NGCP seeks changes in insurance policy

Manila Times.net

BY EUAN PAULO C. AÑONUEVO REPORTER

THE National Grid Corp. of the Philippines (NGCP) is seeking an overhaul of its insurance policy covering the country’s power transmission assets to allow the company to recoup losses and damages to facilities more efficiently.

In a letter to state-run Government Service Insurance System (GSIS), Anthony Almeda, NGCP chief administrative officer, said the company should effectively and adequately secure insurance claims so it would not incur losses that must be passed on to electricity consumers in the form of higher power rates.

NGCP also asked the GSIS for an insurance cover that is separate from the package covering two state-owned firms in the power sector, namely National Power Corp. (Napocor) and Power Sector Assets and Liabilities Management Corp. (Psalm).

NGCP paid a $6.7 million premium for its policy with the GSIS covering the December 2009 to December 2010 period.

In the letter to GSIS, Almeda said the review of NGCP’s insurance package should include the lowering of its Industrial All Risks (IAR) policy’s high deductible level feature, which prevented the company last year from being indemnified or compensated either partially or in full for damages to the country’s transmission assets.

IAR is an insurance package that covers nearly all potential risks to facilities a large firm may face in its operations.

Almeda said the company’s insurance package for this year should include this lower deductible level to prevent it from passing on its losses to the public.

“It is significant to note that the NGCP is under the regulatory authority of the Energy Regulatory Commission (ERC), which protects the public interest and frowns upon applications to recover losses in the event of calamities, accidents or otherwise, when it can procure proper insurance to cover such,” Almeda said.

“As a prudent public utility entrusted by the government to operate and maintain the Transco assets, NGCP has the responsibility to procure and cover them with cost-effective, efficient, and responsive insurance which will prevent it from passing its losses to the public,” he added.

NGCP, which two years ago took over the management of the country’s national transmission network from state-owned National Transmission Co. (Transco), also said it should be allowed to tap a re-insurer for the IAR policy that it had obtained from the GSIS.

The re-insurer would allow the GSIS to spread its risks, while providing the NGCP with a better, more comprehensive insurance package.

The GSIS insurance package covers transmission assets valued at $2.26 billion, with liability limits of $50 million for IAR, $50 million for natural catastrophe, $15 million for NGCP’s submarine cables, and $50 million for losses occurring from sabotage and terrorism.

Cynthia Perez Alabanza, NGCP spokesperson, said the policy contains a double threshold or deductible feature of $5 million a year, then $2 million for each and every loss, which is combined for the IAR and submarine cables, and another $2 million for each and every loss occurring from sabotage and terrorism.

Alabanza said NGCP is required under the law to obtain insurance for these assets from the GSIS because the company manages and operates facilities that are owned by the government.

“But we need a better package that is more comprehensive and efficient than the present one offered by the GSIS,” she said.

“As I see it, there are two options: either we call on the Congress to pass a law that would allow private entities operating public utilities to choose their own insurer or the GSIS can implement reforms in its reinsurance procedures,” she added.

One instance wherein the NGCP had failed to tap its insurance cover under the GSIS pertained to losses to its transmission lines and substations because of the heavy rainfall and flooding brought by typhoons Ondoy and Pepeng in 2009.

The GSIS insurance package also failed to cover losses incurred by the NGCP arising from the sabotage of several transmission towers in Mindanao, also in 2009.

As a result, the NGCP filed a petition with the ERC seeking the recovery of these losses in the form of “force majeure event-pass through” claims that would be charged to power consumers in Luzon and Mindanao.