15 Things I have in Common with Mr. MVP of Meralco

Posted on: May 31, 2017

David Celestra Tan, MSK
31 May 2017

We have been engaged in consumer advocacy against Meralco’s rate setting for a few years. I just started wondering what I have in common with Mr. MVP of Meralco. It turned out there is quite a few!

  1. We both have interest in how much Meralco is charging the captive electric consumers. I want it lower. He wants it higher.
  2. I also think about lawyers when arguing the issues at the ERC. I wish I can afford one. He thinks how many more he needs.
  3. We both did business with Indonesians in Hong Kong and San Francisco in our careers.
  4. I also had bum business deals early in my career.
  5. I also negotiated with bums in my career.
  6. We are both engaged in public service except he makes money and I don’t.
  7. We both think in billions. He on what to do with his. Me on how to get them refunded by Meralco.
  8. He owns Smart. My Smart phone owns me for two years.
  9. He flies his relatives to vacation in Hong Kong. My relatives fly me to HongKong and make me clean their condo.
  10. We both have a closet full of well tailored suits and a collection of neckties. He still wears his.I now only wear comfy shirts, denims, and skechers.
  11. He is laughing all the way to the bank. I am praying all the way to the bank.
  12. We are both looking for successors. He to run his empire. Me to take over paying my debts!
  13. We will soon both spend time watching the gorgeous sunset in Manila Bay. He from his Roxas Blvd penthouse and me from a Luneta Park bench.
  14. He knows Ramon Ang. Ramon Ang does not know me. But three of us actually have a monthly ritual. Meralco shocks me with its electric bill every month which then drives me to drink more San Miguel beer out of depression! Do you think these two are conspiring?
  15. I am also not interested in dating women!

Just fiddling our fingers while waiting for word from ERC on our PBR petition.

I hope you are enjoying your summer! Cheers!

David Celestra Tan, MSK
matuwid.org
david.mskorg@yahoo.com

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The RE Feed-In Tariff Dream that Turned Into a Nightmare for Consumers

Posted on: May 24, 2017

David Celestra Tan, MSK
18 May 2017

How is it that whenever the government is doing something supposedly good in power, the electric consumers get screwed in the end?

Just like the rest of the world, the Philippines had this wonderful dream for a clean energy existence by promoting renewable energy instead of fossil fuel. It is part of the global concern for “climate change”. It even passed a special law called the Renewable Energy Law of 2008 seeking the encouragement of investments in solar, wind, mini-hydro, biomass, and ocean energy authored by Senator Migs Zubiri.

The law provided for tax free importation of equipment, income tax holiday for first seven years, guaranteed purchase of output, and only 10% income tax after that. On top of all these the law provided for a subsidy program called Feed-In Tariff and created a special government agency called National Renewable Energy Board (NREB) to oversee the implementation of the RE Law. It’s a wonderful dream!

Now 10 years after, it has turned into a nightmare specially solar. From a rightfully cautious target of only 50mw for solar that was asking for P19.00 per kwh subsidized rate (compared to generation rate average of P5.50 per kwh and P12.00 per kwh for bunker c plants) it ballooned to 500mw with an additional 400mw claiming entitlement to subsidies.

In July 2012, the ERC approved for the First wave of FIT the rates of P9.68 per kwh for Solar, P8.53 for wind, P6.63 for Biomass, and P5.90 for run of river mini-hydro. The initial FIT ALL rate was P0.0406 per kwh as a universal charge. In March 2015 the ERC approved a 2nd round for Solar now for an additional 450mw at a reduced rate of P8.69 per kwh. And the FIT All rate was increased to P0.12 per kwh.

Feed-In Tariff (FIT) is what the government pays the RE plants for their energy output. That energy is sold to the WESM market at whatever is the market price. Whatever is unrecovered is the loss or subsidy which is passed on to the all electricity users nationwide.

Based on the figures of Transco, the designated administrator of the FIT program, the total subsidy for 2017 would be approximately P14.9 billion a year based on national energy sales of 68 billion kwh a year and a subsidy of P0.22 per kwh chargeable to all users. So far ERC had approved about P0.18 per kwh.

On kwh subsidy basis P0.22 per kwh seems small. What consumers do not realize is the per kwh subsidy for solar power is actually P3.19 per kwh in Luzon and P4.16 per kwh in the Visayas. And those are based on the reduced FIT2. In FIT1 the subsidy for solar is P4.50 per kwh in Luzon and P5.40 per kwh in the Visayas. That is almost double the cost of coal power! Should clean energy cost this much for the consumers? Or should clean energy be solar instead of large hydro and geothermal?

