Republic of the Philippines


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ERC Orders CENECO to Comply with Rules on Ineligible Contracts

In its recent letter to Central Negros Electric Cooperative, Inc. (CENECO), the Energy Regulatory Commission (ERC) directed the former to comply with existing rules, particularly on the limitation of ineligible contracts.  This development is in light of the ERC’s findings that CENECO has imposed Generation Rates which included two (2) Power Supply Agreement (PSA) Contracts that expired on 30 May 2021.

“Upon evaluation of the submissions of CENECO for the month of July 2021, the Commission found that CENECO included in its Generation Rates billed to its customers for the billing period 26 May to June 2021 onwards, charges emanating from PSA (Power Supply Agreement) or contracts that are already expired.  Under our existing policy, generation costs from ineligible or unapproved supply contracts should be pegged at the NPC’s (National Power Corporation) Time-of-Use (TOU) rates or the actual rate as billed by the Generation Company, whichever is lower”, ERC Chairperson and CEO Agnes VST Devanadera explained.

The failure of CENECO to observe the said policy on ineligible contract is in violation of Section 2, Article 2 - Calculation of the Adjusted Retail Rates under ERC Resolution No. 16, Series of 2009 entitled, “A Resolution Adopting the Rules Governing the Automatic Cost Adjustment and True-Up Mechanisms and Corresponding Confirmation Process for Distribution Utilities”.  

Further, CENECO’s inclusion of the ineligible costs due to the expiration of the relevant PSAs also breached Article VI of the “Guidelines for the Recovery of Cost for the Generation Component of the Distribution Utilities’ Rates” that enjoins prior approval by the ERC of power supply contract costs before the same is included in the retail rates.  The said policy was crafted pursuant to Section 25 of the EPIRA (Electric Power Industry Reform Act) for purposes of establishing the procedures, standards, and criteria for the full recovery of prudent and reasonable economic cost related to the generation component included in the retail rates charged by the Distribution Utilities (DUs) for the supply of electricity to their Captive Market.

The ERC, in the subject letter, noted the relevant Generation Companies’ intention to extend the term of the contract with CENECO.  The subject PSA, however, remained unapproved as the same needs to comply with the Competitive Selection Process (CSP), prescribed by the DOE (Department of Energy) under its Circular No. 2018-02-0003.  The term or duration of power supply contracts may not be renewed or extended by mere agreement between the Seller and the Buyer.  After the expiration of the period, the contract ceases to be binding between the parties.  Hence, the same must seek approval from the ERC by applying for a new Power Supply Agreement (PSA) that has also complied with the DOE’s CSP Guidelines.

“We urge CENECO and all other Distribution Utilities to strictly abide by our Rules to avoid unauthorized collection of electricity charges and, consequently, any sanction/s by the Commission due to the expiration of relevant contract/s.  The ERC will always adhere to its mandate of protecting and promoting consumers’ interests by continuously monitoring the propriety of charges billed by the Distribution Utilities”, ERC Chair Devanadera added.


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