Scheme addressing Visayas power problem nears launch

CEBU CITY — The Energy Regulatory Commission (ERC) has resolved issues on pricing and cost recovery for a supply augmentation program in the Visayas, bringing the scheme a step closer to implementation through the Philippine Electricity Market Corp. (PEMC). The Visayas supply augmentation auction (VSAA) program is designed to allow the sale of uncontracted power from embedded and grid generators, as well as the interruptible load of grid-connected users through an auction. The system is meant to augment power supply in the Visayas, especially on the islands of Cebu, Negros and Panay, which are now reeling from rotating outages at peak hours. By the time PEMC implements the VSAA, however, the Cebu Energy Development Corp. will have completed the first of three 82-megawatt (MW) coal plants it is building in Cebu. Hence, the need for the program will no longer be as urgent, stakeholders said. Cebu Energy aims to complete its first 82-MW coal plant by yearend, test it in January and link the plant to the grid by the end of February next year. The second and third units are scheduled to be on stream by June and September next year. The project forms part of the new 610-MW capacity for the Cebu-Negros-Panay grid by 2011. The others are the 200-MW coal plant of KEPCO-SPC Power Corp. in Cebu and the 164-MW coal plant of Global Business Power Corp. in Iloilo. These projects are expected to give the three islands a respite from power outages until 2013. The commission, in its order dated November 3 authorizing the implementation of the VSAA, gave PEMC 30 days from its receipt of the order on November 26 to audit the software for the supply auction; formulate mitigating measures for the auction program to address irregular market behavior on the part of the participants; as well as to develop dispute resolution, enforcement and penalty mechanisms to govern the plan. The commission also ordered the National Power Corp. (Napocor) to cut its contracted volumes under transition supply contracts with affected distribution utilities. The commission noted that most state power plants have been operating below capacity and that the Napocor’s net supply is not enough to cover contracted supply during plant outages. In the meantime, ERC ruled that the Napocor should compensate utilities for the incremental cost of sourcing power through the supply auction program whenever it falls short of its transition supply contract obligations. "In this case, [the Napocor] shall charge its distribution utility customer with the existing [time-of-use] rates as provided in the contract or the supply augmentation cost, whichever is lower. This is to pass on any savings realized through the VSAA to the consumers," the commission said in its order. The Napocor must shoulder the difference if supply augmentation costs are greater than time-of-use rates. The commission also ruled that if the Napocor can meet its contractual obligations and the distribution utility exceeds its contracted volume and has to obtain the excess from the supply augmentation plan, the utility must shoulder the augmentation cost. "The same principle shall be adopted for distribution utilities that are sourcing power through bilateral contracts with generating companies other than the Napocor," the commission added. Irma C. Exconde, assistant director of the Energy department’s Electric Power Industry Management Bureau, said this order resolved the Napocor and PEMC’s questions on VSAA pricing and cost recovery. She said public consultations would be held before the year ends, but would not specify when the scheme will be implemented. The Visayas supply augmentation auction, which was prepared as early as May, is expected to pave the way for the Wholesale Electricity Spot Market (WESM) in the Visayas. Commercial operation of WESM in the Visayas was deferred due to the lack of transmission and generation facilities, which could lead to price spikes. — Marites S. Villamor, BusinessWorld