DUs asked to wind down ‘supply segment’ of their businesses

by Myrna Velasco – November 20, 2015

from Manila Bulletin

Distribution utilities (DUs), like the Manila Electric Company (Meralco), are being mandated to finally wind down the supply segment of their businesses once the rules on mandatory migration to retail competition are firmed up by the Energy Regulatory Commission (ERC).

In essence, these DUs can no longer supply the requirements of contestable customers – or those end-users who can already choose or can contract directly with their preferred power generators or suppliers.

The proposed ERC edict further prescribed that the DUs can no longer take on a venture as retail electricity supplier (RES) once the anticipated kick-off of the mandatory retail completion and open access in the restructured electricity sector will take off next year.

The draft rules on the mandatory migration to the competitive retail electricity market had been issued last week and up for comment and inputs by affected industry stakeholders.

The ERC has specifically propounded that “a DU shall no longer be allowed to supply electricity to the contestable market, unless such supply is made in its capacity as a supplier of last resort (SOLR).”

Correspondingly, the industry regulator has enjoined the DUs “to wind down their respective supply businesses such that no local RES shall be allowed to act as such by 26 June 2016.”

Nevertheless, the regulatory body has indicated that “an affiliate of a DU shall be granted a license to operate on such date determined by the ERC, taking into consideration the supply and demand in the retail market.”

Complementary to the policies set forth by the Department of Energy, the ERC has further directed that the DUs must reduce their contracted capacities to match only the requirements of their captive customers – or those end-users who cannot exercise their power of choice yet as reckoned on the set thresholds of retail competition.

The capacities to be slashed in their contract volumes may be offered or sold to the RES or traded via the Wholesale Electricity Spot Market (WESM) but with the DUs taking on market risks.

The ERC said the DUs may push for “renegotiation of existing power supply contracts” with generation companies for so long as these “do not contain provisions on the reduction of contracted energy volumes upon migration of the contestable customers.”

On the displaced contracted capacity or energy (DCC/E), the ERC has specified that aside from selling the volumes to RES, these may be sold to the spot market “provided that (the DU) shall assume the price risk in cases where the spot prices shall be lower than its approved power supply contract rates.”