In the emerging era of merchant market where supply contracts are rare finds or the single-buyer model no longer reigns in the deregulated power industry, Cagayan Electric Power and Light Company Inc. (CEPALCO) may have pulled an advantage as it was able to renew for another 12 years its electricity purchase agreement (EPA) with affiliate firm Mindanao Energy Systems Inc. (MINERGY) for it to draw supply from the latter’s 50-megawatt diesel power facility.

In a joint application for approval of their EPA by the Energy Regulatory Commission (ERC), the affiliate companies noted that the 12-year extension of their supply deal comes in the form of renegotiated EPA. The initial stretch of their supply contract was for 15 years and due to lapse this month.

In the filing, it was stated that “the EPA, which will expire in June 2010, will be automatically extended for another 12 years (equivalent to the period of curtailment). This means that CEPALCO will still be paying MINERGY the fixed cost as guaranteed in the EPA during the period of curtailment.” The general definition of ‘period of curtailment’ is supply interruption or supply inadequacy, which could entail that the power provider may not have fully supplied the off-taker distribution utility’s contracted capacity as agreed upon.

In the renegotiated EPA executed by the parties on March 1, 2010, it was stipulated that the contracted demand will remain at 15,310 (in megawatts) for the contract’s duration. Contracted energy under the renegotiated deal has been set at 4,776,720 kilowatt hours (kWh) from the previous 10,700,000 kWh.

The propounded current effective rate is P730.02 per kW from the last EPA’s P837.65 per kW. The contract also provides for frequency of escalation for the peso and dollar component of base capacity rate; monthly capacity fee as well as for allowable downtime, which covers both scheduled and unscheduled maintenance works for the plant.

The service (operation and maintenance) rate was pegged at P1.0404 per kWh, higher compared to the P0.8401 per kWh in their last contract. Terms for escalation covers 70-percent of the percentage change in Philippine consumer price index (CPI) and that the frequency of escalation is semi-annually.

It was further noted that fuel component will be a pass-through cost while the lube oil component and escalation on base energy rate will be based on heat rate caps. The supply pact binds MINERGY to “maintain fuel inventory equivalent to 30 days of continuous operations”; and that fuel procurement shall be done through a competitive bidding process.

Cepalco is a private distribution firm mainly servicing the electricity needs of Cagayan de Oro City in Mindanao, along with the municipalities of Tagoloan, Villanueva and Jasaan in Misamis Oriental province.

article by MYRNA M. VELASCO of Manila Bulletin

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