Will the ERC and DOE Remake Themselves as a result of the Supreme Court Ruling on Meralco CSP? (Part 3)

David Celestra Tan, MSK
14 June 2019

In the ongoing saga of the MVP Group’s money making schemes to also monopolize power generation and charge Meralco customers self-negotiated sweetheart electric rates for the next 20 years,  the cause oriented group Alyansa Para Sa BagongPilipinas (ABP) had petitioned and the Supreme Court had spoken that ERC’s extension of the date for the effectivity of the CSP policy is beyond its authority and therefore illegal. Consequently all power supply contracts that were applied with the ERC after November 7, 2015 should undergo competitive selection process or bidding.The biggest lot of those is Meralco’s seven (7) PSA totaling 3,551mw with a guaranteed 28 Billion kwh a year sales for 20 years, fully 80% of the energy needs of the National Capital Region.

In its ruling GR 227670 the Supreme Court not only ruled on that issue but also reiterated enlightening provisions of the Constitution on other aspects of jurisdiction, governance, and autonomy related to ERC that the regulatory agency had been ignoring for a long time. If heeded, these constitutional reminders would have long term implications on the ERC and DOE as oversight institutions for the public interest.

Here are some excerpts of the Supreme Court Decision:

  1. On Page 2 on unfair competition and protection of public interest

Section 19, Article XII of the 1987 Constitution provides: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

The State grants electricity distribution utilities, through legislative franchises, a regulated monopoly within their respective franchise areas. Competitors are legally barred within the franchise areas of distribution utilities. Facing no competition, distribution utilities can easily dictate the price of electricity that they charge consumers. To protect the consuming public from exorbitant or unconscionable charges by distribution utilities, the State regulates the acquisition cost of electricity that distribution utilities can pass on to consumers.

As part of its regulation of this monopoly, the State requires distribution utilities to subject to competitive public bidding their purchases of electricity from power generating companies. Competitive public bidding is essential since the power cost purchased by distribution utilities is entirely passed on to consumers, along with other operating expenses of distribution utilities. Competitive public bidding is the most efficient, transparent, and effective guarantee that there will be no price gouging by distribution utilities.

x-x-x

Section 6, Article XII of the 1987 Constitution provides: “The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.”

Indisputably, the use of electricity bears a vital social function. The State, in requiring competitive public bidding in the purchase of power by distribution utilities, has exercised its constitutional “duty x xx to intervene when the common good so demands. “

  1. Page 16 Functions of DOE and ERC

Thus, the very first mandate of the ERC under its charter, the EPIRA, is to “enforce the implementing rules and regulations” of the EPIRA as formulated and adopted by DOE. Clearly, under the EPIRA, it is the DOE that formulates the policies, and issues the rules and regulations, to implement the EPIRA. The function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued, by the DOE. The ERC has no power whatsoever to amend the implementing rules and regulations of the EPIRA as issued by the DOE. The ERC is further mandated under EPIRA to ensure that the “pass through of bulk purchase cost by distributors is transparent [and] non-discriminatory. “

  1. Page 20 Independent Power of the ERC

In the present case, where there is no exercise of the ERC’s quasi-judicial powers, the ERC is legally bound to enforce the rules and regulations of the DOE as authorized under the EPIRA. The ERC has no independence or discretion to ignore, waive, amend, postpone, or revoke the rules and regulations of the DOE pursuant to the EPIRA, as it is horn book doctrine that rules and regulations issued pursuant to law by administrative agencies, like the DOE, have the force and effect of the law.  In fact, the first duty and function of the ERC under its charter is to “enforce the implementing rules and regulations” of the EPIRA as issued by the DOE. Certainly, the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA.

  1. Page 21

In any event, even in quasi-judicial cases, the ERC is bound to apply the policies, rules, regulations, and circulars issued by the DOE as the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA. To repeat, the DOE’s rules, regulations, and circulars issued pursuant to the DOE’s rule-making power under the EPIRA have the force and effect of law which the ERC is legally bound to follow, whether the ERC is exercising executive, quasi-legislative, or quasi-judicial powers.

 

(Emphasis are ours)

ERC

Considering that the legality of the Meralco power supply contract applications have delayed the power development of the country by 3 years, the compelling question is what will the affected institutions, ERC, Meralco and its 5 partners, and DOE, do? Will they continue fighting the legal issue, protract the impasse,  and not care about the delay in the nation’s power supply? Will the consumers be held hostage again and will the government passively watch as Luzon’s power supply deteriorate?

The new ERC will be tested on what they hold important, Self-interest or public service? Will they continue fighting for their domain over the power sector and put self-empowerment first over focusing on averting a power crisis by starting in earnest to making enough of the Meralco projects comply with legitimate CSP?

 a. Jurisdiction, power, and autonomy of ERC

Is the ERC willing to temporarily loosen its grip on its empire?

Almost from the beginning, the series of trapo politicians that were made Chairmen of this supposed public interest agency from 2003 to 2018, worked hard at protecting its power and jurisdiction over the power industry domain. As politicians steeped in the culture in Congress, they evidently wanted absolute power over a sector that the private entrepreneurs and oligarchs discovered they can profit handsomely, especially if they capture the regulators. The seasoned politicians effectively kept at bay past attempts by the DOE, Congress, and the Courts to influence the regulatory agency’s power by arguing they are an independent body and stigmatized any input from other government agencies as “meddling”.

This assertion by ERC of absolute power led to the regulatory agency’s total disregard for power policies set by the Department of Energy, the mandated policy making body under the EPIRA law. ERC routinely tries to appear to be in synch with the policies set by the DOE but in the process of implementation, they exercise so much privilege that they often violate if the not the word but the spirit of the DOE policies.

In fact, on the ruling by the Supreme Court years ago that Meralco as a public utility should be entitled to only a 12% annual return on their investment, the ERC evidently felt they were above the Supreme Court when they adopted the rate setting methodology PBR that effectively deregulated the profits of Meralco who is now making officially 25% return on equity.  Asked in a hearing on PBR, two senior commissioners declared in open court that they did not have to follow because the Supreme Court ruling was “no longer applicable when ERC changed the methodology to PBR and that the 12% return is no longer valid because “economic conditions had changed”. (Who brainwashed them?)

It is under this kind of hubris that the ERC evidently felt they can get away with fooling around with the implementation of the CSP policy from November 7, 2015 to April 30, 2016, despite them turning down Meralco’s request as late as January 2016 to be allowed to do swiss challenge type CSP.

What happened in February 2016 that made ERC change its mind and incongruously “clarified the implementation date of the CSP to April 30, 2016, a full 176 days after the original date? Most Filipinos can guess correctly on this one.

b. ERC’s mandate under the Epira Law

RA 9136 or the EPIRA Law of June 2001 indeed gave ERC a lot of power, many of them even motuproprio and all for the purpose of protecting the public interest. The most important of which is insuring the fair and reasonableness of the rates. It is true that previous ERC’s invoked those other non-rate setting powers like Section 43 sub-sections f,o,r,  whenever convenient but rarely in the genuine intent to serve the public interest.

