Security of Power Supply and The Futility of Sec. 71

David Celestra Tan
31 October 2014

While a lot of attention is on invoking Epira Law’s Section 71 to grant emergency powers to the President of the Philippines to deal with an “imminent power crisis” this coming summer, there are many larger issues that have become evident on the drawbacks of this power crisis provision and its futility in dealing with a power shortage, much less for assuring timely and cost effective solutions.

Section 71 of the Epira Law of 2001 is called “Electric Power Crisis Provision” says “upon determination by the President of the Philippines of an imminent shortage of power, Congress may authorized through a Joint Resolution the establishment of additional generating capacity under such terms and conditions that it may approve.”

The reason for this is under the Epira Law that prescribed the privatization and deregulation of the power industry, the government is no longer allowed to own power plants or enter into new power supply agreements. The private sector is supposed to do that and meet all the power requirements of the country at fair and reasonable costs. Section 71 was supposed to be a fall back position to allow government to get into power generation if there is going to be a power crisis.

Now Thirteen (13) years after the Epira Law was passed and its Implementing rules and regulations passed in 2002, the Filipino consumers have the worst of both worlds, high power rates and unreliable power supply.
The Department of Energy has predicted that there will be a power shortage for a few hours in a few days in the summer of 2015 and Secretary Carlos Jericho Petilla had broached the idea of asking Congress to grant President PNoy emergency powers to rent 300mw of rental generators for two years at a cost of more than P10 billion. Later, that shortage prediction was increased to 1,200MW in a worst case scenario.

The debate is on- going but the drawbacks and futility of Section 71 have become evident.

1. Declaring an imminent power crisis is easier said than done. We need solid numbers. Foreseeing one in sufficiently ahead of time is not easy.
2. Getting congressional approval is contentious, political, and time consuming that by the time the President and DOE gets one, it may be too late for a timely solution.
3. Quick and temporary solutions are both limited and very expensive.
4. The private sector cannot be counted upon to provide a comprehensive solution on their own. They seek profit opportunities but not necessarily, as a group, undertake a total solution.
5. Despite privatization the electricity is a public service that the government must still assure and the people expect it to step up and be responsible.
6. The public is leery and suspicious of negotiated contracts and any government official overseeing it cannot escape being smeared.
7. Section 71 is not an adequate mechanism to assure security of supply for the country.

When The Epira law was still being framed in 2000, Section 71 was supposed to be a “Security of Supply” provision that designates the government, specifically Napocor as the generator of last resort. That was in recognition of the fact that in the end the people still expect the government to solve any problems in power supply and high rates in this very essential public service. The vested interests and their Congressional allies won’t hear none of it because they were so afraid that if the law opens a window for the government to hold on to some power generating assets, some of Napocors power plants that they so craved might not be privatized. (well, the rest is history).

As long as Congress is hot on the issue of Section 71 and emergency powers, it is an opportune time to look at the broader issue and the larger interest of the country by recognizing these drawbacks and the futility of Section 71 and pass instead a Security of Supply amendment, albeit belatedly. The government through Napocor should be allowed to retain and establish strategic power generation assets with specific grid roles both to assure supply and even to intervene in the market if the prices are going unreasonably and painfully high for the consumers.

If the government is to be expected to step in anytime and do it cost effectively, it needs ready capability to Maintain and build strategic power generating capability for the long term with appropriate planning and strategy. Napocor practically gave away some key power plants that could have been strategic in securing power supply. The only reason it still has the 600mw Malaya power plant is there have been no takers. They could also have retained the Naga power complex and the 100mw Dingle power plant for the Visayan grid. They could have retained the diesel plants in Mindanao which provides strategic reserve capacity. They did not even privatize those. They allowed them to be foreclosed by the LGU! What an anomaly!

In any case, at this stage Congress can establish limits of generating capacity to say 15% of installed dependable capacity. They can even be assigned to be the provider of reserve capacity and ancillary services. Napocor still has very capable technical people and organization.

