to further competition,” ERC Commissioner-in-Charge Floresinda G. Baldo-Digal told BusinessWorld in a mobile message Tuesday.
Ms. Digal said the 1.25x ratio was “more in tune” with the requirements of financial institutions.
“The setting of 1.25x DSCR hopes to encourage efficiency in the performance of (a) generation facility and in managing its overall operation. More importantly, it ensures the sustainable operations of the generation facility for the delivery of continuous supply of electricity,” she added.
Ms. Digal said the old 1.5x minimum was a burden to GenCos, discouraging investment in the sector.
“The revision of the rule is timely since there were several changes in economic conditions since the promulgation of the Financial Guidelines as well as significant development in the electricity market,” she added.
In its resolution, the ERC said that it had conducted a study that showed only 32% of GenCos with issued CoCs were able to comply with the 1.5x requirement.
According to the commission, a GenCo which performs below the benchmark will need to submit a program to comply within 60 days of receiving a directive from the ERC. The GenCo will have one year to hit the ERC-prescribed benchmark, subject to fines of up to P50 million for non-compliance, as authorized by the amended Electric Power Industry Reform Act.
The ERC said that the Power Sector Assets & Liabilities Management Corp.; National Power Corp. (NPC); transferees or new owners of NPC generation assets; and entities that own generation facilities for internal consumption are exempt from complying with the updated financial capability standards.
The resolution was signed on Nov. 11, 2020, and posted on the ERC’s website on Monday. — Angelica Y. Yang