Consumers can petition ERC to Review Power Supply Contracts of distribution utilities

Group urges consumers to act vs increasing power rates

Power consumers from Northern Mindanao can do something about the rising cost of electricity in the region.

A consumer group has advised organized consumer and  business groups to officially petition the Energy Regulatory Commission (ERC) to review the power supply contracts of electric cooperatives and private distribution utilities with coal fired power plants.

A recent update on the power situation in Mindanao has revealed that Cagayan de Oro and Northern Mindanao now has the highest power rates in the whole island.

According to a presentation made recently by the Mindanao Power Monitoring Committee (MPMC) to the Association of Mindanao Rural Electric Cooperative (AMRECO) and the National Electrification Administration (NEA) on 17 September 2020, Region X has the most expensive average power rates among private distribution utilities (DUs), and the most expensive average rate among electric cooperatives among the island’s six regions.

Region X has the most expensive average rate for its electric coops at P10.9915 per kilowatt hour as of March 2020.

Historical Average System Rates of Electric Cooperative in Northern Mindanao (Peso per kilowatt hour)

In comparison, the BARMM has the lowest rate at P7.61 (-31%), Region XI P8.9743 (-18.4%), Region XII P9.04 (-17.8%), and Caraga P9.53(-13.3%).

In addition, the P10.9915 average rate of all power coops was also 16%  more expensive that the P9.2180 average rate for all coops in all regions in Mindanao, and 18.8% more expensive than the P8.9287 average rate for all DUs in Mindanao.

Why power rates are up

“The causes of the excessive prices paid by many electric cooperatives in Mindanao for their power supply from coal power plants (which causes can be verified by a study of the various power supply contracts between the electric cooperatives and the coal generating companies) include not using public bidding to secure least-cost electricity, disadvantageous terms like take-or-pay, over-contracting beyond their power requirements and mismanagement of their contracts,” said Engr. David A. Tauli, president and spokesperson of the Mindanao Coalition of Power Consumers (MCPC) in a webinar of the Philippine Movement for Climate Justice (PMCJ) held on September 4, 2020.

MCPC Chairman Engr. David A. Tauli stressing a point during the March 6, 2014 consultation meeting with the House Energy Committee held at MUST (now USTP).

Tauli said  many electric cooperatives in Mindanao, including most of the electric cooperatives in Northern Mindanao, did not carry out public bidding in contracting for power supply from coal power plants. Consequently, these electric cooperatives contracted for coal power supply at a price of P5.40 per kilowatt-hour at a time when prices of P4.20 pesos per kWh or lower were being offered by other coal generating companies.

“The power supply contracts of the electric cooperatives with coal power plants have a Take-or-Pay provision that, combined with over-contracting for baseload power supply, results in the electric cooperative paying for electricity that is not delivered by the coal plant to the electric cooperative,” Tauli noted. “This payment of unused electricity is passed on to power consumers who are forced to pay for electricity that they do not consume, thereby increasing the rates for electric power supply.”

Not the least, Tauli said while most of electric cooperatives contracted for baseload power supply from coal power plants, they do not have enough separate contracts for intermediate-load and peak-load power supply.

Consequently, the power supply from coal plants are being used by these electric cooperatives to supply their intermediate load and peak load requirements. Using baseload power plants for intermediate loads or peak loads result in prices that are two to three times higher than the base-load price.

“For example, if a baseload power supply that is priced at 5.00 pesos per kWh is used for intermediate load or peak load, the price for power supply would range from P10.00 to P15.00 per kWh or even higher.”

The shift to coal power

On the macro level, Tauli described how the increase in the price of electricity in Mindanao comes mainly (90+ percent) from the increase in the proportion of coal generation in the energy mix supplied to power consumers in Mindanao.

Generation Component of Rates (pesos per KwH) for all electric cooperatives in the Philippines

Data from the EPIRA reports of the DOE show how the average generation component of power coops in the Mindanao Grid from 2014 to 2018 increased at almost four times that of the Luzon Grid (37.6% vs. 10.8%) and three times to those in the Visayas Grid (37.6% vs. 12.5%).

“It can be seen in the tabulation that the greatest increase in the generation component of rates occurred in Mindanao for both the absolute amount of the increase and the percentage increase,” Tauli noted.

He further explained how the increase in generation rates in Mindanao was caused by the increased proportion of energy supplied by coal plants, compared with energy from hydro plants.

“Before 2015, the generation mix in Mindanao was around 70 percent from hydro and geothermal power plants and 30 percent from fossil-fueled power plants (coal and oil). At present, the generation mix has been reversed, with 30% coming from renewable energy and 70 percent from coal and oil,” Tauli said.

Effect of change in generation mix on rate mix

As a consequence, while the average of the generation component of rates for all electric cooperatives in Mindanao is around P5.10 per kWh, the actual rates for individual electric cooperatives ranges from around P4.50 per kilowatt-hour to over P8.50 pesos per kWh.

“The variations in the prices paid by electric cooperatives for their power supply from coal power plants are caused by the differences in their individual manner of contracting for power supply and by the differences in the terms of their respective power supply contracts with the coal generation companies,” Tauli explained.

What Consumers Can Do

However, Tauli said local government units, consumer and business groups have recourse with the Energy Regulatory Commission (ERC) in case they decide to bring down electricity rates in their respective areas.

First, they can petition the ERC to review the power supply contracts of Mindanao electric cooperatives with coal generating companies priced at P5.00 per kWh or higher to determine whether these electric cooperatives have carried out public bidding or other forms of least-cost acquisition as required by the EPIRA.

“Contracts found to have violated the EPIRA requirements for least-cost acquisition of power supply should be declared by the ERC as null and void ab initio,” Tauli said.

Second, petitioners can similarly ask the ERC to review the power supply contracts of electric cooperatives believed to have over-contracted for their baseload power supplies.

“Electric cooperatives with excessive contracts for baseload power supply should be directed to renegotiate their power supply contracts so power consumers will not be forced to pay for electricity that they do not consume,” he added.

Not the least, Tauli advised petitioners to conduct public campaigns urging their distribution utility companies to carry out Competitive Selection Processes for lower-priced, long-term power supply for intermediate loads from renewable energy power plants. The generation from renewable energy resources would displace the high-priced generation from coal power supply that is now being used by distribution utilities to supply intermediate load requirements of consumers.  

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