And because it is government, it doesn’t mean it has to be a losing proposition. Costs can still be recovered from the rates but this time it can be kept at a minimum because the profit margins don’t need to be there.

Things are clear on the futility of Section 71. Things are clear on the inevitability of the government stepping in to solve any power problem. Let us hope Congress will recognize reality, step up to this patriotic duty, and do what is clearly essential to assure power supply and lower rates for the country’s industrial competitiveness.

Let us turn Section 71 into a Security of Supply provision (or Law). It is a bigger and long term Emergency!

Have a safe All Saints Day weekend.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

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DOE’s Power Shortage Prediction Needs to Regain Credibility in a Hurry

By David Celestra Tan
20 October 2014

Despite all the technical and econometric considerations that go into projecting the country’s power demand and supply, it is still in the end not an exact science. There are many assumptions that may or may not happen six (6) months hence. Will it be an extremely hot summer? Will it unseasonably rain? How many power plants will go down or de-rate when they are needed the most? Will Malampaya be available? Will the economy grow abruptly? Will the expected new power projects really come on time and beat the summer? Or even whether Manilans will go on summer vacations and leave town in droves?

It is a leap of faith and must be based on solid convincing and sure-footed data from a credible authority especially when the contingent solutions (reserve power) will cost the consumers in tens of billions as the electric payers or as taxpayers in case the government dips big time into the Malampaya fund.

The problem with the DOE’s current efforts to justify emergency powers and essentially get congressional permission to dispense with competitive bidding and negotiate emergency generating capacity is that its figures and projections had been wobbly and not convincing.

Department of Energy Secretary Jericho Carlos Petilla had gone from estimating a power supply shortage of 200 to 300mw of peaking power in the summer of 2015 a couple of months ago when he first broached the idea of needing emergency powers under Section 71 to what he reportedly claims now as a potential 1,000 to 1,200mw shortage.

Despite a Congress apparently predisposed to granting Presidential emergency powers to install additional generating capacity as requested by Sec. Petilla, the numbers remain to have doubts that do not deserve the benefit.

Sec. Petilla’s problem is he may not be realizing that by going for emergency power from the get go to negotiate power supply contracts when he was still projecting 300mw, he looked like a politician trying to pull a fast one on the public. When the power and business sector made him realize that a 300mw temporary shortage a few hours in some days in the summer can be managed by a well-organized ILP program from the private sector that has more than 3,000mw of emergency generators, he progressively increased his projection of the shortages to now about 1,200mw. So now he is starting to look like a guy determined to justify emergency powers so he can negotiate contracts using tens of billions of Malampaya money. Now the public is thinking, is this the PNoy administrations version of PDAF and Fertilizer scams all dipping into the 100 billion Malampaya funds?

It appears the DOE’s strategies and approach to what they are trying to accomplish could have used better fine tuning based on a deeper understanding of the inner workings and dynamics of the power supply sector.

This perception of Sec. Petilla by the public and Congress has to change hurriedly. They can start by bringing credibility into their numbers. They must reconcile their numbers with NGCP whose numbers say otherwise. Sec. Petilla must go beyond telling the public, and expecting them to take his word for it, that the dependable capacity in the summer will only be 10,000mw instead of 11,469 and publish the basis for such pessimistic numbers. Let the public know which plants told DOE they will be down during the summer. The public is aware that there is 12,790 mw in installed capacity in Luzon, 11,469 in dependable capacity and only 9,000kw demand during summers. What gives? They are looking for the missing capacities before they become sympathetic to the need for emergency powers to spend P15 billion in replacement power.

There is probably more to this 1,200mw shortage than meets the eye. Is it really because, as is officially being implied, the DOE took a plant by plant survey and discovered the bad news that many of the supposed dependable capacities of the Luzon power plants will be out of service in April and May 0f 2015? Or is it a result of backroom negotiations between Congress and the DOE where Legislators had asked the DOE to raise the target additional generating capacity so that some of the proposed coal power plants can be fast tracked to implementation through the Presidents emergency power? (Redondo, Pagbilao, Avion, Etc.)