The FIT program is a disaster for the consumers as much for the amount of subsidy as the confused way it was implemented. It is a comedy of errors by the DOE and NREB. Those of us observing things unfold, kept on hoping there was method to the madness.

Mad Scramble for Opportunities

The RE Law was passed in 2008 during the term of Energy Secretary Angelo Reyes. Within a span of six months the DOE issued 400 Service Contracts for these RE projects, the first step for subsidy entitlement. There were rules but it did not appear that the DOE even established qualification standards. Everyone and his uncle who are vaguely connected with some awareness of the FIT program got their own RE project mostly solar. Others speculated on wind, biomass, and mini-hydro.

When the Aquino Administration came into power, his Energy Secretaries, First Rene Almendras and then Jericho Petilla were in a quandary on what to do with the FIT program and those RE Service Contracts handed out by the previous Secretary.

A technocrat, Almendras established sensible installation targets of 200mw for wind, 250mw for hydro power, 250mw for biomass, and only 50mw for solar. Almendras did not stay long though at the DOE.

When Leyte Gov. Carlos Jericho Petilla, also a technocrat, took over the DOE, one thing they realized is that not many of the 400 RE developers really have made much progress. Most of them apparently were just speculators and amateur power developers looking to cash in. The Renewable energy program had not achieved much. Petilla’s DOE came up with a method called “first come first served”. A sort of deliver or be cancelled approach. Bowing to solar lobby pressure Petilla also increased the target to 500mw because of the claimed need to increased power supply to the country. Yes he chose solar…and later lobbied hard for P2 billion worth of rental generators. Further madness ensued. It was another gold rush! Solar developers raced against each other to beat the March 2016 deadline to get the lucrative FIT rates.

Many, including MSK, called for the DOE to hold auctions or biddings since there are so many solar developers interested in investing. Yet for some reason they kept on doling out service contracts at those generous FIT rates. Just giving money away. One well connected guy got 3 solar service contracts and sold 2 of them in Northern Negros to foreign investors and a local conglomerate. Guy got rich quick.

Remember that while all this is going on in the Philippines, bid rates for solar projects had been dropping in many parts of the world. Latin America and the Middle East. $0.04 per kwh compared to the $0.19 per kwh that the Filipinos are doling out. I mean that’s almost 500% of international rates. Yet the DOE chose to ignore these reports. Just doesn’t make sense.

While solar technology was pioneered and developed by Germany, it was the manufacturing juggernaut that is China that brought down the cost of solar panels by as much as 80% which consequently brought down the cost of solar projects. Except in the Philippines where the solar lobby up to today and the NREB are still pushing for subsidies I kid you not.

The DOE did not even pay attention to where those solar projects are being installed. Many large developers went to the island of Negros where large tracts of land can be leased making the race to DOE target completion of March 15, 2016 achievable. Except no one thought about the transmission line limits of the Negros Island. Asked later, even the NGCP only meekly called the attention of the DOE to the lack of transmission capacity on the island apparently for fear that they will instead be accused of failing to do their job of developing the transmission grid.

Negros Island only has 300mw in electricity demand. Most of its power needs are supplied by base load coal power plants from Cebu and Panay. Also by geothermal from Leyte and Dumaguete. For the 300mw of solar projects installed on Negros island to be absorbed by the grid, they will need to be exported to Cebu and Luzon. But it cannot be done became there is no transmission capacity. Solar power in the afternoon stayed in Negros causing an oversupply that sent the WESM price (the market price for RE FIT) tumbling to P1.50 to P2.50 per kwh in the afternoon hours. Additionally those intermittent solar drop in output by as much as 60% when cloud cover passes thus requiring grid operator NGCP to secure instantaneous replacement power from Luzon to stabilize the system. That 100mw of ready ancillary service is expensive and passed on to the consumers.

The Negros solar dilemma hit the consumers’ pockets three ways. First they are already paying for the P4.00 per kwh subsidy for every kwh of solar energy, the FIT recovery also drops due to the lower market price in the grid where FIT is supposed to recover some of the revenue. Then the cost of the ancillary services to cure the intermittence of solar are passed on to the consumers via the NGCP transmission charge.

Solutions to High Fit subsidies and the stranded solar projects

The DOE under new Secretay Cusi had declared that there will be no more third wave of FIT for solar. Bless his heart. The NREB for its part is now talking about coming up with a subsidy scheme for the so called 360mw of “stranded solar projects” that did not get in the second wave of FIT.

