Manila Bulletin
January 2, 2013, 5:13pmIt’s quite rare – except perhaps in elections – that propaganda triumphs over hard facts.
This is especially true if the problems needing policymakers’ attention are as manifest as electricity rate hikes and power supply crisis.
The year that passed still painted an “energy sector in chaos;” with most of projects plans and proposed “quick fixes” on cliffhanger – and the consumers still suffering from the same dilemmas.
Although the solution path remains iffy, Energy Secretary Carlos Jericho L. Petilla, who just came in at the Department of Energy’s (DOE) helm, promises that actions will be taken to solve these twin problems and for the government to ultimately cement the country’s route to long-term energy security.
At the December 19 launching of the 2012-2030 Philippine Energy Plan (PEP), the energy chief talked about achieving reasonably-priced energy (whatever that means eventually for consumers); as well as the need to finally work on ending the brownout mess distressing Mindanao consumers and to prevent such scenario for the Luzon and Visayas grids.
But beyond the widely-perceived loose investment figures, project lists and timelines of implementation, the updated PEP badly needs improvements so it can truly address the country’s energy needs.
And with the stakeholders perpetually complaining of energy officials who are taking too long “on the learning curve,” Mr. Petilla gave assurance that he will learn fast the industry’s issues and concerns.
Two Targets
“We have two targets –but for me, more than electricity rates, the priority is sustainability of power supply…sustainability means, we have to have more investments in power generation,” Mr. Petilla enthuses.
Unfortunately, the draft PEP does not accurately reflect that. And it appears to be the “biggest and most basic fumble” in the energy blueprint. In its current form, power investments are actually lowest in the totem pole – with indicative capital flows of just P391 billion and not necessarily matching the proposed 11,400 megawatts of additional capacities needed on stream until year 2030.
What energy planners ought to realize is: there is a price to pay for underestimating or overestimating targets in the energy plan.
A historical reference on faulty energy planning was with the administration of former President Corazon Aquino – that when problems worsened because of lack of careful planning, the remedial measures resorted to were “knee-jerk solutions” and expensive options.
Petilla’s vision of ‘a secure energy future’ entails putting in the right balance of portfolio in meeting energy supply – not just all “green” or the renewable energy-leaning solution, but something that will also address the overall needs of the system such as baseload capacity as well as those for peaking and back-up capacities.
“My job is to keep on inviting them (power generators), with a certain balance. It can’t be all diesel, it can’t be all coal. We need to have a mix. We are 59% green and we’re actually way, way ahead when it comes to renewable energy. So we want to keep a balance and sustain the growth of power generation by attracting more investors,” he stresses.
The energy secretary also realizes the power sector’s concomitant problems, such as the debt dilemmas of some electric cooperatives. And he indicates that these too, must be resolved, if the government would want investors to come in.
“We need to make the market attractive. When I say market, it’s not only about power generation, but it’s also about the DUs (distribution utilities). There are DUs which are heavily-indebted and there are those which are not efficiently paying their dues with power generators.”
The challenge, he explains, is “they don’t know what to do to settle their obligations, so we’re looking into that, how we can help them. More important now is, how do we make sure that they don’t reach that level... If possible at the initial strike of a problem, we want to resolve them already.”
‘11th hour fix’ for the Mindanao crisis
The summer months of 2013 may jolt Mindanao again with two major events – one is the mid-term elections in May; and the other is the expected strike of low to moderate El Niño phenomenon.
Mr. Petilla said, in jest, that if things will only be possible, he would want a solution to the Mindanao crisis tomorrow. At least, that’s his way of acknowledging a fact that they are already in the nick of time when it comes to addressing the southern grid’s supply dilemmas.
At the Mindanao Power Summit in April, proposals were laid on the table on how to address the long-scant electricity supply in Mindanao. These range from the transfer and uprating of the power barges due for divestments by the Power Sector Assets and Liabilities Management Corporation (PSALM); the repair of one of the Agus generation unit and the repowering of the idled Iligan diesel power plant when its sale to the Alcantara group will be consummated. Unfortunately, none of these were concretized until this time.
Moving forward, the government has some slight change of tack in the strategy. The new “band-aid measure” being pushed is the creation of the Interim Mindanao Electricity Market (IMEM) so excess capacity by power generators and even those with embedded facilities will have an alternative market where they can channel their capacities and be made available to the grid.
The IMEM, to be operated by the Philippine Electricity Market Corporation (PEMC) takes the form of a hybrid Wholesale Electricity Spot Market (WESM) because it primordially considered also the structural set-up of the power grid in Mindanao – with the government-run PSALM still a dominant player. By DOE’s estimate, the IMEM would be able to funnel 180MW-360MW of additional capacity to the grid.
When it comes to rate impact, an appeal is simultaneously made for Mindanao consumers to temporarily bear the brunt of about P0.30 per kilowatt hour (kWh) increase in the rates they will be paying for.
Strings are similarly being pulled to finally resolve the sale of the 102-MW Iligan diesel plant – a capacity that was expected in the grid as early as November. Yet hurdles on the Commission on Audit’s (COA) calculations on the taxes due to the facility’s previous operation, had prevented negotiations from moving headway.
