1 Basic Concepts on Power Supply Agreement (PSA) Francis Saturnino C. Juan Executive Director Energy Regulatory Commission

2 What is a Power Supply Agreement (PSA)? A PSA is a bilateral agreement between a Generation Company (GenCo) and a Distribution Utility (DU) for the purchase and supply of power.

Why does the ERC need to review and approve PSAs? Section 25, Chapter 2 of the Republic Act No or the Electric Power Industry Reform Act of 2001 (EPIRA) states that: RETAIL RATE. The retail rates charged by distribution utilities for the supply of electricity in their captive market shall be subject to regulation by the ERC based on the principle of full recovery of prudent and reasonable economic costs incurred, or such other principles that will promote efficiency as may be determined by the ERC. 3

GENERATION CHARGE  Biggest component of the retail rate (around 40% to 60%)  Through the generation charge, the DUs recover their generation costs associated with their energy purchases from : APSALM/NPC (under duly approved TSCs) NPC TOU Rate BIPPs (under duly approved PSAs) ERC-approved Contract Rate CWESMSpot Market Rate 4

5 Power Generation Sources Oil-based 10% Hydro 12% Geothermal 15% Coal 34% Renewable 0.1% Natural Gas 29% Based on DOE Power Statistics 2010 Data

RATE STRUCTURE REVIEW 6 Capacity Fee/Capital Recovery Fee Operations & Maintenance Fee Fuel Recovery Fee/Energy Fee Fixed O&M Variable O&M Fixed Cost Variable Cost What does the ERC look into in its PSA review and approval process?

GENERATION RATE STRUCTURE 7 Capacity Fee/Capital Recovery Fee Fixed Cost  Cost for the recovery of capital or investment incurred in putting up the power plant  Fixed for the duration of the project life/plant economic life

GENERATION RATE STRUCTURE 8 Operations & Maintenance Fee Fixed O&M Variable O&M  Costs involved in operating and maintaining a utility plant and in the provision of utility service; and  Operating outlays consist mainly of costs for purchased power, fuel, wages, applicable taxes, maintenance, supplies, and other necessary expenditures.

GENERATION RATE STRUCTURE 9 Fuel Recovery Fee/Energy Fee Variable Cost  Pass-through cost to allow recovery of fuel consumed to generate power  Cost also depends on the plant heat rate

GENERATION RATE APPROVAL 1.Provisional Approval 2.Final Approval 10 Steps:

PROCEDURE FOR THE APPLICATION OF PSA 11 Receipt of LGU Legislative Body of the Application/ Publication of the Application Filing of the Application Commission issues Order & Notice of Public Hearing Earliest Date for the Initial Hearing Last Day for the Issuance of Provisional Authority Earliest Day for the issuance of Provisional Authority (P.A.) Day 1 Day 10 After 30 days from the (a) receipt of a copy of the application by the LGU Legislative Body or (b) publication of the application, whichever comes later Day 34 Day 75 Issuance of Final Authority Within 1 year from the issuance of P.A.

12 Units in Wh Units involved in Measuring Electricity & Basic Terms in Power Generation

Watt (W) - is the basic unit of measure of electric power Watt-hours (Wh) – is the total amount of energy consumed over a period of time 13 Units in Measuring Electricity kilowatt (kW) – is one thousand watts kilowatt hour (kWh) –is one kW of electricity for one hour

14 Units in Measuring Electricity Megawatt (MW) – is one million watts Megawatt (MWh) – is one million watts of electricity for one hour Gigawatt (GW) – is one billion watts Terawatt (TW) – is one trillion watts

Demand - is the amount of electric power required by an appliance or equipment to operate within its rating. Capacity - is the amount of electric power that a generator is capable of delivering to satisfy the demand. Energy – is the amount of electric power used in hours. 15 Basic Terms in Power Generation 100 watts (Demand) multiply by 10 hours equals 1,000 Watt-hours or 1 kWh (Energy)

Peak Load - is the maximum instantaneous load over a designated interval of time. Base Load - is the constant part of the total load on an electrical power supply system. Intermediate Load – is the range from base load to a point between base load and peak. 16 Basic Terms in Power Generation

Capacity Factor - is the ratio between the power plant’s average production compared to its rated capability. Load Factor - is the a measure of the output of a power plant compared to the maximum output it could produce. 17 Basic Terms in Power Generation

Capacity Factor vs. Load Factor Capacity = 10 Passengers Day 1 5 passengers Day 2 9 passengers 18 Hence, = 14 passengers or an average of 7 passengers (14/2 days). In this case, the Capacity Factor would be 0.7 (7/10), while the Load Factor would be (7/9)

Installed Capacity - is the amount of power or output that a generator can produce at any given point of time or instantaneously. Dependable Capacity - is the capacity that can be relied upon to carry system load for a specified time, provide assumed reserve, and/or meet firm power obligations. 19 Basic Terms in Power Generation

is the amount of energy that the fuel must supply to produce a unit of electrical energy and represents the overall efficiency of a power plant. 20 Basic Terms in Power Generation

21 Basic Terms in Power Generation Sual Power Station Baseload Power Plant – is the energy plant devoted to the production of baseload supply to meet electrical demand. Peaking Power Plant – is the energy plant that is generally run during peak demand for electricity.

22 VISION: Asia’s benchmark for excellence in power regulation. MISSION: The Energy Regulatory Commission promotes and protects the long-term consumer interests in terms of quality, reliability, and reasonable pricing of a sustainable supply of electricity.