NGCP IS INCONGRUENT AS SYSTEMS OPERATOR

(answer to comments from post Sec. Petilla Latest to Exit from DOE’s Revolving Door)

Dear Messrs. David Tauli and Cerael Donggay of Mindanao.

We agree with you. NGCP being Systems Operator is indeed an anomaly and one reason why the transmission sector is divergent of the power development and competitive market aspirations of the EPIRA Law. We wrote in the Philippine Power Insights in September 2014 about this defect in the law.

The EPIRA Law of 2001 did not intend the Transmission Concessionaire to be Systems Operator. Section 21 clearly spelled out the functions of the Transmission Concessionaire and it did not include being Systems Operator. In fact, Section 9 specifically defined the functions of the government owned Transco and that included being Systems Operator. There is an inherent conflict of interest in the Transmission Services provider being the Systems Operator that works against the interest of a competitive market development. It is just incongruent.

MSK pointed this out in one of the Multi-Sectorial Task Force to Find Ways to Reduce Electricity Prices. And Transco President Rollie Bacani said while it would be self-serving of the Transco for them to push it themselves, they would welcome Transco becoming Systems Operator. Curiously, in the proceedings summary that was supposed to be presented to Secretary Petilla, it said Transco is against being Systems Operator).

NGCP became the Systems Operator, not through the amendment of RA 9136 that was passed in June of 2001, but through the passing of a superseding law, RA 9511 which was passed in December 2008 to legalize the award of the transmission franchise to the winning bidder NGCP. RA 9511 defined under Section 1 the franchise of NGCP as “to operate, manage and maintain, and in connection therewith, to engage in the business of conveying or transmitting electricity through high voltage back-bone system of interconnected transmission lines, substations and related facilities, system operations, and other activities that are necessary to support the safe and reliable operation of the transmission system and to construct, install, finance, manage, improve, expand, operate, maintain, rehabilitate repair and refurbish the present nationwide transmission system of the Republic of the Philippine”.

Someone must have lobbied hard for “systems operations” to be inserted in the middle of the section as if it is a routine function and the good legislators maybe did not realize the full import of the insertion.

Did they mean for NGCP to be Systems Operator when they inserted “systems operations” in the franchise functions? Being “Systems Operator” in technical parlance is becoming a rule making and policy making authority. This is different from operating the transmission system. I don’t believe the government intended to make it part of the bidding for the transmission services concession the sale of the grid policy and rule making authority of the government. The NGCP being System Operator is like a license to print money. This is akin to defaulting the mass transportation policy making functions of government to the mass transit franchisee. Or the country’s monetary policy to the printer of the paper currency.

The country’s transmission connections is divergent of our aspirations for a deregulated and competitive generation sector. NGCP is always seeking to expand the boundaries of their service coverage. And that means revenue. Many power generators, specially the new ones, complain of the slow grind of grid connections which deters the timely entry into the grid of much needed power supply. Maybe this can be traced to the “monopolistic” mind set of the State Grid of China as the concessionaire and the ex-NPC people they hired.. NPC was also a Philippine monopoly in power transmission. Obviously neither would have a deregulated mind-set and attitude. The local financial partners are new investors in power and cannot be expected to embrace the precepts of deregulation, archipelagic and embedded generation, and promotion of competitive markets.

The original idea for a foreign concessionaire is to grant it to someone with the financial wherewithal to finance the extensive expansion of the grids transmission sector and the eventual “transfer of technology” in creating an open and competitive transmission sector. The country got a concessionaire whose own transmission system is monopolistic. And they don’t have an open market technology to transfer. China’s power cost is low because the government recognized that it is an essential element of industrialization and modernization and hence made low power cost as a government policy. It did not try to achieve low power cost through market competition and privatization.

The Philippine government has been lacking that overriding commitment to lower power cost, which is nonetheless achievable through deregulation, privatization, and competitive markets. Except we implemented it in a very Filipino way. For the critical period of 2001 to 2010, we diluted our own power deregulation law and building in loopholes in the implementing rules that the blessed ones can exploit. We did not really have a genuine commitment to a truly competitive market.

We agree that NGCP must be given a fair return on their fair investment……but it should not be allowed to make the rules on how the service will be provided as the Systems Operator. We don’t know what it will take for the government to realize that this is sabotaging the country’s power development.

Maybe this is a structural anomaly that Senator Miriam Santiago can look into……and where a Senator Carlos Petilla and a Senator Albie Benitez can help galvanize.

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