Now the Supreme Court is saying they must implement only the policies laid down by the Department of Energy which had the effect of law. And we interpret that to mean not to exceed or contradict one whenever a policy had been established by the DOE.

A current case in point, the DOE had issued in February 2018 a Guideline for the procurement of power supply for the Distribution Utilities. And the ERC has been working on coming up with its own implementing guidelines of such policy. It is now in its 3rd draft and interestingly, while the DOE circular and expressed clarifications did not provide for unsolicited proposals or swiss challenge type biddings, ERC’s guidelines is devoting fully 1/3 of its pages to rules on unsolicited proposals and swiss challenge.

So the question is will the new ERC now respect the authority of the DOE to set policies and rules and not freelance and exercise privileges with their own implementation rules?

c. Will there an advent of a New DOE?

DOE is the reverse of ERC. They were given a clear mandate by the law to insure that there would be sufficient supply and least cost power with broad policy powers.  For many years they seem to have accepted that their job is to formulate and issue policy. And be contented that the implementation is left up to the discretion of the ERC, NEA, NPC, PSALM, come hell or high water.  One recent Secretary of Energy lamented that they don’t have enforcement capability, a sad perspective.

For the last 15 years one reality has been hitting DOE and that is when things are going wrong in the power sector, regardless of privatization and deregulation, it is the DOE that the people and the legislators are holding responsible.

Yellow and Red Alerts

In the recent case, yellow and red alerts started lighting up in the Luzon grid, and the JCPC called the power players to hearings. It was admirable that the DOE officials were trying to explain except they really could not provide the answers and solutions to the mysterious coincident downtimes of the power generators in Luzon.  The reason is it is really Meralco, to whom those power plants are contracted to, who is capable of ensuring the performance of these power plants and shepherding their downtime schedules.

It is evident they themselves feel it is DOE’s responsibility to make sure there is enough power supply and reserves and that the prices do not skyrocket. But they must stop thinking that their job is passive and only persuasive in making things happen.

Now the Supreme Court had clearly spoken.  It is the job of the DOE to establish policies and guidelines and those will have the effect of law.  ERC’s job is to implement the policies set by the DOE.

It is true that in the past the ERC was forced to write more implementing guidelines to executive the vague and motherhood guidelines set by the DOE or where the later had not written one.  For example, the implementation of Section 45 of the Epira law on limiting the market share of the owners of Meralco to only 50% of the power utility’s demand and energy needs. Some people managed to dilute the Epira law by writing a different way of implementation under Rule 11 of the Epira IRR in 2004. This has been paving the way for the MVP Group that controls Meralco to covet 100% of the contracts of Meralco’s power supply….. because they could.

But since the DOE had evidently not even recognized the illegality of Rule 11 through the years, the ERC had been implementing it in their own way and in their own time.

Now the DOE needs to step up and provide clear guidelines, monitor their implementation, and take proactive action if say power supply is not materializing on time.

This will require DOE to remake itself from a passive issuer of policies and rules and gatherer of statistics on evolving power development, to a proactive enforcer and pursuer of power development objectives if the private sector is not getting it done on time or the right way. The people is expecting that from the government and DOE.

The Supreme Court message is clear…..but will the ERC and DOE heed the call?

 

We will see soon enough in the rest of the year.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

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The Supreme Court Decision was supposed to be a Consumer’s Checkmate on Meralco’s 7 Midnight PSAs….It Turned Out to be a Stalemate! (Part 2)

Aya Jallorina, ABP
30 May 2019

In Part 1 MSK had written about the long needed constitutional clarifications that were provided by the Supreme Court in its decision on the questionable ERC extension of the CSP policy. It  can illuminate our energy policy makers specially the regulators who after almost 20 years could not liberate themselves from its capture by the vested interests. The more things changed in the first five (5) Chairmen, the more things stayed the same at the regulatory agency.  The first part of GR No. 227670 was just a wonderful work of wisdom, statesmanship, and patriotism. We in Alyansa para saBagongPilipinas are grateful to the Supreme Court for upholding the rights of electric consumers.

However, there are somethings in the decision that watered down an otherwise really wonderful consumer vindication.

A. Omission.

We are wondering why the Supreme Court is recognizing June 30, 2015 as the effectivity of the CSP policy and not November 7, 2015?

1. The Supreme Court decision took the position that the effectivity date of the DOE Circular 2015-06-0008 of June 30, 2015 is also the effectivity of the CSP deadline. It seems to have overlooked the fact that this circular provided that “within 120 days from the effectivity of this circular, the DOE and ERC will jointly issue the guidelines and procedures for the aggregation of un-contracted demand of the DU’s….”

2. This means The DOE Circular 2015-06-0008 actually allowed ERC 120 days to issue the implementing guidelines, which it in fact did by issuing Resolution 13 Series of 2015 on 20 October 2015 that became effective November 7, 2015 after the two weeks required publication. This was done jointly with the DOE as the Supreme Court ruling recognized.

3. It is for this reason that as petitioner ABP’s prayer was to seek that the“Court direct the ERC to disapprove the Power Supply Agreements (PSAs) of the Distribution Utilities (DUs) submitted after 7 November 2015 for failure to conduct Competitive Selection Process (CSP). The petition further asks the Court to order ERC to implement CSP in accordance with the Department of Energy (DOE) Circular No. DC2015-06-0008 (2015 DOE Circular) and ERC Resolution No. 13, Series of 2015 (CSP Guidelines).”

4. Why did the Supreme Court decide then that the effectivity date of the CSP policy should be June 30, 2015 instead of November 7, 2015? We wonder if this is in line with the “hide in the crowd” strategy of Meralco and the old ERC when they claimed there were 90 projects that took advantage of the controversial extended April 30, 2016 deadline although 80% of it is the 3,551mw of Meralco. Was the Supreme Court somehow persuadedto use June 30, 2015 to similarly create a crowd of applicants and avoid too much focus on Meralco’s seven midnight PSA’s.?

5. One of ERC’s main excuses for extending the CSP deadline was that there were “many” DU’s and IPP’s who requested for reconsideration? In fact in reaction to the Supreme Court decision, one point the ERC raised was that there are many projects affected including plants that have been finished and operating. There is a distinct effort to avoid making the issue mainly about Meralco 7 PSA’s.

6. The unfortunate collateral damage is on the small projects that were signed and filed after June 30, 2015 but made it to the real CSP effectivity of November 7, 2015.

B. The Supreme Courts perplexing reference to DOE’s CSP Guideline DC2018-02-0003 instead of DC2015-06-0008.

1. ABP’s issue and petition was about violating some rules that were in place in 2015 and actions made in 2016. As the Supreme Court Decision pointed out the “ABP’s petition thus presents a purely legal issue: Does ERC have the statutory authority to postpone the date of effectivity of CSP, thereby amending the 2015 DOE Circular which required CSP to take effect on 30 June 2015”

2. We wonder then why the Supreme Court Decision surprisingly included DOE policy changes issued two (2) years later in 2018? The petition should be decided based on the laws obtaining at the time of the violation of the rules in 2015.

