Stealing President Rody’s Thunder

Meralco’s Seven (7) Midnight Coal Contracts Pre-Empted Duterte Government’s Say in Energy Mix, CSP, Electricity Rate Reduction, and Economic Development.

David Celestra Tan, MSK
14 August 2016

Part 2

It is not an exaggeration to say that Meralco, by moving fast before the elections, actually checkmated any new Government, which turned out to be Duterte, before they could sit in the table and learn how to play power chess.

President Rody won because of his promise to eradicate drugs, crime, and corruption. But that would be only a third of his legacy. The other third would be infrastructure development and the last third would be in economic and fiscal policies and programs.  In the latter, Meralco and its cartel are stealing his thunder if they can get away with it.

  1. Energy Secretary Al Cusi’s Energy Mix Target Subverted Before it Could Start.

By forcing the issue on these 4,100mw of coal projects, Meralco  subverted any effort of the Department of Energy to rationalize the country’s energy mix under which they initially hope to limit coal to 30%.  These new coal projects will supply easily 90% of Meralco’s needs for the next 25 years. Since Meralco uses 62% of the country’s energy needs, their coal contracts is equivalent to 56% of the country’s power supply. Add to that the 3,000mw of coal projects in Mindanao and the Visayas and it’s easy to see the Philippines will not come close to limiting coal to 30%.

Meralco has a long record of overcharging the public and still say with a straight face that they are doing the consumers a favor. Things have not changed under the MVP Group and now it appears they are hoodwinking even the government and its new team.

The Philippine Star reported as recently as July 29 (90 days after the Meralco signed the coal contracts) that “Business titan Manuel V. Pangilinan has been among those pressing the government to come up with a clear-cut policy direction on the appropriate power fuel mix the country needs as it pushes for cleaner technologies.” “We need a policy direction (on) what is the appropriate fuel mix for our people. And once that’s decided businesses will build the plants, whether it’s a gas plant, coal plant, or renewable plant. So we just need direction” MVP said. This after being fully aware that the 4,000mw coal midnight contracts Meralco signed will preempt any government goals in energy mix.  It was a regrettable double talk, the equivalent of a head fake and back door play in basketball. In trying to justify their opposition to CSP and insisting on self-negotiating power supply contracts, MVP also has been quoted in interviews that “the CSP policy is illogical as it allows gencos to decide whether or not to participate. This gives gencos the ability to dictate prices. You shifted the power to price over to the gencos and we’ve seen what happened in December 2013 when prices spiked. The 2013 incident pertains to when Meralco’s rates shot up by P4.15 for December and P5.30 for January because it had to source power from the WESM where distributors such as Meralco buy their power supply from Genco’s”. “The market power should be with the DU’s which are obligated by law to find the least cost. But if you are a power generation firm then you are not under that obligation.” Well said concept.Meralco’s President Oscar Reyes for his part came up with a new spin. “Without any generation capacity Meralco would effectively be only a price and supply taker”meaning by negotiating they have a say in the generation buying price and not just the generator or the WESM. He implies that by negotiating it would be good to protect the consumers.

Wonderful words….sana!. But the truth is since Meralco as the “price setter” is negotiating with sister company generators, they become one as the price setters and the Meralco captive consumers the helpless price takers. Consumers are the ones paying for the charges but they have no say in it. In the least the DU power supply that will be charged to them will have to be subjected to a true competitive bidding, giving them an ounce of safeguard against pricing abuse.  This is exactly the reason for a Third party administered CSP.

Meralco buys only 5 to 8% from WESM, the price of which skyrockets when Meralco’s own contracted generators go out and supply is reduced. This  includes the periods of generous downtime allowances provided by Meralco when the generators are still being paid their capacity fees. It’s a double whammy to consumers because the consequent higher prices of WESM are passed on to them. (Consumers really get no respect).

 Remember also that during the crisis of December 2013, Meralco was reported by the market investigators to have instructed their IPP Therma Marine to bid the highest P62 per kwh contributing significantly to the higher market settling price that ravaged the consumers.