Why is the government still talking about subsidizing solar? The reason for the Feed In Tariff subsidy program for renewable energy is to encourage investments. To kind of kickstart the RE program. But when investors have already come and there are more suppliers than the country can afford to subsidize, it is time to make everyone compete for the country’s RE business. Why is the DOE so averse to holding biddings for solar projects? Why are they insisting on doling out subsidies that are passed on to the consumers? The fiscal incentives offered by the RE Law of 2008 is enough.

Why not hold an auction among those 360mw of stranded solar projects? Let us establish the avoided cost of power as coal at P5.00 per kwh. Add 12% VAT and that would be P5.60 per kwh.

Let all these solar projects bid with the P5.60 ($0.114 per kwh) as the maximum rate. Then we get clean energy without any subsidy. Note that $0.114 per kwh is still more than double the bidded rates in the Middle East which was $0.04 per kwh.

At $0.114 avoided cost solar developers should be able to afford the investment in storage battery to manage the intermittence of solar and to extend its service to the evening peak hours.

What to do with the 50mw of solar in the First Wave enjoying $0.20 per kwh and those who worked fast and are well connected to get into the 500mw second round at $0.177 per kwh?

Let us accelerate the digression rate. Those who built their plants in 2015 and 2016 already caught the low cost solar panels and should be able to afford the lower rates. If not why not force them to add storage batteries so the consumers do not pay for ancillary services to regulate their output.

We also may need to review the role of the National Renewable Energy Board (NREB). As a government office they should work for the interest of consumers instead of acting as a lobby group for RE. Maybe the DOE’s REMB (Renewble Energy Management Board) is also part of the problem. Maybe there is a need to clarify for whom their bells must toll and that is for the Filipino consumers.

The RE and FIT program is another case of knowing that we wanted to provide FIT subsidies to encourage RE development but forgetting in the end why we are doing it. We wanted to develop clean energy but if the investors are already here, there is no need to subsidize. Instead make them compete for our business. We don’t need those who are here only because they can make a killing.

In case you are not noticing, the Universal Charges combined are the fastest increasing component of our electric bill. FIT-All will soon be P0.22 and can eventually be P0.35 per kwh. On top of the UC-ME that is now P0.19 and the UC stranded cost of PSALM, consumers are getting screwed further.

It is not too late to get out of this FIT nightmare and get back on track towards our clean energy dreams. Towards that why not subsidize and incentivize large hydro and geothermal instead. Review the grid competitive Biomass and mini-hydro. Those dreams are still worth dreaming.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Matuwid.org
david.mskorg@yahoo.com

The Kind of ERC the Country Needs

Part 1

David Celestra Tan, MSK

5 May 2017

If there is a silver lining in what is going on at the Commissioners level at the Energy Regulatory Commission, it is that this is an opportunity towards finally righting the regulatory course for this very critical government agency that has been adrift in the sea of confused identity and foggy purpose.

If we use Sections 41 and 43 of the Epira Law that created it as scorecards, the ERC would score a 65% at best.

President Duterte’s decision on ERC Chair Salazar is a big step forward that we hope will finally lead to the long needed remake of the regulatory agency.

First A Background on how we Got here

16 years after its creation under the Epira Law of 2001, the regulatory agency had not found its regulatory soul.  Its best Chair was the first one, Atty. Fe Barin,  who was ignominiously promoted to the Monetary Board and later as SEC Chair reportedly because the vested interests (the same people who lobbied for the loopholes in the Epira Law) “could not work with her”.  The President then appointed a “trapo”politician who promptly gave everything the distribution utilities wanted and saw rates soaring including the reviled PPA (purchased power adjustment, remember?). He resigned and ran for Congress but lost.  He was replaced by another “trapo” politician and when his term expired he was replaced by another politician. And the rest is history.

If there is anything we can say about the travails of the supposedly non-politician JV Salazar (although we heard he is an election lawyer), it is that it was a letdown because we the consumers had hoped so much from him. After all, the resigned DOE Secretary Carlos Jericho Petillascreened and vouched for him.

To be fair, the ERC suffered from the sheer magnitude of responsibility dumped on it by the Epira Law. Anything that the bi-cam framers of the Epira Law could not resolve, or did not want to give to their distrusted DOE, they gave to the ERC.  That was the official line. Insiders said the real reason was the powerful lobbyists wanted to keep the rules and implementation concentrated in the regulatory agency, which they historically had been able to “capture” under its predecessor ERB.

ERC was observed to release rulings on very complex Meralco issues but take very long to rule on simple methodologies for electric cooperatives just like the old ERB.   We recall an incident when the ERB was criticized on one ruling, the Chairman had the temerity to fax her reply from Meralco offices. (Yes Junior, we use fax at that time not email!)

