Power firms nix’ walk-away’ clause prohibition in supply contracts

Updated November 5, 2018, 10:23 AM By Myrna M. Velasco
https://business.mb.com.ph/2018/11/04/power-firms-nix-walk-away-clause-in-supply-contracts/

Power companies are objecting the proposed rules precluding “walk-away provisions” in power supply agreements (PSAs) as this will be in violation of their rights to “freely contract.”

In a letter to Energy Regulatory Commission (ERC) Chairperson Agnes T. Devanadera, the Philippine Independent Power Producers Association, Inc. (PIPPA) has stipulated that “removing or prohibiting the termination or ‘walk-away’ clauses clearly violates the rights of parties to freely contract and agree on terms and conditions in the PSAs which it deems best to their own respective interests.”

These PSAs will be underwritten between generation companies (GenCos) and distribution utilities (DUs), as prescribed within the ambit of competitive selection process (CSP) policy in the restructured electricity sector.

The organization of the country’s GenCos said that such clauses were in fact “meant to give an opportunity for either party to withdraw from contractual obligation – should there be a change in circumstance or any event where it is different from what was originally agreed upon.”

The group further argued that “the walk-away clauses are option for both the GenCos and DUs if the contract may not be commercially feasible for any of the parties.”

Leaning on that premise, PIPPA thus propounded that “the ERC should not amend parts of the contract, and just focus on the process (CSP) itself.”

The mandated CSP edict in the industry is anchored on a policy approach wherein the DUs are directed to undertake competitive bidding on their procurement of power supply to serve the electricity needs of their captive customers.

Considered as “captive” end-users shall be the segments still not afforded choice when it comes to power suppliers, as sanctioned by the Retail Competition and Open Access (RCOA) policy in the industry.

Essentially, these will be the household subscribers as well as the smaller commercial end-users – of which consumption threshold are still not within the voluntary phase of RCOA enforcement.
Aside from raising its objection to the “walk-away clause” interdiction, PIPPA similarly contended that a definite timeline be enforced on PSA processes – primarily on evaluation of application and regulatory approvals.

“Imposing a definite deadline for review and approval will greatly help the proponents and avoid costly delays that will affect the consumers,” the GenCo group said.

The group likewise sought clarification on how the industry regulator will be drawing up its proposed benchmark rate under the CSP rules.

PIPPA wants an explanation on how the benchmark rate will be calculated – if it shall be assessed on a per-DU basis or should it be generator-specific or technology neutral rate reference – and what will ERC do if the “resulting price is higher than the benchmark rate.”