The Market Monitor Minding the Nation's Business
The Energy Regulatory Commission (ERC) is set to review its policies on the ineligible recovery of associated generation costs under power supply agreements (PSAs) to ensure retail power rates comply with the Electric Power Industry Reform Act (EPIRA) of 2001.
During an open meeting streamed on Facebook last week, ERC Chairperson and CEO Francis Saturnino Juan cited a growing number of cases involving ineligible PSAs, as well as instances of over- and under-recoveries.
Juan explained that the issue began around 2009, when more PSAs were filed using ERC-approved tariff rates based on the National Power Corporation’s Portfolio of Plans, which subsidized power rates. The problem intensified as new generation companies entered into PSAs with distribution utilities (DUs) to secure a market for supply and funding for new power plants.
Some PSAs were implemented without prior ERC approval, and certain contracts included renewal clauses allowing continuation for up to two years without oversight. The situation prompted a rise in emergency PSAs, which carry higher generation rates.
With the introduction of the competitive selection process (CSP) in 2015, all PSAs are now required to undergo transparent bidding, halting the implementation of PSAs without ERC approval.
Juan emphasized that determining generation charges should follow the principle of full recovery of just and prudent economic costs. “A generation company will not produce power without cost, but a DU will not shoulder it,” he said, noting the continued increase in applications for reconsideration of PSAs.
He proposed studying and revisiting existing policies on ineligible recovery of associated generation costs to align them with Section 25 of EPIRA and improve clarity in setting retail power rates.