The ERC could have used the steady and incorruptible guiding hands of Fe Barin in its formative years when it could have defined its regulatory soul.  But the appointing authority gave it a succession of leaderships that were too susceptible to the enticing lobbying of the vested interests.  Being Commissioners and being its chair is so powerful that absolute power had intoxicated. The ERC lost its way.

MSK refers to them as the old ERC.  The current crop of Commissioners are upgrades from the previous ones.  Former President Noynoy Aquino has political detractors but in our book one of the best things he did for the power sector was appointing  two very capable and morally upright Commissioners in Gloria Victoria YapTaruc and Alfredo Non, absolute professionals with high levels of integrity. Commissioner Josefina Magpale-Asirit brought valuable insights from her previous stint at the Department of Energy. Commissioner Geronimo Sta. Ana was a long time official of the Cebu Chamber of Commerce and brought business sector insights to the regulatory agency. Although his appointment causedan uproar because he was supposedly a recommendee of a vested interest group as exposed by another vested interest.

The old ERC similarly had some good commissioners and line officials but the caliber and moral compass of the Chairman (and his Executive Director) defined where they were going as an institution.  And they went lower than purgatory with patronage and misguided regulation.

Sadly, the ERC has many professionals in its ranks that are committed to public service as exemplified by the late Atty. Jun Villa.

In the new ERC, the conflict at the Commission levelstemmed from the reported dictatorial tendencies of the new Chairman which did not sit well with the other commissioners who understandably invoked that the Commission is a consensual body.  There is normally a reason why someone wanted to be dictatorial.

The problem with the New ERC thoughis that they were only implementing the rules and methodologies that they inherited without revisiting whether they are anti-consumer or if they are contrary to the ERC’s own mandate to prevent monopoly, anti-competitive behavior, abuse of market power, and cartelization. Perhaps the ERC have been overwhelmed by the weight of the responsibility and just the sheer volume of work and contentious issues from 15 private DU’s 119 electric coops, 100 or so private power generators, the PSALM, NPC, and NGCP.

Your consumer organization MSK thanks Commissioner Geronimo Sta. Ana for responding to the petition of MSK when he was OIC last December 2016, for a review of the Performance Based Rate making rules (PBR) which had been unacted by the ERC for about a year. We believe PBR has been causing P10 to P15 billion a year in undeserved profits to the DU’s.

The consequence is here we are 16 years later and we have the highest electricity rates in the Asean and our country is not anywhere near the global competitiveness that the Epira Law aspired for. Cross ownership between the distribution sector and generation sector is pervasive and monopolization and rate overcharging is prevalent.  A lot of it caused by the loopholes in the law and its IRR and ERC’s failure to truly regulate and protect the public interest.

 The Epira Law of 2001 envisioned the ERC Commissioners to be incorruptible which is the reason the law provided for a generous safety net of retirement at the level of Supreme Court justices and the security of a tenure.

 Let us hope that President Duterte would cause a leadership reform in the ERC that would be committed to enlightened and incorruptible regulation that balances, efficiently and timely, the interest of power service providers like the DU’s and generators and the need of the consumers to be safeguarded from the profit optimization maneuvers of these private business.

 Reforming the ERC is a national emergency.

 

Next: Creating the Kind of ERC the Country Needs

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Matuwid.org

david.mskorg@yahoo.com

Wanted: A Clear Energy Mix Strategy for the Country from DOE

David Celestra Tan, MSK

1 May 2017

One of the most critical functions of the Department of Energy is to provide a prescient Energy Mix strategy for power supply development.  And one of the expensive lessons learned since the power sector was privatized and deregulated under the EPIRA Law of 2001 is that the private sector cannot be counted upon to develop a holistic energy mix power supply that will provide energy security, competitive power, and environmental protection for the country.

Left to themselves, the private generators naturally will gravitate towards the low risk and most profitable technologies like coal. A recent case in point is the signing by Meralco with its sister company Meralco PowerGen more than 4,000mw of power supply, all coal.  And this after its Chairman is supposed to have egged the DOE “to provide the energy mix policy direction and the private sector will follow.”

While we as a country are talking about concerns for climate change, the reality is that most of the base load power supply are now coal. Mindanao has become coal country after having been clean hydro (and low cost power) island for generations. Visayas is also dominated by coal.  And here comes Meralco, the largest distribution utility in the country at 62% market share committing their future power supply to coal.

Diversifying Energy Mix a Tough Challenge

Diversifying the country’s energy reliance is a critical strategy for energy security. It cannot rely too much on one fuel like coal. Most of our coal comes from Indonesia and Australia. Something happens to those countries and the country will pay through the nose. Indigenous coal like Semirara does not provide Filipinos with price leverage because even this local coal is price-indexed to foreign coal prices. We need to balance it with natural gas, geothermal, hydro, and a sensible renewable energy program.

