DOE circular spells out penalty for ‘underperforming’ gencos

by Lenie Lectura, 07 July 2015
from BusinessMirror

Distribution utilities (DUs), such as Manila Electric Co., are being required to include in their power supply agreements (PSAs) entered into with power producers a provision that will penalize the latter when they fail to deliver power supply on time.

Department of Energy (DOE) Circular 2015-06-0009 states that all DUs shall ensure that the PSAs entered into with a generation company (genco) shall contain a provision for allowances and penalties to clearly define the responsibilities and obligations of the genco in case the delivery of electric supply is not fulfilled due to delays in the commercial operation and/or occurrence of any forced outages.

The penalties for delays must be consistent with those set by the Energy Regulatory Commission (ERC).

The DOE said the penalty may be equivalent with the cost of replacement power and that the annual allowance for all outages shall not exceed the number of days to be determined under the PSA rules for issuance of the ERC.

“This circular aims to ensure supply security through the incorporation of standard contractual terms to clearly delineate the responsibilities of the contracting parties in the event of any forced outages or events affecting the delivery of power or delays in the commercial operations of committed power projects,” the agency said.

A PSA is forged by way of bilateral negotiation between a DU and a power producer. The DUs are mandated to ensure that their power requirements within their franchise areas are adequately covered by supply contracts.

However, there are times when a genco fails to deliver the power supply to the DU due to several reasons, including a sudden technical glitch that leads to forced outage of the genco’s power facility.

“The DOE recognizes the need to mitigate the significant impact on the general public of delays in the commercial operations of ongoing and committed power projects and/or recommissioning and resumption of generation facilities from outages to the overall status of available power supply in the country,” the agency said.

As such, the DOE moved to craft a policy that provides for additional guidelines for DUs in complying with their mandate to ensure supply security. Further, to avoid stranded contract quantities, all DUs shall consider in their PSAs a provision on the automatic reduction of contracted quantities due to possible migration of its contestable customers within their franchise area.

The same circular states that the DOE, through the Electric Power Industry Management Bureau and ERC will monitor the compliance of DUs.

The ERC, for its part, shall establish and impose fines for noncompliance of electric power industry participants to support the enforcement of this circular.

The circular, which was signed by former energy secretary Carlos Jericho Petilla last June 15, takes effect immediately upon publication. Petilla step down from office on June 30. The circular was released Tuesday.

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