DOE to tighten rules on power sales contracts

MANILA, Philippines - The Department of Energy (DOE) will require stricter provisions in power sales contracts between power sellers and distributors such as Manila Electric Co. (Meralco) to cushion consumers from unexpected spikes in electricity prices as what happened in December last year.

In an interview, Energy Secretary Carlos Jericho Petilla said they will issue a circular requiring power generators and Meralco to have a provision in their contracts that would include replacement power.

“We will now consider putting replacement power in the contracts,” Petilla said.

This means that in case of a sudden power shutdown, the power seller would be able to provide Meralco or whichever distribution utility it is selling power to, the same volume of power.

For instance, if in a bilateral contract a power generator commits to sell 500 megawatts to Meralco but is unable to because its plant suddenly shuts down due to a mechanical failure.

 Petilla said the power generator must source the same amount of replacement power from the Wholesale Electricity Spot Market (WESM), the country’s trading floor for electricity, to be able to keep the contractual volume commitment.

 He said Meralco’s contracts must now have that provision to protect consumers. This way, Meralco itself would not have to source power at the WESM during unplanned outages as this would be more expensive.

Under existing contracts, having the replacement power provision is only optional.