CONSUMERS of Central Negros Electric Cooperative (Ceneco), the biggest distribution utility (DU) in Negros Occidental, should brace for possible increase in power cost following the order of the Supreme Court (SC) mandating all power supply agreements (PSAs) filed on or before June 30, 2015 to undergo competitive selection process (CSP).
Engineer Norman Pollentes, officer-in-charge corporate planning manager of Ceneco, told SunStar Bacolod that one of the four existing power contracts of Ceneco is affected by the ruling.
He was referring to the 35-megawatt (MW) coal-fired base load facility of Palm Concepcion Power Corp. (PCPC) in Iloilo.
Pollentes said the application for the power agreement was submitted on July 27, 2015. It was implemented in 2017 and will expire in 2032.
Other PSAs entered into by Ceneco involve the supply of 40 MW and 20 MW from Kepco Salcon Power Corp. (KSPC), a coal-fired power plant in Naga, Cebu, which will expire in 2021 and 2022, respectively, and 20 MW from Green Core Geothermal Inc. in Negros Oriental.
"If the SC declares these PSAs including our 35MW with PCPC as void, then consumers have to brace for possible increase in power rate," he said, adding that "prices in the market are volatile and in roller coaster."
The Energy Regulatory Commission (ERC) has stressed the need for the SC to issue guidance on how the commission will implement its ruling after the latter denied its motion for reconsideration.
What the highest court has affirmed was its May 3, 2019 decision, stating that the ERC committed grave abuse of discretion amounting to lack, or excess of jurisdiction, when it unilaterally postponed the effectivity of the CSP requirement.
The CSP rules require power distributors to get at least two offers for supply of electricity before awarding an agreement to ensure the least cost for electricity consumers in the country.
It can also be recalled that the manner of power supply agreement during the time of the National Power Corp. (Napocor) was through negotiation.
It was observed that if this is only through negotiation, the process is not competitive, Pollentes said.
It was earlier reported that the SC decision will result in the possible immediate termination of 99 affected PSA contracts, leading to a cessation of power supply to 52 DUs that are serving 13 million electricity consumers.
These include those of Ceneco particularly in cities of Bacolod, Bago, Talisay and Silay and towns of Murcia and Salvador Benedicto.
Also, once this scenario occurs, a total of 743 MW will have to be sourced from the Whole Sale Electricity Spot Market (WESM).
Of which, 370 MW for Luzon, 86 MW for Visayas, and 287 MW for Mindanao.
Pollentes said since this is a legal issue, Ceneco can do nothing but to follow. Though, it has yet to wait for the ERC's instruction among DUs.
The corporate planning manager explained that though the cooperative's contract with PCPC did not go under CSP, it has components like opening the offers to different power suppliers.
Pollentes said the original CSP concept provides that there should be a simultaneous opening of bid. In the case of PCPC, though it was offered also to other suppliers, it was not a bidding.
"We can implicitly say that the procurement procedure is acceptable as the ERC has approved it. However, the final say is still with the SC," he added.
In terms of power cost, DUs with affected contracts, if ever, will rely from the volatile WESM prices.
Meaning, when the demand in the market is high, the cost of power will relatively increase.
Pollentes said current WESM price is low though it may change anytime especially when there is tight supply.
Pollentes said Ceneco is currently buying its contracted power with PCPC at P6 per kilowatt hour (kWh).
If this is to be purchased from WESM, it can be sold up to P33 per kWh based on the set cap.
Though it will not happen, Pollentes said, adding that many DUs including Ceneco will question it to ensure transparent pricing in spot market.
"We have no control over the market but the government can regulate," he said, adding that the buyers can't do something about the price dictated by the market.
The higher WESM price is reflected on the increase in the generation charge being passed on to the electric consumers.
No interruption
As this developed, the cooperative said its electric consumers in the province may only expect more expensive power and not interruptions.
If its power contract with PCPC will be declared void, Ceneco is expected to conduct another bidding and enter another agreement.
Pollentes said the ERC will provide transitional period, most probably in four months, allowing the DU to purchase power from WESM for the meantime.
He pointed out that the 35 MW base load is not that "critical" assuming that there are no major changes in the market environment.
If ever the contracts entered on June 2015 onwards will be cancelled, Pollentes said involved generators will still continue to operate and supply power to WESM through a merit order dispatch.
"If Ceneco lacks 35 MW, it will immediately request WESM for a power supply," he said, adding that the provision will be based on the list of queued power plants.
For now, there is enough capacity and energy reserve for Visayas for this possible impending scenario "so there will be no interruptions."
Meanwhile, Ceneco is set to enter short-term contracts from 2021 to 2025 which will be reset in the latter year in time for the expiry of its three existing PSAs.
The new contracts will be good for 10 years, Pollentes said.
In fact, Ceneco will already start rebidding next year its 40 MW power supply contract with KSPC ahead of its expiration in 2021.
"We will start opening it to the players so the cooperative will not be exposed to volatile power prices," he added.