Government offers better terms for Meralco to forge supply deal with Napocor

Energy Secretary Raphael P.M. Lotilla has expressed optimism that the National Power Corp. (Napocor) and the Power Sector Assets and Liabilities Management Corp. (PSALM) would be able to enter into a supply contract with the Manila Electric Co. (Meralco) as he admitted that the government is trying to woo Meralco by offering better terms.

"Napocor and PSALM have submitted very favorable offers, which based the price at a level lower than what Meralco’s independent power producers’ (IPPs) offer," Lotilla said.

But Lotilla said Meralco has yet to accept the offer of Napocor. "They are still in the process of getting back to Napocor and PSALM on those proposal. We’re still hoping there won’t be a delay," he said.

Lotilla, on the other hand, recognized the Energy Regulatory Commission (ERC)’s stance while the TSC between Meralco and Napocor/PSALM is still being threshed out.

"Right now the ERC, even with the absence of a TSC, has required Napocor to supply Meralco electricity at a regulated rate," he said.

The interest of the ERC is to make sure that the supply of electricity to the consumers will not be jeopardized by the absence of an agreement between Napocor, PSALM and DUs.

The Electric Power Industry Reform Act (EPIRA) requires Napocor to file for the ERC’s approval within six months from the effectivity of the law a TSC duly negotiated with the DUs containing the terms and conditions of supply.

The TSC also contains a corresponding schedule of rates, covering a period not extending beyond one year from the introduction of open access.

The supply contracts can be attached to the Napocor plants to be sold, thus maximizing their value.

"In the event that no agreement is reached, then Napocor and PSALM shall submit their proposed power supply contracts to the ERC for an appropriate ruling," Lotilla said.

In the meantime, he said Napocor and PSALM can proceed with forward sales agreements that would involve sale of future power capacity to other interested parties.

Meralco president Jesus Francisco said while the TSC is still being negotiated, Meralco and Napocor are threshing out details for an "interim arrangement" that will govern Meralco’s relationship with Napocor until the TSC is finalized and signed.

The TSC is designed to allow the new buyers of the generation assets of Napocor a ready market once it is privatized. Most of the potential investors of Napocor’s privatization have indicated that they would prefer to buy a generation company with TSC.

Under the EPIRA, the TSCs shall be assignable to the Napocor successor generation companies.

The state-owned power firm, under the power bill, was supposed to file with the ERC for approval TSCs duly negotiated with the distribution utilities, including Meralco, within six months from the effectivity of the Act or in December 2001.

The ERC did not require Napocor and Meralco then to enter into a TSC since they have a pending application for a settlement agreement under a 10-year supply contract which expired last Dec. 2004.

The ERC has yet to approve the proposed settlement agreement by the two power firms. Once effected, the agreement will result to an estimated reduction in the electricity rates of Meralco customers by about 12 centavos per kilowatthour (kwh).