The Energy Regulatory Commission (ERC) has revised the minimum financial capability standards for generation companies (gencos) after over a decade to ensure efficiency and financial performance in the country’s power sector.
Based on a recently-issued 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 lasts for five years.
The new benchmark is lower than the 1.5x DSCR set back in 2005.
The DSCR measures a genco’s ability to settle its debt obligations computed as the ratio of earnings before interest, depreciation, and amortization (EBITDA) to debt service.
The National Power Corporation (NAPOCOR) and the Power Sector Assets and Liabilities Management Corporation (PSALM), and own-use generation facilities are exempted from complying with the new financial capability standards.
The ERC saw the need to update the Financial Guidelines given the significant changes in the country’s economic conditions vis-a-vis its mandate to ensure the quality and reliable delivery of power services to the public under Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA).
Based on the study conducted by the quasi-judicial commission, only 32% of gencos with issued COCs were able to comply with the required 1.5x DSCR.
“After a thorough review of all information gathered by the commission…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,” the resolution stated.
Based on the new guidelines, gencos are also required to submit a certified true copy of a complete set of their audited financial statement and their DSCR calculation 150 days after the end of their calendar or fiscal year.