Manila: 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.
According to Philippines News Agency, during an open meeting streamed online through its Facebook page, ERC Chairperson and Chief Executive Officer Francis Saturnino Juan highlighted the large number of cases involving ineligible PSAs, as well as those with over and under recoveries. The issue began around 2009 when more PSAs were filed with the ERC, utilizing previous rules that allowed 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, which subsidizes power rates.
The problem intensified as more generation companies entered the market, forming PSAs with DUs to secure a market for their prospective supply and funding for new power plants. Consequently, the number of PSAs implemented without prior ERC approval increased, some including a renewal clause allowing continuation for up to two years without ERC consent. The competitive selection process (CSP) requirement, instituted in June 2015, was designed to prevent PSA implementation without prior ERC confirmation and approval.
The ERC is now facing the challenge of determining who should shoulder the cost of the generation charge to set the retail rate, amidst rising applications for reconsideration of PSAs. Juan emphasized that in setting the generation charge or the generation component of the retail rate, the principle of full recovery of just and prudent economic cost should guide the process. He acknowledged that while generation companies incur costs to produce power, distribution utilities are not willing to shoulder it, leading to a rise in emergency PSAs with higher generation rates.
Juan proposed a re-evaluation of the existing policy regarding the ineligible recovery of associated generation cost on ineligible power supply agreements. This re-evaluation aims to improve policies and comply with the standards set under Section 25 of the EPIRA in setting retail power rates.