The country’s energy had already been mixed for us by the MVP group and its cartel.All coal and worse they are all negotiated sweetheart deals. Did someone say Indonesia is a major source of Coal which also happens to be the country of the reported owner of Meralco?

Secretary Cusi may need to stick around for 25 years before he could start reducing coal’s share to 30%.

 

  1. Aspiration to reduce power rates in the country

Any aspiration of the new government to reduce power costs will have to start with power generation because that is 60% of the total bill. And it is the sector that had been non-transparent with negotiated sweetheart prices since 2001 when the power industry was privatized and deregulated. These Seven (7) negotiated contracts will effectively shoot down any meaningful power cost reduction program of the new government and the succeeding governments for the next 25 years.  

 

  1. National Integrity and Governance

Only a few months ago the Philippines was about to make its power generation sector truly competitive with a new policy to stop self-negotiated power supply contracts that are passed on to the consumers and to require competitive bidding by the DU’s including Meralco which will make the procurement process competitive and transparent and will open the power generation sector to more independent generation companies. We were so proud and everything was in place. The ERC only needed to implement.

Faced by a Meralco threat,  ERC Chairman Jose Vicente B. Salazar said “the commission would exercise its legal authority to defend the issuance of ERC Resolution 13 if challenged in court”.“While we respect anyone’s right to take legal action, we lament the failure to see the public’s clear benefit from the CSP. We will respect the legal process even as we seriously consider our own legal options to make sure we defend the public interest, as well,” Salazar was quoted to have said in a text message.

Then the unthinkable happened on March 15, 2016. Out of nowhere and without much public debate, the ERC moved the effectivity date of the CSP rule to April 30, 2016, thus parting the red sea for the filing and exempting of any new power generation projects Meralco wanted.

It is perplexing that the ERC, instead of coming up with judicious transitional rules for the country, threw in the towel, essentially abandoning the whole ideal of competitive generation rates to consumers for the next 25 years at least in the premier Meralco area and abdicating on its mandate to safeguard the interest of the consumers.  They moved the midnight and parted the red sea. What made them do it?

 

  1. Who would care enough to stand up for the Filipino electric consumers? A defining moment for the Filipino spirit.

Meralco’s package of seven projects and contracts, if they really are allowed to avoid the CSP policy,  would be damaging for the consumers and the country in more ways than one.

 

    1. a) It would be a disgraceful circumvention of our law. A damning indictment of our integrity and ability as a nation and people to implement our rules that are clearly made to protect the public interest. It is regrettable to see that our temerity to fool around with our own rules knows no limit for propriety and patriotism.
  1. b) Monopolization, or its buyer side cousin, Monopsony, are not just “high fallutin” terms for economists. They are actually blatant subversions of the rights of consumers to fair charges and to be treated with respect. In the power sector, what is involved is the provision of public services in least cost manner as clearly provided by the Epira Law of 2001.Activities by the private industry participants to subvert these rights, and to deny them least cost electricity, are nothing less than crimes against the consumers.There cannot be least cost power unless it is market determined through an honest to goodness competitive bidding. Our anti-graft laws have indicted government officials for using people’s money without bidding. Passing on generation charges to the people without bidding is like dipping into their pockets monthly. At easily P20 billion a year in higher charges nationwide, this is as big as drugs, crime, and corruption. Government officials who facilitate these subversions and who look the other way are even more guilty because it is their job to uphold and protect the public interest.

Who would care enough to stand up for the Filipino electric consumers? This is a defining moment to the modern day Filipino spirit.

  1. Economic Sabotage

It is also a subversion of the country and economic sabotage to perpetuate schemes that will preclude competitive power for it deprives the country its ability to be economically competitive, to create jobs and to assure the right of 90% of our 100 million people to make a decent living and take care of their families.

The next 40 years is predicted by Japanese business leader Lee Sawaki to be the golden age for the Philippines whose young productive population of 20 to 65 years and average of only 23.5 years, gives it a “population bonus”. Japan, Taiwan, Singapore, Korea,  and even Thailand had become prosperous because of it. But they had finished their “population bonus”. It’s the Philippines turn. Those countries were able to capitalize because they also had low power costs that made their manufacturing and commerce competitive. The Philippines cannot achieve its growth opportunity unless it brings down its power costs. Do we have the national resolve to do what is right to make this country truly great?

