July 12, 2015

Ancillary services down 25% YoY in June but relatively flat in 2Q15

Data from the National Grid Corp of the Philippines (NGCP) showed that total ancillary services (AS) charges for the Luzon grid dropped 25% YoY to P1.48b in June from P1.97b a year ago. It’s the steepest year-on-year decline this year, mainly brought about by lower AS cost on regulating reserves, which dropped 45% in June due to the increased nomination of hydro plants resulting from improved water elevation.

Despite the YoY drop in June, total AS charges for 2Q15 came in relatively flat at P4.81b compared with P4.86b the same period last year, buoyed by higher AS charges in April (+23%) and May (+7%). For the first semester of 2015, total AS charges reached P8.08b, 1.4% higher than 1H14.

Our take: The anemic growth in AS charges in 2Q15 may again lead to weaker ancillary revenues for power generators such as Aboitiz Power Corp (AP), although its impact on earnings may be muted as AS revenues account for just a small percentage of total capacity sales.

AP is one of the largest sellers in the AS market, with total AS revenues from its Luzon-based hydro plants reaching P1.08b in 1Q15. This represents a third of the total AS charges booked for the Luzon grid in 1Q15. However, as a percentage of AP’s total capacity sales, ancillary services account for just 8%. – WealthSec