The 1,200mw shortage obviously does not jibe with the realities of a rental generators solution. The country can only expect about 200 to 300mw of rental generators by March 2015 if they contract like in the end of November. A good portion of that will not even be ready to supply power by the summer deadline. 300 units of rental generating units would be a logistical nightmare to move and install from abroad to Luzon in 90 days. Step up power transformers would be needed to enable those units to deliver power to Luzon electric coops at probably 69kv and at 115kv to Meralco area. It is unrealistic to think that we will contract 1,200mw of rental generators.

The 900 to 1,000 mw of additional capacity will be most likely new coal plant projects that are stalled in the permitting process and they are looking at the magic wand of a Presidential Emergency Power to make the roadblocks disappear. But that is not for the coming summer. This new baseload plants are not necessarily bad because Luzon does need those additional capacities in the medium term but that’s another story.

The Department of Energy must first be controlling the controllables.

In balancing supply and demand, it should be trying to control the demand side. Energy efficiency, demand side management, and rooftop solar deployment. How about a grassroots voluntary turnoff your electricity for one hour campaign?

Even the Interruptible Load Program (ILP) is actually a form of demand side management.

Then there are the controllables on the supply side. Make the power generators insure that they will be available during those critical months. Take an inventory of their compliance with the downtime limits of their bilateral contracts. Make them responsible for replacement power at no additional cost to consumers.

In the supply side mitigating measures, the DOE must lean on the DU’s specially the big ones like Meralco, who actually is in a better enforcement position because they are the counter-party to the bilateral contract with power generators specially their sister companies.

Come summer we need to see the DOE in the forefront of rallying the consumers to control the controllables. Saving electricity, cooperation for ILP, shifting demand.

While we are trying to solve power supply problems, let us keep an equally watchful eye on the cost of the chosen solutions to the already reeling electric consumers. Every time a “power crisis” is created, our country’s aspiration for lower rates goes out the window.

If they are going to make way for the fast tracking of those new power projects (Redondo and Pagbilao) can President PNoy and Sec. Petilla at least exact from these big local players to commit to public scrutiny the generation rates that they will pass on to the consumers for these negotiated contracts and to cooperate in putting the country on the path towards open competitive bidding as envisioned in Sec. Petilla’s DASAP proposal? Emergency powers can be used not only to negotiate contracts and rates from the rental generators but also from the large new power projects that will seek assistance to unclog their permitting problems. How about asking them to commit a reasonable portion of the Luzons hydro power to bilateral contracts at P3.50 per kwh. Hydro plants fuel is water that belongs to the public. Why sell that at an atrocious P13 to 33 per kwh through the WESM? I mean, if there is going to be an emergency power, let us leverage it for the benefit of the consumers.

Future implications

Meanwhile, Sec. Petilla hurriedly needs to solidify the credibility of his numbers or even their supporters in Congress might not be able to justify granting the right to negotiate these power supply contracts. If the DOE’s hunch on power reserves in the summer is on the right track, then they would have done a disservice to the consumers by not being solid in their justifications and numbers. If it turns out that there is really nothing in their alarm bells, then they would have done damage to the long term credibility of the DOE as a power planning agency. What happens if they cry wolf again the next time?

Predicting power sufficiency may not be an exact science but they can be sure and consistent with their methodology, and honest and transparent with their assumptions. Credibility is an essential element of predictions……and the underpin that justifies spending tens of billions of the governments and taxpayers Malampaya funds.

I guess we will find out in the coming summer.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Email david.mskorg.com.ph

Various consumer groups insist kickbacks in negotiated power contracts; MSK explains basis for P3 Meralco overcharge

Manila, Philippines – In yesterday’s press conference, consumer group People Opposed to unWarranted Electricity Rates (POWER) led by former Bayan Muna Representative Teddy Casino, revealed kickbacks in negotiated power contracts. The presser which was also attended by various consumer groups also had David Celestra Tan, co-convenor of Matuwid na Singil sa Kuryente Consumer Alliance, Inc. (MSK) explaining that there is basis in the P3 overcharge imposed by Meralco on its consumers. This was in opposition of the earlier statements issued by the distribution utility that there is no such overcharge.