3. On page 36 of the Decision, it narrated that “On 1 February 2018, the DOE issued Circular No. DC2018-02-0003 entitled “Adopting and Prescribing the Policy for the Competitive Selection Process in the Procurement by the Distribution Utilities of Power Supply Agreements for the Captive Market” (2018 DOE Circular).

The DOE prescribed, in Annex “A” of this 2018 DOE Circular, the DOE’s own CSP Policy in the procurement of power supply by DUs for their captive market (2018 DOE CSP Policy). Section 16.1 of the 2018 DOE CSP Policy expressly repealed Section 4 of the 2015 DOE Circular authorizing ERC to issue supplemental guidelines to implement CSP. In short, the DOE revoked the authority it delegated to the ERC to issue supplemental guidelines to implement CSP, and the DOE itself issued its own guidelines, the 2018 DOE CSP Policy, to implement CSP under the 2015 DOE Circular.

“This means that the CSP Guidelines issued by the ERC have become functus officio and have been superseded by the 2018 DOE CSP Policy. Under its Section 15, the 2018 DOE CSP Policy is expressly made to apply to “all prospective PSAs.” (emphasis ours).

4. The question in our mind is why the Supreme Court is going out of its way to also rule that the questionable PSA’s must comply with the CSP rules according to specifically DC2018-02-0003 and not just generally to CSP guidelines as mandated by the DOE? Why even invoke the functus officio doctrine on the DOE guidelines? DC2018 is not germane to the petition and the SC decision.

5. The petition of Alyansa Para SaBagongPilipinas is to seek the Supreme Court “to declare as void ERC Resolution No. 1, Series of 2016 (ERC Clarificatory Resolution). The petition also seeks that this Court direct the ERC to disapprove the Power Supply Agreements (PSAs) of the Distribution Utilities (DUs) submitted after 7 November 2015 for failure to conduct Competitive Selection Process (CSP). The petition further asks the Court to order ERC to implement CSP in accordance with the Department of Energy (DOE) Circular No. DC2015-06-0008 (2015 DOE Circular) and ERC Resolution No. 13, Series of 2015 (CSP Guidelines).

6. Why should the Supreme Court specifically imply that the legitimate compliance to CSP can only be met by complying with DC2018-02-0003?Alyansa Para saBagongPilipinas filed its petition in December 2016 and did not include even subsequently DC2018 as relevant to the case.

7. The Supreme Court’s dispositive judgement says “In short, the DOE revoked the authority it delegated to the ERC to issue supplemental guidelines to implement CSP, and the DOE itself issued its own guidelines, the 2018 DOE CSP Policy, to implement CSP under the 2015 DOE Circular. This means that the CSP Guidelines issued by the ERC have become functus officio and have been superseded by the 2018 DOE CSP Policy. Under its Section 15, the 2018 DOE CSP Policy is expressly made to apply to “all prospective PSAs.” The 2018 DOE Circular, including its Annex “A,” took effect upon its publication on 9 February 2018. Thus, the 90 PSAs mentioned in this present case must undergo CSP in accordance with the 2018 DOE Circular, in particular the 2018 DOE CSP Policy prescribed in Annex “A” of the 2018 DOE Circular. (emphasis ours). 

8. WHEREFORE, the petition for certiorari and prohibition is GRANTED. The first paragraph of Section 4 of Energy Regulatory Commission Resolution No. 13, Series of2015 (CSP Guidelines), and Energy Regulatory Commission Resolution No. 1, Series of 2016 (ERC Clarificatory Resolution), are hereby declared VOID ab initio. Consequently, all Power Supply Agreement applications submitted by Distribution Utilities to the Energy Regulatory Commission on or after 30 June 2015 shall comply with the Competitive Selection Process in accordance with Department of Energy Circular No. DC2018-02-0003 (2018 DOE Circular) and its Annex “A.”Upon compliance with the Competitive Selection Process, the power purchase cost resulting from such compliance shall retroact to the date of effectivity of the complying Power Supply Agreement, but in no case earlier than 30 June 2015, for purposes of passing on the power purchase cost to consumers.”

Why is the Supreme Court even ruling on a retroactiveness of power purchase cost? This seems now a double over reach. While consumers are happy about the recognition by the Supreme Court of the illegality of the Meralco contracts, why is it going out of its way to what amounts to softening the impact on Meralcos contract and its ability to comply with the CSP?

C. What is the big deal about DC2018-02-0003 and its Annex A and why would it be in effect a concession to Meralco?

1.Under this DC2018 approved by the DOE in February 2018, the CSP will be undertaken by the Distribution Utilities and done by Third parties that it itself will form. This is a major change from DC2015 when the CSP can be undertaken by the DOE if needed with the use of a Third Party Bid Administrator it will choose. That means whatever happens, the DOE who has the task of insuring that additions to power supply actually materialize to meet the country’s demand, could not really do anything. It is only the DU that can do the CSP.

2. DC2018 did away with the CSP that can be undertaken by the DOE if needed and with the use of a Third Party bid administrators.

3. Why is this a big issue?

DC2018 gives the DU’s the main say on how the CSP will be undertaken, omitted any option for DOE to step in and undertake the CSP,  exactly what Meralco had been fighting to have.

Since June 30, 2015 when the DOE issued the Policy on CSP by Third Party Administrators, the Meralco group had been campaigning against it. First they wanted it voluntary. Then they want to be allowed to do swiss challenge type CSP. Then they don’t want Third Party Administrators and for them to do their own CSP. Then they want the policy implementation delayed.  As late as January 2016 Meralco still officially asked ERC that they be allowed to do swiss challenge type CSP. The point of all these is they want to have control over the bidding rules and process evidently so they can insure the desired winners win. Which not surprisingly will be a sister company.

The ERC magically and incongruously extended the CSP implementation to April 30, 2016 enabling Meralco to fast track 7 PSA with 5 partners for 3,551mw in cookie cutter terms and pricing formula just 10 days before the April 30 opening and filed the applications just the day before. There is something anomalous in the whole picture and that’s why we all ended up in the Supreme Court.

4. Meralco’s determination to control power supply and its market.

It has been 3 years since its seven PSA’s with sister company MeralcoPowerGen have not progressed while legal cases are pending. Yet Meralco had not moved to do a CSP to pursue back up major power supplies to assure it meets its franchise obligation to its customers.  It is evident they want their CSP way or no way.

5. It is for this reason that the seeming gratuitous reaching of the Supreme Court decision to specifically identify DC2018-02-0003 and its Annex A as the way to comply with its order for CSP is very disconcerting. It means the eventual compliance to the CSP will still be under the control of Meralco.

6. Is it possible that this concession is the reason the Supreme Court vote reached 10-2?

Is it possible that some justices were convinced to argue for the inclusion of DC2018-02-0003 without really realizing the power sector implications to the consumers and the unfortunate opportunity it will offer to Meralco that will sabotage the precise constitutional aspirations they so eloquently upheld in the early parts of the decision?

