PIPPA rejects force majeure provision in PSAs with DUs and power co-ops

By Lenie Lectura -April 16, 2020
from Business Mirror

The Philippine Independent Power Producers Association Inc. (PIPPA) has turned down a proposal for power-generation companies (gencos) to accept a force majeure (FM) provision of their power- supply agreements (PSAs) with distribution utilities (DUs) and electric cooperatives (ECs).

“Mandating generation companies to FM claims by DUs/ECs not only disrupts the power supply chain. It is also tantamount to one sector taking advantage of the other,” said PIPPA.

Laban Konsyumer Inc. (LKI) President Victorio Mario Dimagiba, in a letter earlier sent to PIPPA President and Executive Director Anne-Estorco-Montelibano, wants gencos to accept the FM claim of DUs, such as Manila Electric Co. (Meralco), and other ECs.

LKI reasoned out that electricity consumers in Luzon should be spared from paying fixed charges for generation capacity that was not consumed.

But PIPPA said regulators should not allow this. Using consumer interest as a guise for undermining power-supply contracts should not be allowed, as this will affect the ability of generating companies to pay for fuel, operating costs, and even loans, which will render it unable to continue operating its power plants.

This can happen quickly, in some cases, within one unpaid billing period. FM claims cut both ways, and this will have disastrous consequences if it remains unchecked. It will be each industry player acting solely on the basis of its own commercial interests.

“This is what we need to emphasize that the power industry and its regulators must not allow this. Rather, we must address these problems and all its complications as one industry where everybody shares the burden and everyone benefits from the gains,” it said.

Dimagiba also said that power rates in May should be lower after Meralco invoked the force majeure provision in power-supply agreements.

“Due to the significant reduction in power demand in its service area during the enhanced community quarantine period, Meralco invoked the FM provision in its PSAs for the duration of the lockdown, reducing fixed charges for generation capacity that was not consumed,” Meralco had said.

Dimagiba said Meralco invoked the provision in its PSA for the April rates. However, this covers only 10 days of the enhanced community quarantine.

“The full 30-day lockdown shall be reported in the May rate report. We believe the bigger relief of peso per kWh shall be passed on to the consumers at that time,” Dimagiba said.