PSALM clinches supply contracts with 4 big power distributors

The Power Sector Assets and Liabilities Management Corp. (PSALM) has finalized transition supply contracts (TSCs) with four of the country’s biggest distribution utilities.

In a report, PSALM said it had completed negotiations for the TSCs with Visayan Electric Co. (Veco), Davao Light and Power Co. (DLPC), Cotabato Light and Power Co. (Colight) and Aboitizland Inc., also known as the Mactan Economic Processing Zone II.

The Electric Power Industry Reform Act (EPIRA) requires the National Power Corp. (Napocor), now under the supervision of the PSALM, to seek the approval of the Energy Regulatory Commission (ERC) for a TSC to be duly negotiated with the distribution utilities to provide the terms and conditions of electricity supply in preparation for the introduction of open access.

The TSCs will then be assigned to PSALM-owned generators and independent power producers (IPPs) which are also controlled by PSALM.

These will then be offered together with the PSALM generation assets intended for sale and further operation.

PSALM said they are still negotiating a TSC with Manila Electric Co. (Meralco), Napocor’s biggest customer.

Last month, Energy Secretary Raphael P.M. Lotilla ordered Napocor and PSALM to complete negotiations on 70 percent or more of the power supply contracts between Napocor and distribution utilities (DUs).

He said the TSC contains a corresponding schedule of rates, covering a period not extending more than one year from the introduction of open access.

The supply contracts, Lotilla said, 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," he 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.

For the meantime, the ERC directed Meralco to continue to source power from Napocor until the two firms decide on a new TSC.

"While they are still in the process in negotiating for a TSC, Napocor shall continue to charge Meralco only on actual energy delivered to power distribution utility," ERC chairman Rodolfo Albano Jr. said.

Albano pointed out that since the 10-year power supply contract between the two power firms had expired last Dec. 2004, Meralco will no longer be bound by this contract, though it has not entered into another supply contract with the state-owned power generation company.

"Napocor will no longer charge Meralco any penalties," the ERC chief said. Under the previous long-term supply contract , Meralco should get at least 85 percent of its power requirement from Napocor and should pay corresponding penalties if it failed to meet such power supply level.

The ERC chairman said the two firms should come up with a TSC soon. "We advised them that they should enter into a TSC."

Napocor, 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 EPIRA, or in Dec. 2001.

But 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).

Meralco is now sourcing bulk of its power requirement from its IPPs, resulting in a 37.5-centavo rate reduction in the electricity charge in Meralco’s franchise areas.