Government acts to avert power crisis in Cebu City

The government is reportedly trying to craft a last minute compromise in a bid to avert the looming power crisis in Cebu City triggered by a forthcoming shutdown of an independent power producer (IPP) following substantial financial losses.

The Energy Regulatory Commission (ERC) held a meeting with Cebu City politicians, non-government organizations (NGOs) and businessmen to hear views on the possible power crisis. No definite solutions were agreed in the meeting. ERC Chairman Manuel Sanchez, however, committed to "do everything I can" to prevent the serious power shortage that could take place beginning next week.

The looming crisis was triggered by a notice of service suspension sent by IPP Cebu Power Corp. to the Visayan Electric Co. (VECO). In the letter to the utility firm, CPPC said it will stop supplying power to VECO beginning June 25. CPPC supplies some 25 percent of VECO’s requirements.

The shutdown is expected to result in so-called rotating brownouts as VECO attempts to stretch its resources. The Department of Energy (DOE) had earlier similarly warned of blackouts in the area in the absence of ample reserve, especially when the peak power consumption months come in.

CPPC said it was forced to suspend operations since it can no longer "operate the (power) plant in a safe and environmentally responsible manner after June 15" due to substantial reduction in its revenues.

CPPC had reportedly asked VECO early last year for a modification in the computation of its rate structure after the automatic rate adjustment mechanism in the agreed National Power Corp. (Napocor) reference rate was disabled in May last year after Malacañang imposed a cap on Napocor’s Power Purchase Agreement (PPA) charges.

In a presentation to the Cebu City council, CPPC said it had incurred losses over the past eight months due to the 20-percent reduction in the Napocor reference rate. It told the council that it is asking VECO for a formula pricing structure that will allow it to recover its operating costs while sustaining its operation amid fluctuations in fuel price and forex rates.

The formula, according to the CPPC presentation, is a "demand-energy type pricing" reportedly commonly used in the country and worldwide. It represents the actual cost of generation and reasonable rate of return. As the cost of generation increases or decreases, the price to VECO also goes up or down", CPPC said.

VECO, in the face of local political opposition to any possible power rate hike, said, however, that it will not petition the Energy Regulatory Commission (ERC) for an increase.