Casino of the group POWER also reiterated that there is no need for the Congress to grant emergency powers to Pres. Benigno S. Aquino III to address the looming power crisis in 2015. According to him, the government, particularly the Department of Energy (DOE) failed to provide both the lawmakers and the public verifiable information on the alleged power shortage.

Watch the video below for the full details. (Video courtesy of YouTube.com via EagleNews Philippines)

Men’s Top 10 Ways to Reduce Their Meralco Electric Bill. Ok 12. (Desperate Version)

Sleep in tents in your backyard and tell the neighbors your family just love the outdoors.

By David Celestra Tan

One thing I love about America is stand-up comedy including the late night talk shows. One of the Icons is David Letterman who is famous for his Top 10 Lists. I always wait for this segment in his shows. Watching his show live had been on my bucket list and I did in August in New York. Letterman is retiring after this season.

Our consumer advocacy group, Matuwid na Singil sa Kuryente Consumer Alliance Inc (MSK) just recently submitted its Top 10 proposals to reduce Meralco’s power rate by P3 per kwh. If the government undertakes these reforms, we can have a reduction of P1.50 per kwh in the first year, P0.75 in the 2nd year, and another P0.75 per kwh in the 3rd year.

For the men and husbands who cannot wait and are desperate to reduce their Meralco bill now, we prepared a list of 10 creative options (ala Letterman) that they can resort to immediately. Ok it is 12. Here it goes.

No. 12

Sleep in tents in your backyard and tell the neighbors your family just love the outdoors.

No. 11

On hot nights, climb up to your rooftop and join the Meralco stargazing club.

No. 10

Watch your favorite ballgames in a Sports Bar…..worry about becoming an alcoholic later.

No. 9

Sneak in your home emergency light to work and recharge them under your desk.

No. 8

Stop ironing your children’s clothes and tell their teachers your family just joined another religion.

No. 7

Stop Watching your favorite teleserye, turnoff the lights, and watch the drama of your neighbor trying to explain to his mother in law how he might have ended up with the wrong woman in his car and where he might have left his wife after the previous nights wild party.

No. 6

If you own a building, turnoff the elevator and tell everybody it is “fitness by climbing the stairs” week.

No. 5

Have candlelight dinners with your wife and say you just feel romantic….. be ready with good excuses why you are not as romantic in the bedroom.

No. 4

Move to Mindanao where power is always out….just kidding David Tauli.

No. 3 is a tie!

Use only one aircon by getting everyone to sleep in your masters bedroom……..including your hot sister in law.

Instead of using your booster pumps to suck water from your neighbors, just walk over there and take your shower in their bathroom.

No. 2

Tell your girlfriend it is more fun to hangout in her place instead of yours.

And No. 1

Move to Indonesia……where electricity is half price and where you can complain about Meralcos high rates to its real owners in person!

In the misery of our high power cost, sometimes we just have to find humor and irony to bear it. Send in your own ideas.

Join the Ibaba ng P3 Campaign!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

david.mskorg@yahoo.com

Consumer Group MSK Seeking P3 per kwh Power Cost Reduction

The consumer group Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK) is seeking a reduction in residential and commercial rates in the Meralco area by P3 per kwh. This is achievable according to their proposals that were presented to the Department of Energy’s Task Force to Find Ways to Reduce Electricity Rates during its multi-sectoral meeting last October 8, 2014.

Half of the P3.00 reduction can come from the generation rate in the National Capital Region which can be lowered to P4.00 per kwh from the current P5.66 per kwh being passed on by Meralco, according to David Celestra Tan, co-convenor of MSK in his presentation.

