ERC seeks SC guidance as PSA for P50-B power deals set to be voided

By Lenie Lectura- August 12, 2019

https://businessmirror.com.ph/2019/08/12/erc-seeks-sc-guidance-as-psa-for-p50-b-power-deals-set-to-be-voided/

THE Energy Regulatory Commission (ERC) stressed over the weekend the need for the Supreme Court to issue guidance on how the commission will implement the SC’s earlier order mandating all power-supply agreements (PSAs) filed on or before June 30, 2015, to undergo competitive selection process (CSP).

“We will also need guidance on how prior settlements based on the affected contracts will be evaluated considering the rates that were implemented,” said ERC Chairman and CEO Agnes VST Devanadera in a statement issued last week.

It is possible, she said, that power rate hikes and outages may occur as a result of the SC decision if no clarification is issued.

“Our initial calculations disclosed that about P50 billion worth of generated power is involved in the PSAs that were filed within the period covering June 30, 2015, to April 29, 2016, which we [the ERC] subsequently approved, and were implemented by the concerned parties in the PSAs.

Therefore, the P50 billion will be translated to rate adjustments in the consumers’ electricity bill on top of the rate adjustment resulting from sourcing power from the electricity spot market,” said Devanadera.

The ERC, she said, will seek clarification from the SC after the latter denied its Motion for Reconsideration.  “We have not yet received a copy of the Supreme Court’s Resolution purportedly denying our Motion for Reconsideration. Nevertheless, should that be the case, we will comply with the directive of the Supreme Court.

“We only need to seek guidance through a Motion for Clarification on how to implement their decision particularly on the rates and the continued supply of electricity to the affected public utilities,” said the ERC chief.

The SC decision will result in the possible immediate termination of 99 affected PSA contracts, leading to a cessation of power supply to 52 Distribution Utilities (DUs) that are serving 13 million electricity consumers—9.371 million from Luzon, 1.767 million from Visayas, and 1.978 million from Mindanao.  Once this scenario happens, a total of 743 megawatts (MW) will have to be sourced from the electricity spot market, particularly:  370 MW in Luzon, 86 MW in Visayas, and 287 MW in Mindanao.

Current prices in the Wholesale Electricity Spot Market (WESM) may range from P5.00 to P8.00, whereas some of the affected contracts were priced at P3.00 to P6.00. Thus, an increase in the Generation Charge may be inevitable.

For Mindanao, there is no electricity market yet that can serve as the default source of supply for the DUs.  Hence, without the PSAs, DUs will have no other means to provide enough supply to their consumers, resulting in brownouts.

Meanwhile, the ERC directed the Philippine Electricity Market Corporation/  Market Operator (PEMC/MO) to make the necessary adjustments to the Net Settlement Surplus (NSS) allocations and corresponding settlement calculations for the June 2018 to May 2019 billing months.

This, after the ERC found inconsistencies in the share of generators and customers in the NSS allocations issued by the PEMC/MO.

PEMC/MO said this was caused by its erroneous application of the formula in its software that is used to determine NSS allocations.  The necessary corrections have been made.

As a result of the corrections in the NSS allocations ordered by the Commission, WESM trading participants are expected to either be entitled to a refund or made to return excess allocations no later than the July 2019 billing period.   Adjustments resulting from the NSS correction by the PEMC/MO, covering the period from June 2018 to May 2019, involve an estimated P1.774 billion.

Total refunds due Luzon and Visayas consumers amount to P1.403 billion.  Of this, 77 percent or P1.08 billion will be refunded to consumers in the Meralco franchise area; 23 percent or P321.36 million will be refunded to consumers covered by other distribution utilities and electric cooperatives.  The rest, or P371 million, will be due generation companies, retail electricity suppliers, and directly connected customers.

Eighty one percent of the amounts to be refunded will be collected by the PEMC/MO from generation companies and retail electricity suppliers which were allocated far greater settlement amounts than what were due them.  The remainder will be collected from Distribution Utilities (DUs).