ERC Public Hearing-A A +A
An Independent View
Tuesday, October 22, 2013
‘THERE shall be a public hearing to be conducted by the Energy Regulatory Commission (ERC) on the Application of KEPCO SPC Power Corporation (KSPC) and Central Negros Electric Cooperative, Inc. (CENECO) for the approval of the load factor-based pricing scheme on a monthly reconciliation of the unaccepted contract quantity of the Supplemental Agreement on Thursday 24 October 2013, at 9 AM in CENECO’s main office, Mabini corner Gonzaga Streets, Bacolod City, Negros Occidental.’
* * *
This hearing is a result of a joint application made by KSPC and CENECO which was received by ERC on 3 July 2013. The hearing is necessary because the implementation of the load factor-based pricing scheme on a monthly basis had not been previously reviewed or approved by the ERC.
On the face of it, as Supreme Court Judge Carpio might say, this does not seem to be a substantial issue. Nevertheless, a public hearing is an opportunity for the electricity consumer to gain a fuller understanding of the contractual relationship between CENECO and KSPC. This fuller understanding may help to form views which should be expressed to CENECO and ERC.
* * *
CENECO entered into a contract with KSPC on 16 July 2007. This contract was approved by ERC on 26 February 2009 with a rate of P 4.2511 per kWh for 40 MW.
On 29 July 2011 KSPC and CENECO entered into an agreement that CENECO would purchase a further 24 MW in addition to the 40 MW existing contract. 24 MW equals 24,000 kW. Since there are 24 hours in a day, 30 days in a month, and 12 months in a year, them 24,000 kW = 24,000x 24 x 30 x 12 = 210,240,000 kWh. It turns out that this is more than CENECO’s customers are prepared to pay for. CENECO has over-bought.
No problem says CENECO and KSPC. The customer will pay for the unconsumed amount.
ERC has subsequently written to say that charging for the unconsumed contract quantities on a monthly basis needs ERC approval. Hence the 24 October meeting.
From 26 July 2011 to 25 February 2013 the amount to be recovered from the customers is approximately P 189.1 million. This is approximately P 10 million per month and presumably has been continuing by roughly this amount since February 2013.
* * *
We have observations.
We know that electricity cannot be stored.
This means that KSPC generates electricity for immediate transmission to CENECO who in turn immediately makes the electricity available to its consumers. In a 24-hour period, CENECO’s customers use electricity in a predictable way. The amount that needs to be supplied b KSPC is correspondingly predictable. Generators of electricity, in this case KSPC, are able to make smooth transactions so that they can provide exactly the required amount of electricity, neither more or less.
We believe therefore that CENECO has not negotiated an advantageous contract when it agreed to purchase the additional 24 MW when this is more than its customers need. With better negotiation CENECO should have been able to arrive at an arrangement that is acceptable to both itself and KSPC and without causing CENECO’s customers to pay for electricity they did not want nor used.
The contract between KSPC and CENECO should be re-negotiated. It is inappropriate for customers to pay for electricity it has not received.
KSPC is not the only pebble on the beach. We should look to other electricity generators if KSPC is obdurate.
On 26 December 2010, former Energy Secretary Almendras came to the Visayas to launch the Wholesale Electricity Spot Market (WESM). He was upbeat about WESM. This was a mechanism whereby those who wanted to buy electricity and those who wanted to sell came together and reached an agreed price. We believe that CENECO, when necessary, should participate in WESM. It has seemingly been reluctant to do so, ostensibly believing that electricity acquired in this way would be more expensive. This would not necessarily be the case.
Since CENECO’s consumers are paying an additional P 10 million per month from the disadvantageous KSPC contract, it is not unreasonable for CENECO to assemble a small team of experts whose job is to acquire needed electricity at the lowest price.
CENECO does not need 64 MW from KSPC. It should work out how much it definitely does need and negotiate. The existing contract states that if CENECO wants to buy in excess of the contract quantity, then KSPC may, at its discretion, agree but that CENECO has to pay a price that is specified in the contract. This, too, needs re-negotiation.
At present CENECO’s customers are taken for granted. It is assumed that we will pay without demur for electricity we do not need. KSPC does not incur an additional P 10 million in costs that the consumer is expected to pay each month. This because KSPC can generate the amount demanded with a great deal of precision. The penalty costs incurred by CENECO’s customers are excessive.
We note also from our bills that the Systems Loss Charge is excessive. Is there no desire by CENECO’s management to curtail systems losses? After all, the customer has to pay.
* * *
We look to the ERC to ensure that CENECO’s customers are treated fairly. It should instruct CENECO and KSPC to re-negotiate their contract and produce an agreement that is not so obviously disadvantageous to CENECO’s customers.
Published in the Sun.Star Bacolod newspaper on October 22, 2013.