 The private sector is justifying all these by saying coal is the only option if the country is to have cheap power. Gas generation is similarly in the same cost level but the infrastructure for LNG supply has not been sufficiently developed. And it is not going to happen without a resolute and sustained push from the DOE.

Surely it will take sustained effort for 3 to 6 years but the DOE’s leadership historically had not stayed long enough in their jobs to make meaningful direction to the diversification of our power technologies.

Clean energy options like hydro, solar, wind, and biomass are reaching grid parity with coal. Nationally it seems coal generation rate will be in the P5.00 to 5.50 per kwh range.  Meralco’s claimed rates of P3.60 per kwh for their new contracts with Meralco PowerGen are based on low coal prices. And when world coal prices kick up we will see its real price. But clean energy is not as easy as coal which can also be developed at large scales of 300 to 1200mw compared to renewable energy which is 10 to 100mw in each location.

Our power cost is high because low power cost is not really a national policy. We only pay lip service to it. We buy into the line of the power generators that “the most expensive power is shortage of power”.  Assuring sufficient supply and attaining least cost power must always go together.  When the government only talks about assuring adequate supply and the need for renewable energy, you know that price is not a consideration which means it is going to be non-competitive and expensive.

 Energy mix also need to define whether we are pursuing centralized power for our archipelagic country or are we decentralizing our power supply by encouraging bite sized power plants on each island? Should we aspire for N-1 power reliability in each island?

We mostly talk about base load supply and renewable energy.  Energy Mix includes developing intermediate, reserve, and ancillary services power. The rise of intermittent renewable energies, like wind and solar, make development of ancillary services power even more exigent.

What is the role of hydro projects? Should they be sources of cleaner and cheaper power as in the pre-EPIRA days before 2001 at P2.10 per kwh or should they be reserve and ancillary services power as the new private owners have converted them to be at WESM prices of P6.00 per kwh. Along these lines would depend the role of the Agus hydro complex in Mindanao. Should they be privatized and turned into ancillary services power as they did in Luzon or should they be rehabilitated and restored to being a source of lower cost power for the people of Mindanao? On the role of hydro in the energy mix will also depend whether the Laiban dam project in Quezon will be encouraged or not.

The Department of Energy is mandated by RA 7638 (Department of Energy Act of 1992) to prepare, integrate, coordinate, supervise and control all plans, programs, projects and activities of the Government relative to energy exploration, development, utilization, distribution and conservation.  Its mandate however was made more specific by the Epira Law of 2001 to include the following under Section 37.

(a) Formulate policies for the planning and implementation of a comprehensive program for the efficient supply and economical use of energy consistent with the approved national economic plan and with the policies on environmental protection and conservation and maintenance of ecological balance, and provide a mechanism for the integration, rationalization, and coordination of the various energy programs of the Government;

 (b) Develop and update annually the existing Philippine Energy Plan, hereinafter referred to as ‘The Plan’, which shall provide for an integrated and comprehensive exploration, development, utilization, distribution, and conservation of energy resources, with preferential bias for environment-friendly, indigenous, and low-cost sources of energy. The plan shall include a policy direction towards the privatization of government agencies related to energy, deregulation of the power and energy industry, and reduction of dependency on oil-fired plants

(c) Develop policies and procedures and, as appropriate, promote a system of energy development incentives to enable and encourage electric power industry participants to provide adequate capacity to meet demand including, among others, reserve requirements;  

(d) Monitor private sector activities relative to energy projects in order to attain the goals of the restructuring , privatization, and modernization of the electric power sector as provided for under existing laws: Provided, That the Department shall endeavor to provide for an environment conducive to free and active private sector participation and investment in all energy activities;

We are not saying setting up a policy guideline on Energy Mix would be politically easy. Every mix the DOE pushes will have detractors because sectors have their own agenda. And implementation is another matter.  The DOE has been considered toothless in implementing power development strategy. Its Philippine Energy Plan is considered nothing but a tally sheet of power projects being determined and developed by the private sector. The CSP reform is the one that is giving DOE enforcement teeth for an energy mix policy.

Let us hope the DOE comes up with a prescient Energy Mix policy soon.  We have not had a President with the true political will to do what is right for the country. The term of President Rodrigo Roa Duterte is an opportunity to reform the power industry and create an Energy Mix for the country. Let us not miss this chance.

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc. 

Matuwid.org

david.mskorg@yahoo.com