Yellow and Red Power Alert, Things to Ponder, The Outdated and Onerous Genco Contracts, and Permanent Solutions (Part 1)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

Viewpoint: ‘At Seventeen’: On the anniversary of Epira, have we learned the truth about the power sector?

By Lenie Lectura – June 23, 2018
from Business Mirror

In Photo: The Pagbilao coal-fired power plant in Quezon.

SEVENTEEN years since the Electric Power Industry Reform Act (Epira) of 2001, or Republic Act 9136, was enacted into law, have major reforms indeed fostered competition among power players? Industry stakeholders think so, and are trotting out the reasons for saying so.

“Epira is working. Just look at all the investments in power and the competitive rates in retail and WESM [Wholesale Electricity Spot Market],” said AC Energy President Eric Francia in a recent text message to the BusinessMirror.

Epira, most energy sector experts agree, has liberalized the Philippines’s electricity sector with at least three important provisions: deregulation and demonopolization of the power-generation sector; creation of the WESM, and liberalization and demonopolization of electricity distribution via the Retail Competition and Open Access.

More important, investments in the power sector started pouring in. More power-generating firms mean more power projects, thereby boosting the country’s power supply, ultimately benefiting consumers.

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“Many of us still remember the days that our country suffered severe power shortages that not only hampered our lifestyles, but created havoc on our economy. Today, we have certainly come a long way from that situation and the need for the government to step in to ensure adequate power supply,” Francia pointed out.

New, efficient and state-of-the-art plants, like Pagbilao 3, are being built by the private sector without government funding, without government guarantees and without government take-or-pay obligations. We believe this project is a testament that Epira is working,” observed Aboitiz Power Corp. President Antonio Moraza.

Aboitiz and TeaM Energy Corp. have partnered to invest close to $1 billion for a 420-megawatt (MW) Pagbilao 3 base-load in Pagbilao, Quezon Province.

The Philippine power industry has been transformed from a monopolized, politicized and heavily subsidized structure, to one that is competitive and bears the true cost of power, allowing the government to channel resources to other social services.

“This competitive structure was envisioned to attract investment, drive down power costs and empower the end user.

“I dare say that it is only the power sector that is building capacity in our country’s infrastructure requirements ahead of actual
demand, without any need of government’s funds or financial support,” added Moraza.

Most privatization projects ‘successful’

In the view of Semirara Chief Executive Officer Isidro Consunji, the privatization of most state-owned power-generation assets has been successful.

“Offhand, I think privatization of the power-generation sector is successful,” he said in a text message.

Prior to Epira, the National Power Corp. owned the country’s generating capacity before privatization. At that time, these assets left a heavy dent on state coffers because of the high costs of maintaining them.

Emmanuel de Dios, GE Philippines CEO and formerly Department of Energy (DOE) undersecretary, also noted a lot of power projects that came on stream for the past few years. “A lot of capacity still coming on stream. Indeed, we have come a long way. Not bad at all, because it takes years to put to bed a power project.”

Strong investor appetite

The Manila Electric Co. (Meralco), meanwhile, hopes that the strong investor appetite would continue in the many years to come.

Joe Zaldarriaga, the utility firm’s spokesman, said Epira has encouraged competition, especially in the power-generation business. The law, he said, also increased efficiencies in distribution, as evidenced by all-time low system-loss levels. “If we look at it, further current retail rates approximate that of around eight years back, which, perhaps, shows that the market is working as it is,” he said.

Amid the success of Epira, AC Energy noted some delays in implementing the law. “What’s needed is the full implementation of Epira, especially open access at the household level, so that all consumers can benefit from open competition,” added Francia.

Challenge: Faster implementation

ENERGY Secretary Alfonso G. Cusi gave assurances that the agency is working really hard on how to speed up the implementation.

“Indeed, supply has improved. Price has gone down. There are more players so the price of electricity is becoming more competitive. In general, the goal is being achieved, but there are some delays,” Cusi noted.

One of the delays they were referring to is the implementation of the Retail Competition and Open Access (RCOA), a landmark policy meant to give consumers the choice to choose their own supplier of electricity to encourage competition in the generation and supply sector.

“Epira is incomplete without RCOA,” DOE Undersecretary Felix William Fuentebella said. He could not stress enough how vital this policy is in order for consumers to fully appreciate the benefits of the law.

It may be recalled that the Supreme Court (SC) issued a temporary restraining order (TRO) against a DOE circular and Energy Regulatory Commission (ERC) resolutions days before some of the RCOA rules were supposed to take effect.

In particular, power users consuming an average of at 1 MW per month are required to source power from a licensed retail electricity supplier. At present, the majority of power consumers are being supplied by Meralco, the country’s largest distribution utility firm.

Pricing debate continues– Gatchalian

Senate Committee on Energy Chairman Sherwin T. Gatchalian, meanwhile, noted that there are debates going on whether electricity prices in the country have indeed gone down to a level that most Filipinos can afford.

“Epira is supposed to make the market efficient, among others. When it comes to spot market prices, the lowering of cost has been achieved. But that is only a small component. What Epira didn’t cover is CSP [competitive selection process]. Still, 80 percent of the power contracts are sourced bilaterally and only 20 percent from the spot market. The CSP should have been included in Epira,” he said.

Indeed, for such a landmark legislation promising sweeping reforms in such an important sector, Epira has spurred progress, since its enactment on June 4, 2001, in chipping away at monopolies in the power-generation sector,  providing for a more transparent pricing system and liberalizing electricity distribution.  Still, much more remains to be done and the challenges are daunting.