 7. While it is true that the DOE has the power to further amend its CSP Guidelines in view of the long delay in the Meralco projectssome quarters sympathetic to Meralco, and those within DOE itself, can argue that the Supreme Court had ruled that the PSA’s must comply specifically with DC2018-02-0003 and its Annex A. Otherwise “the DOE would be inviolation of the Supreme Court order”.

DOE is preempted by reason of a Supreme Court order from making any updating of its own CSP guideline even if the country is now pushed to the brink of power crisis due to Meralco’s dogged desire to get their way on juicy negotiated power supplies. Never mind that their service obligations to their consumers under their franchise are in jeopardy.

 8. Overwhelming forces against the consumers

In the battle to protect the consumers from exploitive negotiated power supply rates, the forces and resources lined up against the consumers are just overwhelming.  Imagine the combined financial and political resources of the MVP Group, Aboitiz, San Miguel, DMConsunji, Metro Bank, and EGAT of Thailand fighting for 3,551mw of power projects valued at approximately p400 Billion and revenues for 20 years of about P3 Trillion. We believe the overprice would be at least P15 billion a year for 20 years! With that kind of numbers at stake, it is no wonder that even a Supreme Court decision can be made tomagically align with their desires. Isn’t it scary?

9. In summary, as petitioner Alyansa para saBagongPilipinas asked the Supreme Court to rule on whether the ERC had the legal power or jurisdiction to postpone or extend the effectivity of the CSP policy from November 7, 2015 to April 30, 2016. It would have been sufficient for the Supreme Court to rule that based on the rules at that time in 2015 and 2016 specifically the applicable DOE policy Circular 2015-06-0008 and ERC Resolution 3 Series of 2015, that the ERC exceeded its authority and jurisdiction by extending the CSP implementation without DOE coordination or approval.

Instead the Supreme Court went as far as making aruling, that to us is regretfully overreaching, that to comply with the CSP policy, the distribution utilities must undertake CSP biddings restrictively in accordance with DC2018-02-0003.

 Unfortunately, given Meralco’s history, this DC2018 may need to be updated to enable the DOE to have the flexibility to insure that the CSP is no longer further delayed and is truly open and competitive to protect the public interest. We have seen what happens if power development and CSP is left totally in the hands of Meralco.  But the Supreme Court decision effectively straight jacketed the DOE from making the needed updating in the rules.

And in double over reach, the Supreme Court went even further and provided that “upon compliance the power cost shall retroact to the effectivity of the complying PSA” which this time encroaches on the rate setting methodologies of the ERC. 

As it stands the CSP compliance is not only under the control of Meralco but can also be complied with under restrictive requirements of the Supreme Court.  An untenable position for consumers.

Let’s hope maybe the Supreme Court can make a clarification?For now, Stalemate DOE, Checkmate Meralco consumers!

Can our lawyer readers help us understand more what is going on?

Next: the long range impact of the Supreme Court’s decision on DOE and ERC. 

Evelyn Jallorina, Secretary General
Alyansa Para Sa BagongPiliinas Inc.

The Supreme Court Decision was supposed to be a Consumer’s Checkmate on Meralco’s 7 Midnight PSAs….It Turned Out to be a Stalemate! Bummer! (Part 1)

David Celestra Tan, MSK
26 May 2019

Consumers and Cause Oriented Groups were overjoyed when the Supreme Court issued a decision last 17 May 2019 granting the petition of Alyansa Para saBagongPilipinas (ABP)to declare the extension of the CSP policy by ERC from November 7, 2015 to April 30, 2016 to be beyond its authority and therefore illegal and null and void. We all felt it is a major consumer victory and checkmate of the monopolizing Meralco.  Alas, Meralco power supply contracts will be subjected to true competitive selection process or bidding.No more negotiated contracts between sister companies! It is going to be a wonderful world for consumers! So we thought!

Sorry Aya, Sorry Noel, Sorry Neri, Sorry Meralco consumers.  I think we are wrong! When we read the full SC decision in GR No. 227670, there were odd things about it. Parts of it are out of tune. It is like listening to the victory song in Les Miserables and hearing the enemy marching in the background. Did the Supreme Court make a mistake?  We asked a retired Justice.  He said we may disagree with the decision, but the SC rarely makes a mistake in writing its decisions. It means whatever they wrote and the words they used are intended to be there. Just to repeat, the SC doesn’t make a mistake in writing decisions. Whatever is there is intended to be there.

Having said that, Lets talk first about the Great Things about the Supreme Court Decision.

1. It reiterated the constitutional obligation of the government agencies, particularly the DOE and ERC in protecting the consumers and promoting true competition.

“Section 19, Article XII of the 1987 Constitution provides: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

The State grants electricity distribution utilities, through legislative franchises, a regulated monopoly within their respective franchise areas. Competitors are legally barred within the franchise areas of distribution utilities. Facing no competition, distribution utilities can easily dictate the price of electricity that they charge consumers. To protect the consuming public from exorbitant or unconscionable charges by distribution utilities, the State regulates the acquisition cost of electricity that distribution utilities can pass on to consumers.

As part of its regulation of this monopoly, the State requires distribution utilities to subject to competitive public bidding their purchases of electricity from power generating companies. Competitive public bidding is essential since the power cost purchased by distribution utilities is entirely passed on to consumers, along with other operating expenses of distribution utilities.

Competitive public bidding is the most efficient, transparent, and effective guarantee that there will be no price gouging by distribution utilities”.

 It is a breath of fresh air!

2. It clarified that the function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued by the DOE.

“Thus, the very first mandate of the ERC under its charter, the EPIRA, is to “enforce the implementing rules and regulations” of the EPIRA as formulated and adopted by DOE. Clearly, under the EPIRA, it is the DOE that formulates the policies, and issues the rules and regulations, to implement the EPIRA. The function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued, by the DOE. The ERC has no power whatsoever to amend the implementing rules and regulations of the EPIRA as issued by the DOE. The ERC is further mandated under EPIRA to ensure that the “pass through of bulk purchase cost by distributors is transparent [and] non-discriminatory. ”

“In any event, even in quasi-judicial cases, the ERC is bound to apply the policies, rules, regulations, and circulars issued by the DOE as the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA. To repeat, the DOE’s rules, regulations, and circulars issued pursuant to the DOE’s rule-making power under the EPIRA have the force and effect of law which the ERC is legally bound to follow, whether the ERC is exercising executive, quasi-legislative, or quasi-judicial powers.”

This is an important reminder because since the tenure of the 3rd ERC Chair, the ERC has been arrogating its stature as an independent body, creating its kingdom, co-equal even to the courts, and  free to write its own guidelines based on its own interpretation of the law. Many of those are contrary to the policies handed down by the DOE. 

It is this mind-set that apparently emboldened the ERC to ignore the Supreme Court ruling in 2005 that public service utilities should only be allowed a 12% return on their investment. They still adopted the PBR rate setting methodology that essentially deregulated the profits of distribution utilities which in Meralco’s case has been reaching 25% per year, double what the Supreme Court ruled was the limit. Never mind that the Epira Law of 2001 clearly says the Distribution Sector is regulated.

