Under the regime of Retail Competition and Open Access, where large consumers of electricity have a choice of their suppliers, customers must be able to control their price risk.  Suppliers that are sensitive to this desire will have a distinct advantage.

 

This came about at the dialogue PCCI organized between the Retail Electricity Suppliers Association (RESA) and contestable customers (industry users directly buying their electricity from the RESA).  PCCI organized the dialogue to clarify the concerns of contestable customers on the impact of high fuel prices and the effect of the potential shortage of coal and oil on the retail electricity market.

 

Mr. Ernie Pantangco, President of the Management Association of the Philippines (MAP) raised two questions that summarized the apprehensions of the contestable customers: (a) What is the protection of the customer if the RES changes the parameters of a contract? And, (b) what can RESA do to help cushion their direct customers from the increase of fuel prices?

 

Mr. Raymund Roseus, Vice President of RESA and Assistant Vice President of Aboitiz Power Corp. explained that retailers formulate contracts suitable to the requirement of the contestable customer from the wholesale offer of generators.  He pointed out that there is risk management involved in the formulation of contracts and that this risk must be managed by the RES.

 

Mr. James Yu also of Aboitiz clarified that what is happening in commodities (coal and oil/diesel and other fuels)) and prices in the wholesale electricity market may not be directly related to the issues contestable customers face with their own retailers.  Commodity prices and how to cushion movements in prices require a detailed discussion of the generation mix and the pipeline of plants that are coming online over next the 5-10 years.

 

On the retail electricity market, the RES must be able to manage inherent risks such as the imbalance of supply and demand that must be settled in the wholesale spot market, and mismatch in supply and demand with respect to quantity and terms.  These are especially pronounced in fixed price product contracts in which case, the retailer takes the risks and must be able to manage them.

 

Changes midway of contracts happen if the RES is not able to manage risk(s) correctly.  Some RES selling fixed price contracts are able to manage that risk through physical or financial products or hedges.  However, others may not be able to manage, especially if commodity prices increase 2, 3 and even 4 times, in which case changes could happen to such contracts even before expiration.

 

Mr. Yu emphasized that a RES understands that he/she should be able to provide lower cost of power and at the same time, able to manage customers’ risk for them.

 

Mr. Jimmy Patinio of Premier Energy Resources Corp. added that the issue could be the time-frame of hedges.  If changes happen within the period stated in the contract for hedges (if any), customers can be assured that the terms of the contract will be fulfilled.

 

While RES contracts are unregulated, Atty Agnes Devanadera of the Energy Regulatory Commission (ERC) pointed out that the RES are bound by the ERC’s Code of Conduct and that customers can file a formal complaint under the ERC’s dispute mechanism.  If a RES is found to have negated its contract and cannot meet its obligation, Atty. Devanadera said the RES faces either revocation or non-renewal of license.  The table of penalties likewise prescribes a schedule of fines.

 

Atty. Devanadera conveyed that the ERC is working with the USAID to review and benchmark best practices in RES contracting. – Rhuby Conel

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