Rate hikes
For electricity prices, Mr. Petilla expresses confidence that there will be a “tipping point” but it is something he cannot predict at this point. He simply asserts that it might be achievable in the future, but not in the short-term when industry problems are still on the fixing fronts.
“I don’t call it affordability anymore … I call it reasonably-priced or properly-priced energy,” he enthuses while recognizing consumers’ constant complaints over rising power rates.
To be fair, all administrations suffered public rage against electricity prices, especially when there are upward adjustments. But the Aquino administration might see the worst of the consumers’ wrath yet with the impending implementation of the universal charges (UC) due to liability-fraught PSALM.
Mr. Petilla’s hope of having a reasonably-priced energy may be betrayed in part by PSALM’s proposed recovery of P140 billion worth of stranded debts and stranded contract costs – that when reflected in the bills will be equivalent to P0.39 per kilowatt hour (kWh) over four years or about P0.09 per kWh when longer recovery period of 15 years is warranted.
A prelude to that was the recent statement of Energy Regulatory Commission (ERC) executive director Francis Saturnino Juan that “the Commission (already) issued the order deeming the case submitted for decision… so anytime, the case can already be deliberated and resolved.”
When pressed by the media if that would be a New Year onus for the Filipino consumers, the ERC official wavered a bit in his pronouncement, saying that “we don’t know what the decision of the Commission would be.”
If only to ensure that PSALM will not default on its maturing financial obligations, policymakers and regulators are switching on to a “carpe diem” mode; and may just let the consumers survive whatever will come as “added charges” in their electric bills starting this year.
No benchmarks
The question really is not whether PSALM is allowed to recoup universal charges or not – but it is more on the legitimacy of the costs it has been trying to pass on to all ratepayers. Given also previous reports and industry talks on the flawed design of some privatization it has undertaken; plus if all of these costs were really prudently-incurred.
From one side of the fence, the privatization of the National Power Corporation (NPC) assets may be viewed as successful because PSALM was able to attain the 70-percent threshold prescribed by the Electric Power Industry Reform Act (EPIRA) as a precondition to finally open up the restructured electricity sector to full competition via open access and retail competition.
On the other, it did not bring about the other goal of setting in “reasonable electricity rates” as had been the rallying agenda when EPIRA was still being legislated. From that vantage point, regulatory reforms are viewed as failure because they did not measure up to consumer expectations of experiencing meaningful reductions in their electricity bills.
Nevertheless, that is a point needing proper explanation – because electricity prices are not just a function of privatization or industry restructuring. It must be gauged from a lot of plant operating parameters, such as fuel, the market (i.e. trading in the WESM or bilateral contracting); and in part, the fragility in the network assets which can cause high nodal prices due to some congestion in the electrical system.
Going back to PSALM, which logged whopping liabilities of roughly P870 billion post-privatization, some quarters believe that the lack of “benchmarks as to how the success of privatization shall be measured” spelled its financial disaster.
What happened was that, in order to jumpstart the privatization process, the company sold its “jewels” first (i.e. hydroelectric plants then coal)’ but it was left with assets which are more expensive to operate. The end-result was a financial situation which rendered PSALM not being able to pay off maturing obligations because its privatization proceeds cannot match the value of its remaining assets.
In gist, the restructuring process partly failed as even the oversight Joint Congressional Power Commission (JCPC) was not able to institute “measurable standards” by which the “real gains” of the EPIRA were to be checked and evaluated.
Birth pains
The only remaining cornerstone policy due for implementation is the “open access” which is hoped to finally provide choice for consumers. Yet even at its introductory phase, problems are already surfacing.
Firstly, there are no firm rules yet to govern that specific regime in the market. For now, it’s like writing a “blank check” for the consumers, and they can’t exactly guess for now if it will end up a beneficial choice for them.
Energy Undersecretary Josefina Patricia M. Asirit indicates that open access and retail competition will not necessarily result in lower rates for consumers because that will depend on contracts to be negotiated by qualified participants.
“That’s a negotiation or deal that will have to be ensured by the parties. What the DOE and the ERC have been doing is to make sure that there is responsible contracting,” she adds.
Ms Asirit avers that the six-month transition for the open access era in the industry will allow timeframe for the crafting of the rules as well as to soothe the birth pains accompanying the policy’s implementation.
As things stand today, there is no certainty if open access will flourish. The rules and parameters are still difficult to comprehend – because nobody is explaining; hence, industry stakeholders are not also as willing to listen.
Lacking caliber
For the continuing pitfalls in the energy sector, both the ERC and DOE are constantly blamed. The ERC is faulted on its tendency to “react” to pressures on rate applications as well as the regulatory lags which are seen contributing to investment uncertainties. Although at this point, it already improved greatly on the second point.
The DOE, as the supposed sponsor of vibrant energy planning and investment invitations, appears to be more problematic and lacking still the depth and expertise as well as the integration of skills to be the champion of such causes.
Be it in the power industry or all other segments in the energy sector, it is important that firm policies are in place and that they must be adhered to judiciously – no selective implementation. Other matters needing critical attention of the department are the award of renewable energy installations to qualified developers; and the contracts for those with winning offers in the upstream petroleum and coal sub-sectors.
Bluntly, policies and guidelines are wanting. And minus the typical press releases and ‘un-implementable Circulars’ – actions were, and still are, lacking. source
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