The Energy Regulatory Commission (ERC) is set to review the implementation of policies regarding the ineligible recovery of associated generation cost on power supply agreements (PSAs) in setting retail power rates to ensure that these follow the Electric Power Industry Reform Act (EPIRA) of 2001.
During an open meeting on Thursday, streamed online through its Facebook page, ERC Chairperson and Chief Executive Officer Francis Saturnino Juan cited the large number of cases involving ineligible PSAs as well as those with over and under recoveries.
He said the issue started around 2009 when more PSAs were filed with the ERC, using previous rules that allow distribution utilities (DUs) and power generation firms to implement a PSA using ERC-approved tariff rates pegged on the National Power Corporation’s (NAPOCOR) Portfolio of Plans.
Under the said Portfolio of Plan, power rates are subsidized by the NAPOCOR.
He, however, said the issue cropped up when more generation companies started to operate, and entered PSAs with the DUs to ensure a market for their prospective supply and to secure funding for the construction of new power plants.
This resulted in the increase in the number of PSAs implemented without prior approval of the ERC, with some of the contacts having a renewal clause that allows the continuation of the PSAs for up to two years without any ERC approval.
With the implementation of the competitive selection process (CSP), which requires all PSAs of DUs to undergo a transparent and competitive bidding process, Juan said PSA implementation without prior ERC confirmation and approval was stopped in June 2015.
Thus, the issue about who should shoulder the cost of the generation charge to set the retail rate, and the rising applications for reconsideration of the PSAs.
“In determining the generation charge or the generation component of the retail rate, we should still be guided by the principle of full recovery of just (and) prudent economic cost,” he said.
He said a generation company will not produce power without any cost, but a DUs will not shoulder it. This also resulted in a rise in emergency PSAs, which have higher generation rates.
“I will propose that we study and revisit the existing policy of the Commission regarding ineligible recovery of associated generation cost on ineligible power supply agreements to improve our policies and heed what is the standard set under Section 25 of the EPIRA,” he said, referring to the setting of retail power rates.
PIA PHOTO