I. Background and Objective
II. Background of the Problem
III. Formulation of the Solution using Linear Programming (LP)
IV. Solution and Description of the Analysis Tool Used
V. Results
VI. Discussion of the Results and Conclusion

I.Background and Objective

For a very long time within the existence of the electric power industry in the Philippines, MERALCO, a private distribution utility and sole distributor of electricity in Metro Manila and nearby provinces, and National Power Corporation (NPC), a government owned and controlled corporation who has the monopoly of generating power in the Philippines before the passage of Electric Power Industry Reform Act in 2001, has been in dispute on where to source the electricity that will be distributed by MERALCO to their franchise area. Back then, MERALCO is only allowed to purchase about 40% of their needed generation from their own IPP’s and purchase the other sixty percent (60%) from NPC.

Under R.A. 9136 (Electric Power Industry Reform Act or EPIRA Law), “no distribution utility shall be allowed to source from bilateral power supply contracts more than fifty percent (50%) of its total demand from an associated firm engaged in generation”;

Distribution utilities may enter into bilateral power supply contracts subject to review by the ERC: Provided, That such review shall only be required for distribution utilities whose markets have not reached household demand level. For the purpose of preventing market power abuse between associated firms engaged in generation and distribution, no distribution utility shall be allowed to source from bilateral power supply contracts more than fifty percent (50%) of its total demand from an associated firm engaged in generation but such limitation, however, shall not prejudice contracts entered into prior to the effectivity of this Act. An associated firm with respect to another entity refers to any person which, alone or together with any other person, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such entity; - R.A. 9136, Sec. 45, Paragraph b

MERALCO contested that if they are not limited to purchase their required demand of electricity from their own IPP’s, minimum cost, thus lower cost of electricity for their consumer could be achieved.

The objective of this project is to come up with an optimal or economic dispatch schedule of the IPP’s of MERALCO and supply from NPC and, also, verify whether the claims of MERALCO that the cost of electricity will be lowered if they are not constraint to 40% purchase of energy from its own IPP’s.