Relaxed power supply contracts ‘disastrous’ to plant operations

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PIPPA says mandating power generators to force majeure claims disrupts the power supply chain

By Adam J. Ang

POWER producers said they cannot relax their supply contracts with distribution utilities (DU) and electric cooperatives (EC) to lower generation costs as this move would disrupt the energy supply chain.

Their stand is a response to the appeal by a consumer group that called on them to cut generation costs being passed on to consumers as demand for electricity during the enhanced community quarantine (ECQ) continues to drop.

Philippine Independent Power Producers Association Inc. (PIPPA) on Thursday said that relieving their contracts would affect their ability to pay for fuel, operating costs, as well as loans, making it difficult for them to continue their operations.

“Mandating generation companies to FM (force majeure) claims by DUs/ECs not only disrupts the power supply chain, [but] it is also tantamount to one sector taking advantage of the other,” PIPPA President and Executive Director Anne E. Montelibano said.

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In late March, Laban Konsyumer Inc. (LKI) demanded power producers to declare a force majeure claim on their power supply agreements (PSA) to reduce the costs of electricity that they pass on to consumers whose livelihoods are affected by measures to contain the coronavirus disease 2019 (COVID-19) pandemic.

“[I]t is a difficult situation nowadays for the Filipino consumer, especially when it comes to making money since most people are not able to work any longer. Because of this, our group is calling on the owners of the power plants to find a way to lower the power generation costs that they will be passing on to consumers,” LKI President Victorio Mario A. Dimagiba said in a letter to PIPPA.

But Ms. Montelibano warned that bringing down costs upon invoking a force majeure provision on their contracts would have “disastrous consequences if it remains unchecked.”

“It will be each industry player acting solely on the basis of its own commercial interests,” she added.

A force majeure event is an uncontrollable event that makes it impossible for power plant operators to fulfill their obligations. The falling demand for electricity due to the COVID-19 crisis can be treated as such an event, Laban Konsyumer claimed.

Manila Electric Co. (Meralco) recently declared a force majeure provision on its supply contracts, which effectively cut its generation costs.

However, despite a lowered generation charge of P4.6385 per kilowatt-hour (kWH) from P4.6632 per kWh in March, this did not help its overall electricity rate in April to go down.

Typical Metro Manila households consuming 200 kWh could see a P21 rate hike on their bills this month as rates rose by P0.1050/kWh to P8.9951/kWh from March’s P8.8901/kWh.

“The generation charge actually registered a downward adjustment however the normalization of the universal charges following an ERC (Energy Regulatory Commission)-mandated refund last month caused a slight overall uptick in rates,” Meralco Spokesperson Joe R. Zaldarriaga told BusinessWorld.

Asked about their position to the appeal to reduce electricity rates, he said that Meralco has “always kept in mind consumer welfare in our sourcing strategy.”

PIPPA also called on the government to protect the energy supply chain from any possible disruption that could negatively affect the delivery of essential services, such as medical and government operations, during the ECQ.

It said that power must be treated as an essential service and commodity, especially during this time of a state of public health emergency.

“[A]ssistance meant for vulnerable power consumers must form part of similar assistance given to vulnerable communities for food, water, and other basic supplies,” Ms. Montelibano said.

The field offices of the Department of Energy earlier reported reduced electricity demands of up to 30% in Luzon, Visayas and Mindanao grids, as businesses temporarily shuttered due to the ECQ.

“As PIPPA strives to ensure electricity supply, it is aware of its critical role in supporting the return of the economy and people’s livelihood to health. Thus, it will actively engage stakeholders in keeping the power industry resilient,” the group of power generation firms said in a separate statement.

“We call on all stakeholders and parties of the energy industry to unite and work together towards an equitable solution that will be not only responsive to the present situation, but more importantly, sustainable to the industry as a whole,” it added.

RUNNING ON REDUCED CAPACITY
Asked about its operations, Lopez-led First Gen Corp. said its power plants are currently running at a reduced capacity as it manages its production to avoid creating excess power supply.

“Our plants are running normally although at reduced capacity,” First Gen Vice-President Ramon A. Carandang said.

Meanwhile, Aboitiz Power Corp. said its power demand remained above the minimum demand it can cater to while it observed the must-offer rule in selling their power plant’s maximum generating capacities in the spot market.

“We are offering all of the capacity that’s available in compliance with the must offer rule. If the demand is less than the supply and we don’t get dispatched, we have to ramp down and operate our facilities at a level directed by WESM (Wholesale Electricity Spot Market),” AboitizPower President and Chief Executive Officer Emmanuel V. Rubio said.

“But so far, the level of our demand for our bilateral contracts and our contestable customers is above our Pmin (plant minimum stable load) requirements,” he added.

The Aboitiz energy unit also built a facility quarantine for its on-site operations and maintenance teams.

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