That economic growth can be sabotaged by Meralco’s cartelization of power generation with the era of arbitrary power charges if the government and regulators would allow them to evade CSP and impose their will on the government officials who were duly elected by the Filipino people.

Should we not wonder why every time approving power supply contracts need to be justified, there is a corresponding threat of brownouts and power shortages? Of the 4,100mw of Meralco coal contracts, only 70mw will come in this year, 455mw in 2018, 928mw in 2020, and 2,553mw in 2021 to 2023, 5 to 7 years from now. 3,551mw of them rushed to signing on 26 April 2016 to beat the new ERC deadline of April 30, 2016. There is time to do a proper CSP. vNow that power generation is a cartel what is there to assure that there is no orchestration of power supply?  Who will protect the consumers?

It is not Too Late for Pres. Duterte’s Government to Arrest this Crime Against Consumers. Those negotiated coal projects still need to be accepted and approved by the ERC.

We appeal to President Rody to help rescue the electric consumers nationwide especially in the Meralco area. Let us hope he will not allow Meralco’s Power Cartel to steal his thunder for good governance.

Next: IPP’s Surrender to Meralco’s Market Domination, and The Rise of The Power Oligarchy

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Matuwid.org

Disclaimer
David Celestra Tan is a pioneer in the IPP industry and a founder and former President of the Phil.Independent Power Producers Assn. A CPA by education, he has been in the power industry for 35 years and evolved into utility economics. Through his blogmatuwid.org in retirement he seeks to share his expertise in power policy and strategy for the public good towards reducing the power cost in the country and eliminating abuses and monopolization. He assures the consumers and participants in the movement that he has no vested interest other than as a consumer and will not benefit financially from any of the advocacies and certainly will not participate directly or indirectly with any potential bidders in a true CSP.

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Archipelagic Nation Needs Archipelagic Generation – Part 2

David Celestra Tan
July 7, 2016

The debate on distributed generation versus centralized generation dates back to the time of Thomas Alba Edison, the inventor of electricity, when he built the Pearl Street Station in New York in 1882.

Napocor’s Philosophy of Centralized Generation

The policy of distributed generation got lost in the Philippines power development strategy when the government nationalized under Martial Law the power generation and transmission functions under the government owned monopoly, National Power Corp. One thing that Napocor’s and the old Ministry of Energy’s strategy got confused on was while it may be sensible for building bigger power plants in the large Luzon island, that centralized generation philosophy was adopted also in the Visayas and Mindanao. Consequently, under Napocor there were no major power plants built in Negros and Panay islands. Instead, they relied on the 700mw geothermal fields in Ormoc, Leyte and built overhead power lines to Cebu and connected Leyte, Cebu, Negros, and Panay with submarine power cable systems.

Meralco under its original American owners (from New York) and visionary Lopez patriarch Eugenio Lopez Sr. was building power generating plants close to the load center of Manila. Remember the Rockwell power plant in Makati, the Gardner Snyder station in Sucat, Tegen Power Station in Sta.Ana, and Malaya? These were feasible in their locations in Laguna Bay and Manila because they run on bunker c which can be barged.

Even the last big power project under Martial law, the 600mw nuclear plant in Morong, Bataan was not unreasonably far (120km) from the Metro-Manila load center. There was already a 230kv transmission line built from Morong to Hermosa Bataan. When this power project was aborted under the Anti-Marcos frenzy of 1986, there were no power projects undertaken to replace it despite having a supposed power guy appointed by President Cory Aquino to the presidency of the power monopoly Napocor.

Power Development in the Philippines was neglected during the political upheaval of 1980’s and caught up with the country just as it was starting to economically recover after the people power revolution. A five (5) year power crisis ensued with 12 hour rotating brownouts 1990 to 1995. The power projects undertaken under the Power Crisis Act giving new President Fidel V. Ramos the absolute power to negotiate urgent power projects, saw the building of power plants in places where coal unloading is feasible, where power barges can be moored, and where big power investments are politically convenient.