We hope with this new Supreme Court ruling on the limits of its discretion, the ERC can be more sanguine and usher in an era where both the DOE and ERC are pulling in the same direction.

At the same time we hope it will serve as a reminder to the DOE that they have a big responsibility to see that their own policies are actually implemented.

There are however Curious omissions and additions in the written decision of the Supreme Court

These are the things that are odd and sticking out like sore thumbs in such a wonderful and enlightened interpretation of the law.

Next: The omission and addition to the Supreme Court decision that would stalemate the DOE and the Consumers.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

The Root Cause of Power Plant Shutdowns are not Technical But Contractual and Financial

2 May 2019

POSITION PAPER ON LONG TERM SOLUTIONS FOR STABLE POWER SUPPLY

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Submitted to:

The Joint Congressional Power Committee

Hon. Senator Sherwin Gatchalian

Hon. Carlos Uybarreta, Congressman, 1Care Party-list

Public Hearing May 2, 2019

Dear Sirs:

We thank the JCPC for this opportunity to contribute to the national debate on what to do to avoid power shortages that hound our country almost always before Christmas and before the summer.

The MatuwidnaSingilsaKuryente Consumer Alliance Inc or MSK is an association of Meralco consumers since 2011 dedicated to seeking regulatory and policy reforms to protect consumers from excessive electric rates that result from exploitive charges, anti-competitive behavior, monopoly, oligopoly, and contracting manipulations, and cartelization and negotiated sister company sweetheart deals.

Once or twice a year we are confronted by power shortages due to power plants supposedly shutting down due to mechanical problems and or need for preventive maintenance.
We would like the authorities to consider the following for the long term solutions to this recurring brownouts.

1. Who is responsible? Looking at the wrong alley, barking up the wrong tree.

First of all, we would like to make the observation that in the debate on who is responsible for insuring that power plants are reliably on line and do not mysteriously shutdown due to “boiler leaks”, there seems to be inordinate focus on the Department of Energy, who although the policy and rule making body and responsible for monitoring and encouraging power supply, is not the contracting party with the power generator.

In the power plants that shutdown, Meralco is not sufficiently being asked to take responsibility to assure that their contracted supply, whose negotiated costs are being passed on to its customers, are reliably providing the generating service. Meralco is the one with contract enforcement capability and obligation to the public who is ultimately the one paying for the service.

In these public hearings, Meralco seems content on sitting back and exploiting the power crisis to justify the approval of their seven midnight power supply contracts.
We appreciate the valiant willingness of the Department of Energy officials to take the heat for any power crisis. However, we will not find the long term solutions if we keep on looking at the wrong alley, and barking up the wrong tree.

2. Insufficient Reserve and Need for Additional power supply

We agree with the calls for additional power supply. But we disagree that it should mean the automatic approval of the seven (7) midnight contracts totaling 3,551mw that Meralco negotiated with its sister company Meralco Power Gen.

While it is not an ideal resolution, we call on all parties, JCPC, DOE, ERC, Meralco, the Supreme Court, the Alyansa Para saBagongPilipinas, the Bayan MunaMakabayan Group, to come together in the national interest and break this impasse for a reasonable and not exploitive solutions.

a) Let us allow the implementation of about half of those projects of 1,750mw to come on line in 2021 and 2022. But with moderation of the negotiated rates and any onerous terms. Atimonan One is now P5.65 per kwh not the P3.75 it was advertised, higher than the current Meralco coal suppliers. ERC needs to moderate this in a compromise resolution.

b) The others of 1,750mw can be subjected to a true CSP, some of them for LNG fueled power plants.

c) We also call on the JCPC and DOE to sponsor separately truly competitive biddings for supply for distribution utilities outside Meralco. Ideally One coal and one LNG even modest 300mw each for supply to non-Meralco distribution utilities. This will have the added benefit of establishing market tested price benchmarks as opposed to the negotiated rates that Meralco has been trying to justify.

d) We are asking the JCPC, DOE, and ERC, to recognize the reality that in bringing least cost power to consumers, “competition always beats regulation”.

3. True Root Cause of Plant Shutdowns are Not Technical but contractual and financial

The additional supply will however still not guarantee that there will be no power shortages resulting from the unfortunate confluent shutdowns of power plants. Technical shutdowns are only symptomatic of the true reasons for the problems which is contractual and financial.

a. Contractual and Financial causes of shutdowns
Current power supply agreements provide for allowable downtimes per year of a total of 45 to 60 days. During these period, the power generators continue to be paid their capacity fees consisting of capital recovery and fixed overhead. This contractual arrangement therefore offer no financial benefit for the power generator to avoid or minimize downtimes. In fact it is to his convenience and financial benefit to maximize his allowable downtimes. This is an outdated provision from the BOT era in which we no longer are. BOO napotayo. (build operate and own).

And when the buyer (DU) and the seller generator are sister companies or business partners, we can predict it will be the customers who will be sacrificed.

Under this contractual provision, there is no reason for the power generator to make the needed investments to make his plant reliable and honestly avoid downtimes.
The result is these brownouts and it will not change unless this financial incentive and convenience is taken out.

b. We propose that the rate of the generator be restated to include compensation for downtime so that he will be paid only when his plant is available on line to provide the service. Some people will say it will increase the rate since the annual capacity fees will be spread over 10 months instead of 12. The average true cost to consumers would be the same.

c. Looking at the Meralco generation rates, customers are charged P5.40 per kwh during the operating periods of the coal plants, but are charged P7.00 to more than P10 per kwh during months with maintenance shutdowns. In the period from July to December 2018, Meralco had paid these coal plants as high as P18 per kwh which indicated that they were on maintenance shutdowns. So here we are in April and those plants are still down for maintenance? (see matuwid.org and Meralco website data)

d. The added capacity payments for downtimes however should only be for half of the 60 day downtime agreement because the generator and the consumers should equally share in the risks of downtimes. Why should the consumers absorb all those costs?
It will not result to higher true cost and will have the benefit of the generator being paid only when he is providing the service. No more incentives for being down.

e. Allowable downtimes should only be a legal excuse from delivering the contracted power service. However, it should not be used for guaranteeing capacity payments to the generator whose power plant is down. This is most unfair to the consumers and encourages downtimes.

We call on the DOE and ERC to consider this “no payment during downtime policy”. This is actually not being anti-generator but more like being fair to the consumers.

Until this is corrected, mysterious and confluent shutdowns will continue to hound the country.

We wish the JCPC more power in its search for solutions. We hope the JCPC, DOE, and ERC, will look into these proposed solutions.

Sincerely yours,

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

David Celestra Tan
Co-Convenor

Evelyn Viray Jallorina
Executive Director

matuwid.org
david.mskorg@yahoo.com.ph

Wake Up Calls For All of Us On Power Yellow Alerts…Whose Job is it Anyway?

David Celestra Tan, MSK
23 April 2019

The Yellow and Red alerts of power shortages should wake up all of us towards the reality that a power crisis can be upon us and can have devastating impact our economic boom years. The blame game is going wild so let us take stack and see who should be waking up and for what reality.

