The Energy Regulatory Commission (ERC) has prescribed a two-tiered review process before the power supply agreements (PSAs) or contracts underwritten via competitive selection process (CSP) could secure regulatory approval.

That has been the main stipulation in the new CSP guidelines that was released by the ERC to guide industry players – primarily the distribution utilities (DUs) - not just on the procedures but also on the length or duration of the various power supply agreements (PSAs) that they will be signing with generation companies (GenCos) or electricity suppliers.

The CSP is an auction process that the private DUs and the electric cooperatives will need to carry out before they can secure contracts to satiate their supply portfolio for the electricity services that they will deliver to customers.

According to the ERC, the CSP guidelines require evaluation and approval of the PSAs on two levels – the first which involves a ‘process review’ will “determine compliance with the CSP guidelines;” while the second level delves with ‘substantive review’ that shall scrutinize “the PSA’s reasonableness in terms of tariff, costs, risk allocation, and other contractual terms.”

The regulatory body similarly set forth the duration or length of power supply contracts that the DUs can enter into – including those of the renewable energy (RE) technologies; and emergency supply procurements.

It emphasized that for the emergency power supply agreements (EPSAs), this will be for a duration of one year; then for financial PSAs, the length could be for 10 years; while physical PSAs will have up to 15-year stretch.

The gold standard when it comes to long-term PSAs will be those that are accorded to RE technologies because their term could span up to 20 years.

The ERC has similarly differentiated a financial PSA, as one that relates to a supply agreement that is ‘not power plant specific’; while a physical PSA covers a ‘plant specific’ contract.

“To facilitate stakeholder compliance with the new framework, the ERC has provided comprehensive checklists of pre-filing requirements for PSAs procured through CSP or exempted from such CSP, as well as PSA templates prescribing minimum standards for both physical PSAs and financial PSAs,” the regulatory body pointed out.

It expounded that the financial PSAs “must set out a tariff structure that shall be fixed for the duration of the contract term,” while for physical PSAs, “the tariff structure and cost-components must be clearly provided by the DUs in the terms of reference.”

The ERC likewise highlighted that the outcome of any CSP process for DUs shall be anchored on a ‘least cost’ paradigm, that way, the eventual pass-on cost to consumers will be cost-competitive.

“To ensure supply of electricity in the least cost manner under Republic Act No. 9136 or the Electric Power Industry Reform Act (EPIRA), the CSP guidelines reinforce the obligation of the DUs to determine whether least cost can be met by either financial power supply agreements (PSAs) or physical PSAs,” the Commission stressed.

For the EPSAs, the ERC noted that the process of procurement has already been streamlined, with provision for “more robust timelines for evaluation to meet the emergency power needs of DUs.”

The CSP Guidelines also provide for clear compliance parameters for situations that are exempted from the CSP requirement – including the supply contracts to be entered into with state-run firms National Power Corporation (NPC) and Power Sector Assets and Liabilities Management Corporation.

Additionally, the ERC conveyed that the CSP guidelines provide DUs “with a dedicated protest mechanism for issues involving the conduct of the CSP,” and they can be afforded remedies, such as blacklisting of suppliers “in case a winning bidder frustrates the process or fails to deliver the DU’s supply requirements after signing the PSA.”