ELECTRICITY supply and market turmoil such as that caused by the recent controversy and subsequent cancellation of power supply agreements (PSAs) between San Miguel Corp. (SMC) and Manila Electric Co. (Meralco) may soon be a thing of the past with the expected rollout of new criteria for the Competitive Selection Process (CSP), the Department of Energy (DoE) announced in a forum on Monday. We have said this before, and it is worth saying again: Under the Marcos administration, the DoE is doing yeoman’s work in expanding and improving the country’s energy sector, and this latest revelation is yet another tangible example of that.
In her keynote address to the Philippine Electric Power Industry Forum 2023 in Manila on Monday, the DoE’s undersecretary Rowena Cristina Guevara explained that the Energy department is currently in the process of revising the CSP, and expects to publish the new guidelines by May 26.
The CSP is a requirement that distributors of electricity such as the aforementioned Meralco, other distribution utilities (DUs) and electric cooperatives conduct a bidding process for their supply requirements. The CSP has been in force for about five years, and while it has helped to stabilize electricity supply and rates to some extent, it has not worked perfectly as the controversy that first erupted late last year concerning the San Miguel-Meralco PSAs has illustrated.
To recall, those supply contracts went bad when SMC’s subsidiaries were disallowed by the Energy Regulatory Commission (ERC) from raising their rates to Meralco after an increase in fuel costs, which were partly attributable to the ongoing war in Ukraine. It was a correct decision on the ERC’s part, as SMC had trapped itself in an inflexible contract that included a provision specifically exempting fuel cost increases from being deemed “changes in circumstances” that would allow an increase in rates. As the ERC said at the time, and has said on several occasions since, making consumers pay for a company’s business mistakes is something that should not be allowed to become a precedent.
Doing things right
According to Guevara, over the past five years the CSP has been implemented, it has become clear that its basic requirement, that electricity be supplied at the “least cost,” is insufficient to guarantee affordable and reliable energy for distributors and their customers. Even though the DoE and ERC started work on reviewing and revising the CSP well before the SMC-Meralco controversy, that episode simply confirmed that the agencies were doing the right thing.
Now, instead of “least cost” alone, the new CSP guidelines will oblige contractors to consider other factors as well. These include the quality of the energy source, that is, whether or not it is coming from a sustainable, efficient generator; reliability; and what Guevara described as “procedural effectiveness.” This latter factor presumably includes things such as sound and sensible contracts, efficient handling of bidding processes, and proper handling of financial arrangements, among others.
Separately, ERC Chairman Monalisa Dimalanta said that the May 26 date for the implementation of the new CSP rules was reliable, as the DoE and ERC have been coordinating their efforts. That in itself is an improvement from past performance, when it was routine for the DoE to develop a policy, and then the ERC would spend weeks or months doing their part to turn it into workable rules.
The new CSP guidelines will not necessarily result in lower electricity rates for consumers — although they very well could — but will improve the stability and consistency of both rates and supply. Changes in electric prices will be less volatile overall because while the possibility of a contract failure such as the SMC-Meralco PSAs is not completely eliminated, the more rigorous process makes it more unlikely to happen.
In years past, the upcoming hot weather season would always signal the beginning of frequent alerts about thin power supplies, and occasional power outages. Thanks to the effort and commitment to progress displayed in the past year by the government’s energy team on issues such as the CSP, however, it seems those problems may finally be behind us.
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