ERC goes after arbitrary power supply contracts

Agnes Devanadera —LYN RILLON

The Energy Regulatory Commission (ERC) is looking into the possibility that distribution utilities (DUs), particularly electric cooperatives, are overcontracting their power supply at the expense of consumers.

“We must ensure that the contracts entered by the DUs are indeed required and not become stranded costs that will be passed on to the consumers,” ERC chair and chief executive Agnes Devanadera said in a statement.

Devanadera noted most power supply agreements (PSAs) include a “take or pay” provision, which means that the supply must be paid for whether or not the electricity is received—and that this cost is passed on to the consumers.

She said she ordered the review and revision, “if warranted,” of the agency’s policy on the approval of PSAs amid reports of alleged over-contracting by rural utilities.

“I have directed our technical staff to look into the bilateral contracts entered by and between DUs and generation companies (GenCos), more particularly on the aspect of justifications offered on the need for the contract,” Devanadera said.

“We have already summoned to our office some electric cooperatives that were reported to be expecting a generation rate increase due to newly approved contracts to explain and for them to come up with measures to mitigate the impact of power rate increases that they will implement,” the ERC chair said.

“Distribution utilities should be responsible and conscionable enough to ensure that they should only contract power supply that would address their power requirements so as not to burden the consuming public with an unreasonable high cost of power,” she said.

Devanadera said that for applications on the approval of PSAs, utilities should be able to prove that the PSA would redound to the benefit of consumers.