Aboitiz firm directed to secure replacement power for Davao utility

by Myrna Velasco – November 20, 2015

from Manila Bulletin

Aboitiz-owned firm Therma Marine, Inc. (TMI) has been mandated by the Energy Regulatory Commission (ERC) to take the obligation of procuring replacement power in case of supply insufficiency that must be delivered to its affiliate off-taker firm Davao Light and Power Company, Inc.

The Commission noted that securing replacement power must be a firm commitment of the supplier power generator in their supplemental energy sales agreement (ESA) and shall not just be set as an option.

The ESA is a renewal of their first bilateral contract that lapsed on August 25, 2014. The extended contract enjoins TMI to deliver 30MW capacity to the Davao utility firm until the end of their contract in July, 2017.

TMI is the owner and operator of the Power Barges 117 and 118 in Mindanao – with aggregate capacity of 200 megawatts. These assets were acquired from the government via asset seller Power Sector Assets and Liabilities Management Corporation in 2009.

The ERC has effectively denied the motion of TMI that its procurement of replacement power to DLPC may just be treated as “an option” in their bilateral contract.

“The Commission is not persuaded with TMI’s arguments. TMI shall have the obligation, not merely an option, to source replacement power for DLPC, beyond the allowed downtime (scheduled and unscheduled outages),” the industry regulator stressed.

The ERC further averred “in the event that TMI fails to source replacement power, DLPC shall be allowed to find replacement power, the incremental cost of which, shall be for the sole account of TMI.”

Moreover, the industry regulator has junked the bid of TMI on the recalculation of its capacity fee (CF), owing such to anticipated industry developments that could pare its contracted energy volumes – which the Aboitiz firm has claimed to be a market risk.

TMI stressed that when it acquired the assets in 2009, it calculated its prospective revenue requirement for 10 years to warrant full recovery of its investments. It fears though that such may no longer be feasible with the portended entry of new and cheaper power capacities in Mindanao grid that could then dislodge it or will considerably decrease its volume sales.

Nevertheless, the ERC has emphasized that such market risk, “similar to any identified risk, should be allocated to the party best suited to handle or mitigate it…the Commission believes that it is the investor or TMI itself.”

In view of that, the industry regulator indicated that it maintains its position that “the billing determinant to be used in calculating the CF shall still be based on actual contracted capacity.”