1. You, I, and the Public

We the consumers have a lot of waking up to do. It is quite scary that in the face of a power crisis we the consumers would lose however it is resolved.

If the power crises happens we will be down on our knees begging for electricity at any price, by any method, and no matter how dirty. To avert these blackouts, new power plants will need to be built. And guess whose new power projects are being rammed through our throats? 4,005mw of MeralcoPowerGen’s all coal projects no less….and counting.

In case you have not heard, seven of these contracts totaling 3,551mw are stuck in legal controversy since 2016 brought about by ERC itself. The Prices and terms that will be charged to you and I were just negotiated between Meralco and its sister companies. One called Atimonan One with 1,200mw has a published rate with ERC at P3.75 per kwh but if updated to current exchange rate, inflation, and coal fuel, is actually now P5.65 per kwh. And who knows what else are hidden in the secret provisions that they asked not to be disclosed to the public? In short, if those MeralcoPowerGen contracts are approved as we, the ERC, and the DOE, and probably the Supreme Court are being manipulated to agree to, we the consumers are screwed and stuck with sweetheart prices and terms for 20 years. And those pass on charges are not small. PowerGen is cornering 80% of the energy needs of Meralco.

That happened in April 2016, three (3) years ago. Since then, no new power projects were announced, either by Meralco, Aboitiz, and their cartel partners. The power development of the country is at a standstill and it seems everything is being bet on those Meralco contracts. Meralco by the way as the largest distribution utility is exerting its market control since no major power project will happen without them agreeing to be a buyer. And they will not agree unless….you know the rest of the story.

It is depressing to wake up to the reality that we as consumers are screwed either way. If it were a game of chess, “mate natayo” even before we realize there is even a game going on. And what is worse is the feeling that no one is truly protecting us in this country of ours. Sure we hear all these government officials saying they are doing things to protect the public, to assure supply. So does Meralco using that line in vain.

MSK as your advocacy group has been trying to point out regulatory flaws but the regulators especially the last batch were evidently apathetic to public interest. We hope we have a better one in the new batch but so far it is not encouraging if we go by the guideline for power supply procurement that they are drafting. Loopholes for circumvention of true CSP are evidently being built into it. Hayy.

( See our article Who is to Blame for the Delays of the 1,200mw Atimonan One and 600mw Redondo Power Coal Projects? Meralco, Consumer Groups, or ERC? Matuwid.org June 5, 2018)

At this stage though it is no longer what Meralco and ERC did but how do we move forward with new power projects. And Meralco, the new DOE, the new ERC, and the Chairmen of the Energy Committees of Congress and the Senate, the JCPC, the Supreme Court, and even the President of the Philippines, could have taken proactive moves to break the impasse and get the country moving so a power crises is prevented…..while there is still time to prevent it.

Eerily, no one is moving. Sadly, when something happens, we the consumers are disadvantaged. And no one is protecting us. Why are we always in a lose-lose situation….and they the vested interests are always in a win-win position?

2. Your beloved Distribution Utility Meralco

The first move should have been coming from Meralco, the distribution utility itself. It is them who have the contractual mandate with the consumers by virtue of their public service franchise to assure the provision of adequate power supply in the least cost manner.

But they will not move because they are conflicted and protecting their power generation interest. Meralco clearly is putting higher priority to being the sister company of their MeralcoPowerGen instead of being the public service provider to the consumers. And they appear to be willing to push the country to the brink of power crisis so that they can get their way.

But “we are looking after the public interest”Meralco would argue. That is why they want all seven (7) of our power supply contracts approved by the ERC starting with their 1,200mw Atimonan One and the 600mw Redondo Power in Subic. Why can’t they initiate a happy compromise (front door or backdoor) where they get to implement their earlier projects for commissioning in 2020 and 2021 and subject to true CSP the balance those that are needed for 2022 to 2025? Should it really be all or nothing? Their way or no way?

Meralco should act like your distribution utility looking after the public interest.

3. The new Department of Energy

We are calling them new because the Meralco deals were done in April 2016, a month before the last Presidential elections and before President Duterte is able to appoint his own Energy Secretary. (That’s another reason those contracts became known as “midnight”)

Under the EPIRA Law of 2001, the Department of Energy has the specific tasks of assuring there is adequate supply of power through enabling policy and proactive promotion of investments in power and energy.

They could have been excused from proactively getting involved in resolving the effective freeze in power generation projects in 2017 as they try to learn the ropes but by 2018 alarm bells should be ringing. The country is on its way to a power crisis and the DOE needs to do something and make things happen.

Why not be the catalyst for a national consensusfor a solution? The Alyansa Para saBagongPilipinas and the Bayan Muna,the cause oriented groups that filed the cases in the Office of the Ombudsman and the Supreme Court against ERC and the seven (7) Meralco contracts, should not be above participating in a national resolution if it is to the public interest.

Then if not resolving the legally questionable Meralco contracts, why not the DOE push for new tenders for power supply under true CSP rules. Why not hold tenders for LNG power plants? If the Meralco cartel members are not willing to participate there are many highly qualified and proven power generators who can participate. Such truly competitive biddings will have the added benefit of answering for the country the question of which is better for the consumers, negotiated or openly tendered power supply?

Are there factions within the DOE that are participating in allowing the country to slide to the brink and helping create an environment where the public will be so scared of a blackouts that they will not care if the power supplies were anomalous and overpriced and violative of its own CSP policy?

4. The Supreme Court

The ERC, DOE, and Meralco are all pointing at the Supreme Court for their collective inability to resolve Meralco’s seven power supply projects. And the longer the highest court of the land takes to make a ruling on whether ERC has the legal right to extend the deadline for the CSP, the closer the country is pushed to the brink of the power crisis.

Our Honorable Justices will need to wake up to this reality. The ruling of the Supreme Court is now part of the problem instead of a solution.People believe that there is really no major constitutional divide on the issue. Most people predict anyway that the Supreme Court will rule that the ERC had the legal authority to extend the implementation of the CSP but will leave it up to the office of the Ombudsman on whether the previous batch of ERC Commissioners abused that authority.

5. The Country’s Conglomerates and Economic Powerhouses

Let us wake up to the reality that Meralco’s cartel oligopoly are also the major business conglomerates that are having a field day in the current consumer driven economic boom. They are in real estate, construction, retailing, telecommunications, banking, tourism, water, roads, and media. Their market caps are soaring.

Count on them to exploit opportunity and profit from the people’s adversity. Meralco is happily negotiating emergency power supply contracts “to protect the consumers” with the same people whose power plants are conveniently shutting down.

Predictably, media is exploiting the hysteria over the yellow alerts and putting pressure is on for ERC and DOE to approve the Meralco contracts. They are blaming the ERC for being “indecisive”. Two illustrious columnists in the major daily controlled by the Meralco group, called out DOE Usec Fuentebella for inaccurately assuring the public of no power shortage. Then she went for it.

“What we need are new power plants.Some of the country’s power plants are so old, some as old as dirty old men. It’s not surprising that, perhaps, just like these men, these plants conk out too every now and then. Clearly, there’s an urgent need for new power plants, but the private sector’s investments have been hampered by regulatory challenges.”