One of the emergency power projects in the 1990’s was the 700mw geothermal of Cal Energy in Ormoc, Leyte, built with a full off-take guarantee by the national government through PNOC. For many years it was being dispatched only 50% because its power cannot be delivered efficiently through the Visayan Grid which relies on submarine cables. During this period, Panay island and Negros had been suffering from power shortages including Boracay. In August of 1998, Leyte was connected to Luzon by a 440mw HVDC submarine cable system.

If we decide that the Bataan Peninsula is a good strategic generation area, it may be sensible to build a submarine cable system from Bataan to the Manila and Calabarzon load centers instead of going around Pampanga and Bulacan with overhead power lines that tend to run into right of way problems in building them.

An archipelagic and island-centric generation strategy is most critical for the Visayan islands because of the high cost of continually building submarine power cable systems. Its major islands of Panay, Negros, Cebu, and Leyte, are seeing booming economies. Of these islands the weak link in generation is the 250mw Negros where there has not been a major power plant built for 40 years other than the ill-fated 80mw Northern Negros Geothermal project of PNOC EDC in the Mt. Kanlaon area which PNOC, after investing billion pesos, turned out to be a 10mw area. Currently most of Negros power comes from a coal plant in Cebu and eventually a coal plant in Panay islands to the West which will both require the expensive expansion of the submarine cable systems from those islands to Negros, adding to the transmission charges to consumers. We heard this is budgeted at P5 billion to bring about 100mw of Panay generated power to Negros.

Negros island can eventually be self-sufficient in base-load power from Renewable Energy! But of the biomass kind not solar which if the DOE’s approval philosophy continues will reach an ill-advised 1,000 mw. Lets hope they require these FIT-spoiled solar projects to at least supply grid-compatible systems.

For power reliability in each island there has to be sufficient on-island generation. There is an esoteric term in the power sector called “N-1” which roughly means an island must be able to maintain normal power supply even if its largest power source like a generating unit or largest transmission system is down. This is embodied in the Philippine Grid Code as part of power reliability formula. The Code also encourages embedded generation.

NGCP as the system operator and planner of the power grid does not push for on-island generation. It is not their job they say. In fact their behavior suggests they are against it. They push for more revenue generating transmission line projects. And those will continually add to the transmission charges to the consumers.

At some point, the major islands of Mindoro and Palawan will need to be connected to the main grid. However, the scale and cost must be sensible. NGCP’s proposal to connect Mindoro island with a P11.9 billion 230kv submarine cable is an overkill and ignores the need to maintain on-island generation. Documents showed the 230kv sizing is for the purpose of accommodating a 300mw coal project where there is none on the island of Mindoro itself. And it was on its way to approval by the old ERC! Had they proposed a more sensible 69kv connection line to provide supplementary power it would have been more viable. Of course, they have to address how to protect Mindorenos from the loss of the missionary subsidies.

The same with the 250 kilometer long Palawan island, cited for being one of the most beautiful islands in the world. It may eventually be connected to the Luzon or Mindoro grid but for peaking and reserve power. For now the major task for at least the next 5 years is building as much on-island generating capacity as possible to meet its 40mw demand. Palawan is a wonderful place for the government to aggressively push for Renewable Energy. It has hydro, biomass, and wind potential. Also grid-compatible solar. Why are they insisting on building a coal plant that the Palawenos are against? It can sabotage the clean and pristine image that the island needs for its tourism, the most logical driver of economic development of the island.

A lot of big generating projects and submarine cable projects are already in place. But it is not too late to establish a better rhyme and reason for their locations and the purpose and sizing in the transmission development plan. It takes time to create sensible power projects and it will also take time to undo the cost to consumers of ill-advised projects. But it will have to start with a spark of reason triggered by a visionary. Let us hope Secretary Al Cusi can provide a new direction in the nick of time and we can change course towards what is sensible and seemed obvious – archipelagic generation for an archipelagic nation.

It will help assure consumers are charged transmission wheeling rates that are reasonable and based on a carefully planned transmission development strategy.

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