Legal recourse sought vs expensive contracts

By MIKE BAÑOS, Editor-at-Large

A COALITION of power advocacy groups will bring to court power distributors who have entered into power supply contracts without bidding.
“Despite the ERC saying that this requirement for least-cost acquisition will not be imposed on previously approved PSAs, the MCPC will continue to pursue the filing of legal suits against the offending ECs for entering into PSAs without going through the least-cost acquisition process,” said David A. Tauli, president of the Mindanao Coalition of Power Consumers (MCPC).
The Energy Regulatory Commission (ERC) and the Department of Energy (DOE) have passed Joint Resolution No. 1 which both agencies claim would promote consumer interest under a regime of stable regulatory policies through the implementation of a mandatory Competitive Selection Process (CSP) for distribution utilities (DUs) when contracting power supply agreements.
Both agencies stressed that CSP “fosters transparency, enhances security of supply, and ensures stability of electricity prices to captive electricity end-users in the long-term.”
The Joint Resolution, which will be effective upon its publication in newspapers of general circulation, further provides that the ERC shall issue the appropriate implementing regulations for the CSP.
The ERC passed a resolution last Oct. 20 requiring the implementation of the auction system for power distributors seeking additional power suppliers after due study and consultation.
ERC Chair Jose Vicente B. Salazar said in the statement “the system is intended to enhance transparency in distributors’ purchases of electricity from power generators, so consumers would benefit from the least-cost power bidders.”
Mr. Salazar explained that under the system, a power distributor may enter into power supply agreement (PSA) with a generation company only after complying with the requirements of the scheme. Only after two failed competitive selection processes may a distributor enter into direct negotiations.
However, PSAs already filed with the ERC before Oct. 20, 2015 are not required to comply with the auction requirements.
“The requirement for Least Cost Acquisition of power supplies by DUs is specifically provided for under Republic Act No. 9136 (The Electricity Industry Power Industry Reform Act of 2001 or EPIRA), but this was not strictly observed by the ERC under Chairperson Ducut,” Tauli noted. “The new ERC chairman is correcting a serious defect in the ERC regulatory procedures for power sales agreements (PSA).”
As a consequence, many electric cooperatives in Mindanao contracted with the FDC-Misamis 405-MW coal plant at Phividec at a price of 5.40 pesos per kWh, at a time when prices as low as 4.00 pesos/kWh were being offered by other coal plants, he added.
“If those anomalous contracts by the ECs with FDC-Misamis are not rescinded, power consumers in Mindanao will be paying an additional 1.40 pesos per kWh for coal generation starting December 2017, when the FDC-Misamis coal plant starts operation,” Tauli said.
“This would mean an annual extra profit (from the extra 1.40 pesos/kWh) in the amount of 4.22 billion pesos, or a total of around 105 billion pesos over the 25 years of economic life of the coal plant,” he noted.
Tauli added he deemed it “definitely worthwhile” for the MCPC to pursue the cancellation of those contracts with FDC-Misamis, and charging EC general managers and boards of directors with malfeasance (if that is the right term) for entering into PSAs that are grossly disadvantageous to their member-consumers.
DOE Secretary Zenaida Y. Monsada stressed that “the DOE and ERC are working closely together to create a proactive and dynamic environment for a sustainable electric power industry which balances the interests of the consumers and the industry participants,” following the issuance of Joint Resolution No. 1.


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