Another one asked “who is minding the store” and taking to task the Department of Energy for the impending power crisis.

It could also be a wake up call to these diversified conglomerates that the customers they abuse in power, water, toll roads, telephones and internet, are the same people who provide the market for their shopping malls, condominiums, and travel.And it is the same economy that if thrown into a power crisis will sabotage the whole economy and the market for the rest of their empires.

6. President Rodrigo R. Duterte

Many of these conglomerates are having a heyday because they have the blessings of the President for their projects and many are enjoying the profits from the economic boom that the Presidents leadership is bringing about.

But maybe the President can also wake up to the reality that this same people that he is helping are also willing to push the country to the brink of a power crisis to serve their selfish interest and in the process sabotage a good legacy of progress for the people that his Presidency has been working so hard to create. So much for gratitude and true friendships. Or are those relationships co-terminus with the President’s term?

7. “Whose Job Is It, Anyway?”

Our impending power situation reminds us of a story about four people named Everybody, Somebody, Anybody and Nobody. There was an important job to be done and Everybody was sure that Somebody would do it. Anybody could have done it, but Nobody did it. Somebody got angry about that, because it was Everybody’s job. Everybody thought Anybody could do it, but Nobody realized that Everybody wouldn’t do it. It ended up that Everybody blamed Somebody when Nobody did what Anybody could have.

And how was your holy week!

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org

For private comments send to email david.mskorg@yahoo.com.ph
For public comments please send below.

Yellow and Red Power Alert, Things to Ponder, The Outdated and Onerous Genco Contracts, and Permanent Solutions (Part 2)

Part 2 of 2

 

4. The Onerous Guaranteed Payments for Downtimes in the PSA in Main Grid

These power plants will predictably blame technical reasons for the outages. These are however the “effects” and not the “root causes”.

It might surprise many people but the solution to these Power Plant shutdowns are not technical but contractual and financial.To explain, the PSA’s in place now and new ones being signed are still the old 1990’s era, BOT type contracts where the IPP is guaranteed his full capacity fees and fixed costs even if his power plant is down for maintenance and not available to deliver power.

These are in the form of maintenance downtime provisions in the PSA where the IPP is excused from delivering power.  Typically 45 to 60 days per year for coal plants. There is nothing wrong with legally excusing them from delivering power when their power plant have technical problems or need to be shutdown for preventive maintenance.

What is wrong is continuing to pay them full capacity fees and fixed costs during the shutdown period. And these payments are passed on to the consumers as part of AGRA, the new name of the old reviled Purchased Power Adjustment (PPA). 

These give financial incentives to IPP’s for being down or expressed another way, there is no financial benefit to them to AVOIDing and minimizing downtimes. If these IPP’s are not paid during their downtimes and only paid when they are actually providing a service to the consumers,  their financial dynamics will change, giving them the incentive to make investments in making their power plants reliable.

 Still another way of expressing this guaranteed payments whether down or not, is that electric consumers are being charged for 12 months of service but only getting power from the IPP for 10 months, especially for base-load plants. This is so onerous to the Filipino consumers.

Even for those power plants with “Reserve power contracts” and providing “ancillary services”, they should be paid capacity fees and fixed costs only when they are validated to be on line and available to provide the power if called. Not when they are down.

Downtime allowances in PSA’s should only be an excuse from delivering the service but not for guarantee of continuing capacity payments even if they are not performing a service. We are now in the Build Operate and OWN era, no longer BOT, where at the end of the contract, the power plant is Transferred to the distribution utility.

Ironically these onerous guaranteed payments for downtime allowances are still in the seven (7) midnight Meralco PSA’s signed with subsidiary MeralcoPowerGen. And even in the 460mw expansion of Mauban coal plant with partner EGAT. We suspect that this contract provision is among those trade secrets that Meralco had petition to keep confidential from the public and ERC is agreeing to be hidden from public scrutiny.

These onerous provisions must be prohibited in the Guidelines for procurement being drafted by the DOE, ERC, and NEA for being patently anti-consumer.

Until this is cured, there will always be downtime anomalies because there are financial incentives to being down or no financial benefit to avoiding downtimes.

 (see our Article on Outdated PSA Provisions Need to be Updated, matuwid.org December 6, 2018)

5. The Onerous Guaranteed Payments for Downtimes in the PSA in the Off-Grid

In the Off-Grid areas these guaranteed payments during downtimes similarly cause brownoutsand also the bloating of the missionary subsidies in hundreds of millions. In the Island of Palawan, President Duterte no less complained about the brownouts and the Electric Coop was blamed. It turned out 35% of the brownouts resulted from a power supply contractor whose temporary generators have been unreliable and another 35% resulting from outdated and incompleted transmission lines service of Napocor that have failed to keep up with the demand of the fast growing tourist island.

What is aggravating the brownouts are also contractual in nature. The Electric Coop agreed to pay a power provider for 6mw reserve capacity but it can only be used by the power provider when his regular engines are down for maintenance. The Coop is paying P5 million a month extra or P60 million a year but if the Palawan grid is short of power it cannot call this unit into service because it is only to back-up the contractors own units. So why is the Coop and why is missionary subsidy being paid for 6mw that can only be used by the contractor to meet his 20mw contractual guarantee and cannot be called by the Coop for his own use? And ERC had approved this contract provision.

 On the subject of off-grid areas, the Philippine Grid Code and the Small Grid Code issued by the DMC of ERC, do not provide for maximum size of units to be installed in the island as a % percent of total demand. The maximum size of each generator determines the amount of reserve capacity that the island needs to have. Ideally technical studies and small grid experience show that this should be limited to about 10% of system demand. In a 50mw island, the maximum generator size should be about 5mw. For reserve capacity known as N-1 and N-2 is based on the extra units equivalent to the size of the largest unit.  Hence the larger the disproportionate sized generator, the larger the reserve units that the consumers will pay for.

 In a 50mw island N-1 reserve will be 5mw and n-2 would be only 10mw.

If the largest unit is undefined and allowed to be say 8mw or 15mw coal boiler, the reserve unit will be equivalent to 15mw and not 5mw at higher costs to the consumers.

 6. Long Term Solutions

a. Obviously, guaranteed payments during downtimes must be prohibited from PSA’s. In fairness to consumers,payments must be provided only for delivered service. There must be a disincentive to being down and a financial incentive to make their power plants reliable with minimum downtime.

This is the root cause of the downtimes and Alerts especially those occurring during inopportune times like summer. This can be incorporated in the government guidelines for procurement and made part of the CSP template.

b. Distribution Utilities like Meralco who are the contracting parties to the Power Supply Agreements, must be required to have continuing Generating Capacity Management Coordination and Monitoring. It is their duty to their consumers.

c. The DOE can have a permanent monitoring and coordinating function for the synchronization of maintenance downtime schedules specially avoiding the critical months of summer and Christmas season.

d. The technical terms of the bidding for future supply under CSP must include a prescription on the maximum sizes of the generating units that can be offered. This must be in the Small Grid Code, in the NEA Guidelines, and in the DOE and ERC Guidelines. This is Not only for reasonable size and cost of reserve capacity but also for better systems adjustments for load variations in these off-grid islands.

