Exit Fee Proposed in Transition Supply Contracts with Utilities

Article excerpt


Power industry players are amenable to the imposition of exit fee in the transition supply contracts (TSC) that shall be sealed between state-owned National Power Corporation (NPC) or its successor-company Power Sector Assets and Liabilities and Management Corporation (PSALM) with distribution utilities.

The exit fee, it was noted, shall be computed based on load and demand projections. Such fee will be paid to a utility when a customer would suddenly decide to switch to another supplier.

It was explained that such mechanism will have to be imposed with bigticket customers, like industries or aggregators, who have been securing electric service from a particular utility.

Such mechanism is important, it was pointed out, because this will assure suppliers or power generators of the sustainability of their markets.

For instance, if one private power producer would sign up a supply contract with a power distributor, it is apparent that one of its key concern would be a steady stream of revenues from its output buyers; but if this customer suddenly switches preference, then there shall be a way to compensate for such lost market.

Pursuant to the provisions of the Electric Power Industry Reform Act, the burden up of establishing the guidelines, primarily on the rate component, for the TSCs to be signed shall be undertaken by the Energy Regulatory Commission.

It has been emphasized that the regulator shall draw up procedures, standards and criteria for the full recovery of prudent and reasonable costs related to the generation component in the retail rates charged by distribution utilities for the supply of their electricity to their captive market; or those whose electricity needs will be served under the precept of market competition. …