ERC eyeing ‘benchmark price’ in CSP

By Myrna M. Velasco – June 3, 2019, 10:00 PM
from Manila Bulletin

The Energy Regulatory Commission (ERC) is targeting to prescribe a “benchmark rate” that shall serve as reference price in the conduct of Competitive Selection Process (CSP) in the supply contracting of the Private Distribution Utilities (DUs) and the electric cooperatives (ECs) of the country.

ERC logo(Photo courtesy of www.erc.gov.ph)

ERC logo(Photo courtesy of www.erc.gov.ph)

Instituting a “reference price” or even a “fixed rate” for power supply agreements (PSAs) underpinned by CSP had been among the discussion-points set out by the ERC in successive consultations with the industry stakeholders.

The conduct of CSP in the supply procurements of power utilities had turned into an “inescapable reality” in the industry following the ruling of the Supreme Court on such policy enforcement.

In the proposed CSP rules of the regulatory body, it noted that it shall “utilize a financial model in calculating the benchmark rate,” with inputs such as capital and operating costs; rates of return and technical parameters.

The industry regulator is also propounding review of the rates “on a regular basis”, and as of last week’s consultation with the industry, proposals laid on the table include rate adjustment for generation companies (GenCos) that may only be held once every five years.

“The model will take into account relevant factors such as, but not limited to, the type of contract (financial or physical), the load factor, load shape and location or reference node to calculate the benchmark price for a portfolio of efficient new entrant-plants to match the terms of the PSA being addressed,” the ERC said.

On the proposed benchmark rate, the ERC emphasized that in the interim, it will be publishing its approved PSA rates – every January of each year, “to serve as initial benchmark rate for the DUs.”

The capital recovery component of the benchmark rate, as explained, shall refer to “capital-related component to recover the cost or investment over the economic life of the plant together with a reasonable rate of return.”

On the operating and maintenance (O&M) fee component, this delves with the “recovery of operating and maintenance cost which may be broken down into local and foreign components.”

The CSP processes for DUs, as prescribed by the Circular of the Department of Energy, shall be administered by a bids and awards committee – and the power utility must also observe transparency in undertaking competitive bidding on supply contracting.

Direct negotiations, emergency procurements, the submission of unsolicited proposals as well as exemption from the CSP exercise are also being laid down in the rules.

The exemptions in particular shall apply to generation projects funded by technical grants or donations; the provision of supply by state-run Power Sector Assets and Liabilities Management Corporation (PSALM) from its undisposed assets; and the small-scale renewable energy facilities (the maximum capacity of which shall be at 1.0-megawatt).

Emergency procurement, on the other, may be carried out by affected DUs “due to occurrence of force majeure, fortuitous event or other analogous circumstances,” and the PSA duration shall not exceed one year.