In many islands, the load variation is only 5% of peak demand. In a 50mw island, the load variation is 2 to 2.5mw.  It is hard and uneconomical for an 8mw reserve engine to fill this in without disrupting the other smaller engines synchronized to the island grid.

Yellow and Red alerts will recur in the country unless we take steps to address their real causes.  Of course Meralco and their cartel members would like us all to believe that the solution is more supply. And that to address our fears of brownouts we must forget about the anomalous terms of their seven (7) midnight contracts and have it approved.

There needs to be a compromise in the national interest. The matter has been allowed to drag on for so long and we are playing into the hands of the involved proponents.

We agree that some resolution are now urgently needed but Meralco needs to also compromise. Their negotiated rates need to be made reasonable and the terms of the PSA cannot be onerous. The ERC needs to see that. Better half of it is converted to LNG. Given the urgency of the power supply, we wonder why the Supreme Court does not see that it is to the national interest to decide on the legality of the ERC extension of the CSP implementation, one way or the other.

Why should the electric consumers be always on the losing end?  We pay when they are down, we suffer when there is a power shortage, and we still pay for the consequent spikes in the WESM prices. When will we have a savior?

 

A Blessed Holy Week and Happy Easter to Everyone!

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org

For private Comments send to david.mskorg@yahoo.com.ph
Public comments submit below.

Yellow and Red Power Alert, Things to Ponder, The Outdated and Onerous Genco Contracts, and Permanent Solutions (Part 1)

part 1 of 2

David Celestra Tan, MSK
11 April 2019

Everyone is again scrambling on what to do in the face of the power shortage alerts. It is yellow, it is red, WESM prices spike, and the always inevitable fears of collusion. Of course there is the predictable, which is “we told you so, we need our new power projects”despite the legal and negotiated rate and terms issues. A supposed “group of consumer welfare advocates” are even incongruously chiming in by blaming ERC for its “indecisiveness” evidently on approval of Meralco’s 7 midnight contracts.

Anyway, let us ponder some aspects of this yellow and red alerts.

1. Whose Power Plants are down now?

According to newspaper reports, the following power plants have been mentioned. Sual Unit 1, SW Luzon Masinloc Unit 2 344mw, Pagbilao Unit 3 382mw, SLTEC Unit 1 150mw, Calaca 2 of DMCI 100mw, Malaya 2 350mw. A total of approximately 1,500mw.

a. Things to Ponder No. 1
The power plants in question (except Malaya) are owned by Aboitiz Group, San Miguel, EGAT of Thailand, DMCI, all members of the Meralco chosen 5 and partners of MeralcoPowerGen that controlled all the project companies in the seven (7) midnight contracts that the Meralco power oligopoly is trying to ram through the system.

b. Things to Ponder No. 2
Meralco’s power suppliers using coal have mind boggling rates from September to December 2018. AES in Masinloc charged P16.4591 per kwh in September, P13.7889 in October, P10.3589 in November, P8.7697 in December, and 6.9598 in January. It is now partly owned by Meralco Mauban partner EGAT of Thailand.

The Aboitiz owned Pagbilao charged P7.0179 per kwh in September, P7.04 in October, P6.7847 in November, and P7.5231 in December.

San Miguel Sual charged P7.8325 per kwh in September, P9.7960 in October, P8.0332 in December, and 7.4205 in January.

For February 2019, Masinloc rate was 11.51, Quezon Mauban of EGAT 7.76, SMEC Sual 6.91, and Aboitiz Pagbilao 6.33.

Comparatively, other coal generator rates were only P5.50 per kwh and natural gas plants approximately P5.28 per kwh during these periods.

(see matuwid.org website)

The reasons for these high coal generators rates were not because of high coal rates but evidently due to the guaranteed capacity payments to these power generators even if they were not generating full power. That means they have been down for maintenance for those months of September to December 2018 and some in January and February. So why are they still down for maintenance now that consumers needed their power during these summer months of March to May 2019?

(By the way, your organization MSK had filed a petition with ERC asking that these high rates from September to December 2018 be investigated. We have yet to hear from them).

2. Collusion

There could be collusion but it is unlikely that the government can pin anyone down. Power plant operators know what they are doing…and they are sisters with one of the supposed victims, Meralco. (Other one is the consumers)

Even when there are market evidence, our regulatory and justice system will be such that anyone found guilty will not even pay the penalty. Remember the market failure of 2013 when WESM went up to P62 per kwh and resulted to a P4.15 per kwh jump of 80% in generation costs? And even if they pay, it is only a total of P500 million compared to the damage to the consumers of P9 billion.

It is the motuproprio job of the ERC to investigate and penalize but so far they have been quiet.

We cannot expect too much from the Philippine Competition Commission who by their young lawyers’ mindsets will not call harmful “cartel” or “oligopoly” and “collusion” even if they are staring them in the eyes, unless they get the perpetrators to sign a document of admission. (good luck with that!) The young PCC seems have yet to find itself as a watchdog for the consumers and an institution to install preventive and preemptive rules against collusion, market monopoly, and etc. Too early to expect much consumer protection from them.

3. DOE’s Decisive Action

A shining armor in this dark times is the decisive action of the Department of Energy in containing further damage to the community and consumers. Beyond the predictable call for extensive investigation, per media reports they have been actively meeting with electric power industry participants for a concerted remedial solutions. They activated the “interruptible load program” that mobilizes the self-generators. It may only be 200mw but it helps in rotating brownouts.

The terms and conditions of the power supply agreements between these Genco’s and Meralco are being looked into specially their outage allowances, replacement power. Secretary Alfonso G. Cusi is quoted to say “the DOE recognizes that short-term answers are not enough. We are taking a holistic approach that focuses on the establishment of institutional solutions that would benefit consumers in the long term. The DOE fully intends to pursue policy directions to create permanent solutions to the otherwise temporary yet recurring challenge of red alerts.”

These are good take charge responses to avert a possibly disastrous power situation. However, the country needs a permanent monitoring of the plant availability performance of these IPP’s and a proactive management and coordination of power plant maintenance schedules specially during critical seasons like summer and Christmas holidays. The Department of Energy can make this maintenance scheduling part of the tasks of its Electric Power Industry Monitoring Board, instead of just passively tallying the power generation projects being pursued by the private sector.

The Senate Energy Committee under Sen Sherwin Gatchalian is expected to similarly try to conduct an investigation and let us hope they do and get to the bottom of these power shortages. More importantly, let us hope those investigations will result to change in rules for permanent solutions.

Actually it should be the job of Meralco if they are truly looking after the interest of their customers to manage and synchronize the scheduling of the downtimes of their contracted power suppliers. We don’t hear them doing this proactive scheduling that not only can avoid surprise brownouts but also to protect their customers from the price spikes that are consequences of power shortages.

Next: The Onerous Power Supply Contract Provisions and Permanent Solutions

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org

For private Comments send to david.mskorg@yahoo.com.ph