  1. This can be achieved by subjecting the bilateral contracts for supply to open competitive bidding instead of self-negotiating and monopolizing them. MSK presented statistics showing Meralcos generation supply from various suppliers range from P3.47 to 6.00 per kwh. The higher ones are from what MSK calls as sister power producers or SPP’s.
  2. Meralco can also improve its energy mix by directly contracting for hydro power at P3.50 per kwh instead of buying them through the WESM market at the average rate of P13.00 per kwh. The people should continue the benefits of cheaper hydro power, the water of which should be public domain.
  3. The pricing method of the Wholesale Electricity Spot Market (WESM) must be changed specially the Market Settling Price which is currently defined as the highest price of power dispatched for the trading periods. Power suppliers must be paid only for the price they bid not the highest market price. The current trading and pricing rules of WESM are so anti-consumer.
  4. Systems loss charges to all residential and commercial consumers should not be more than 8.5%. It had been ranging from 11 to 15% in the last few years. Meralco only charges 1.5% to 6% to industrial customers. A reduction in generation rate will also reduce the systems loss charge. This can reduce the rate by 0.10 to 0.20 per kwh
  5. Transmission rates of NGCP can be reduced or at least controlled if the function of Systems Operation is returned to the Transco for more independent transmission policy and planning decisions. MSK said Section 9 of the Epira Law specifically designated Transco as the systems operator and not the transmission services concessionaire. More objective planning can truly reduce transmission grid congestion and reduce the “line rental” charges that add a lot to the power cost of consumers.
  6. Distribution charges would be lower by about 0.40 per kwh if the rate setting methodology called “performance based rate” or PBR is cancelled and returned to the old RORB where distribution utilities like Meralco are allowed, as is proper and fair, a return on their actual investments and not on projected or promised investments in the future. According to the consumer alliance, PBR is a violation of Section 25 of the Epira Law which require that the retail rates must be based on investments incurred. PBR allows recovery of projected future investments not yet incurred.
  7. Distribution utilities should be required to undertake truly competitive bidding in its purchases of materials, equipment, and services. A 10% overprice in capital investments results to a 10% overcharge in rate base and retail rates.
  8. Value Added Taxes on power should also be reduced or phased out. The original Epira Law exempted power from the 12% VAT because power is a primary input for manufacturing and commerce. Additionally, MSK said the government should no longer tax power generated from Malampaya gas because it is already making a lot of royalties in that indigenous resources. The government must do its share in mitigating the power cost in the country and should not itself engage in double charging the consumers.
  9. Universal Charges for missionary electrification should be controlled. It has reached 0.19 per kwh and will continue to rise if nothing is done. NPC should be given a clear mandate to provide long term power in smaller missionary areas so that they can install cost effective permanent facilities instead of renting expensive generators. DOE and NEA should provide guidance in the power supply planning of electric coops because many of them are either not contracting or contracting more than what they need. This results to high true cost of generation that is subsidized by the government. DOE must assure that electric coops award contracts at the open bidding price and not mysteriously at much higher rates that add hundreds of millions a year in improper missionary subsidies.
  10. PSALM should be allowed to recover only stranded contract costs as originally envisioned in the Epira Law. If the proceeds of NPC asset privatization is commandeered by the national government, those amounts should no longer be added to universal charges.

These reforms will result to at least a P3 per kwh reduction in the residential and commercial rates which comprise 60% of the NCR and Calabarzon area, the industrial and commercial hub of the country.

The lower rate will also strengthen the competitiveness of the Philippines in the call center and BPO industries.

Under the Task Force to Find ways to Reduce Electricity Rates in the country, the Department of Energy has received recommendations from the Philippine Chamber of Commerce, Philippine Independent Power Producers Association, the Philippine Institute of Development Studies, Meralco, Other consumer groups. The DOE is expected to consolidate these recommendations into a strategy for power cost reduction.

A copy of MSK’s presentation to the DOE Task Force can be seen at the MSK website matuwid.org.

Matuwid na Singil sa Kuryente Consumer Alliance, Inc.