Ceneco’s P232 Million `Unused’ Power

Consumer advocates have been slamming the decision by the Energy Regulatory Commission dated June 27, 2017, mandating Ceneco to collect the P232 million in unnominated contract quantity which it owes to Kepco Salcon Power Corporation.

The contract has been assailed as grossly disadvantageous to consumers and, thus, consumers should not be made to pay for “unused” power related to that contract.

Ceneco initially entered into a contract with KSPC for the supply of 40 megawatts of base load power. Then it entered into another agreement for an additional 24 MW of power, to be used either as base load or intermediate load, on the option of Ceneco.

Central to the issue is the nature of the 24 MW load which Ceneco contracted.

In a household which uses a refrigerator, the power consumed by the ref for the whole day is the household’s base load, the minimum consumption for the entire 24 hours.

In the case of an electric cooperative like Ceneco, the base load is the minimum consumption of all its consumers for the entire 24 hours in any given day.

When Mom and Dad come home from work and the kids arrive from school late in the afternoon, the house’s lights are turned on, as well as the radio and TV sets. This is the intermediate load which, in the case of that particular household, is used only for a limited period (from 6PM to midnight).

For Ceneco, the intermediate load is not limited to six hours. It measures the intermediate load as the consumption above the base load during the entire 24-hour period, excluding spikes in consumption during peak hours from 6pm to 11pm.

When Mom uses the washing machine and electric iron, the household consumes more electricity. The power consumed by these two appliances constitutes the peak load.

For Ceneco, the peak load is the consumption above the intermediate load during the peak hours from 6pm to 11pm. Before midnight, power consumption decreases, as most consumers already go to sleep and have turned off most of their appliances and lights, until they wake up again at around 5am.

Going back to the contracts between Ceneco and KSPC, Ceneco fully utilized the 40 MW base load contracted with KSPC for the entire 24 hours every day.

As to the additional 24 MW which was contracted to be used either as base load or intermediate load, at Ceneco’s option, it was initially used as intermediate load.

The contract duration was 10 years, because Ceneco wanted to secure power reliability and stability for its consumers for the next 10 years, with the freedom to negotiate for better deals for its consumers after the 10 year period.

Thus, when Ceneco entered into the contracts, it already considered and projected its load growth, or the increase in power consumption brought about by the yearly increase in the number of its member-consumers for the next 10 years.

Ceneco realizes that its intermediate load spikes at 24 MW, so it capped the contract to only 24 MW.

Owing to the nature of the intermediate load, Ceneco also knows that, for the early part of the contract, it would not be able to use the entire 24 MW for 24 hours every day. That’s why it is called intermediate load; if is utilized for the entire 24 hours, then it would have become part of the base load.

Moreover, Ceneco has projected that, with the constant annual increase in its consumers, the 24 MW intermediate load will form part of its base load. Thus, it insisted on the proviso that the additional 24 MW could be considered as intermediate or base load, at the option of Ceneco at any point in the duration of the 10 year contract.

Using a household as an example, let it be presumed that its base load representing one ref is 50 kw, its intermediate load is 30 kw and its peak load is 20 kw. Over the years, Dad buys another ref while Mom installed aircon units in the bedrooms.

The base load now increases to 100 kw while the intermediate load also increases to 80 kw. (These figures are for illustration purposes only.) The 30 kw intermediate load back then was supplanted by the additional base load now. So it is with Ceneco.

The rate for the 40 MW base load is fixed at P4.2511/kwh. The rate for the 24 MW intermediate / base load is higher and is computed on a load factor-based pricing.

Load factor-based pricing means that, the higher the percentage of use of the 24 MW, the lower the price. If Ceneco uses 100% of the 24 MW for 24 hours every day, it will pay the fixed intermediate load rate. If it uses the 24 MW only for 60% to 70% of the 24-hour cycle (16 out of 24 hours), it will pay a higher rate, based on the agreed formula.

On September 9, 2013, ERC granted provisional authority for KSPC and Ceneco to use this formula. Pending ERC approval of the formula, Ceneco and KSPC agreed to collect a lower base price for the 24 MW intermediate load, subject to reconciliation and payment when ERC grants the authority.

When the provisional authority was granted near the end of 2013, it was prospective and not retroactive; it can be implemented only from November 26, 2013 onwards. It did not cover the period from July 26, 2011 (when Ceneco started using the 24 MW load) to November 25, 2013 (when the provisional authority was implemented).

KSPC and Ceneco agreed to submit for ERC approval the reconciliation of the differential covering July 26, 2011 to November 25, 2013, amounting to P232 million.

After numerous hearings, four of which were held at Ceneco Main Office to give oppositors and intervenors the opportunity to present evidences and witnesses, ERC granted final approval for the 24 MW contract and the load factor-based pricing scheme which will be applied to that contract.

In the same order, ERC approved the computation of the P232 million billing differential covering the subject period (July 26, 2011 to November 25, 2013), and ERC authorized Ceneco to collect the amount at P0.0817 per kwh for 50 months from its consumers.*

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