What happens if “kindergarten crew” energy officials blab without first validating facts; the regulators fail on their mandate; a power utility plays god; and politicians join the fray?
‘Confluence of events’ – and it is spelled c-h-a-o-s.
The announcement of P4.15 per kilowatt-hour (kWh) hike in Manila Electric Company’s (Meralco) rate this Christmas month had been irksome to the company’s 5.2 million customers.
A significant portion of that – P3.44 per kWh – had been attributed to generation charge, hence, power generators shared the rap allegedly for colluding on plant outages, so prices in the Wholesale Elecstricity Spot Market (WESM) will rise artificially.
The rate adjustment will be staggered over three months (with corresponding carrying charge or interest on the balance) For December, it will be an increase of P2.41 per kWh; another P1.21 per kWh February next year; and P0.53 per kWh in March.
Scrutinizing the facts
What proved more annoying, however, had been the “twisting of facts” being done by some parties just so they can be shielded from public blame – yes, they can freakin’ lie through their teeth, poker-faced yet still attempts to be charismatic and become headline material. It seems that many entities – including government, are badly in need of ‘truth serum’ so they will finally lay down the real facts triggering this despicable situation.
For one, the 650-megawatt Malaya thermal facility, which is still government-owned under Power Sector Assets and Liabilities Management Corporation (PSALM), wasn’t operated last month when it should have eased supply. Also, PSALM reportedly sold biodiesel for the Ilijan plant at price “above-market” and it was also among the entities with high bids in the WESM.
If there’s one thing advantageous to the monopolistic structure of the power industry then, it was that state-run National Power Corporation (NPC) always stood ready to counter Meralco’s facts when it comes to rates pass-on to consumers. The private sector players, and even the WESM operator, are relatively too meek to provide counterbalance to the dominant power utility’s claims.
The sudden emergence of pseudo-experts following the rate hike announcement fiasco had not been helping clear out some issues – instead, some parties are being given the privilege to further muddle some facts. By sweeping issues under the rug or diverting them, some affected companies may feel better by evading criticisms. It’s easy to confuse people, but that only means we would not be able to solve the fundamental issues hounding the industry.
From consumers’ viewpoint, there are more open-ended questions that must be directed to Meralco: We are obliged to pay our bills monthly and if we miss out, our service gets disconnected. Now, what have we done wrong to deserve this? And as a public utility, what have you done to protect us from what was apparent as price volatilities in the WESM?
Additionally, what had been your supply contracting strategy to shield your customers from unconscionable price hikes on incidents of “supply tightness” including the long-planned shutdown of the Malampaya gas production facility – the fuel source of roughly 50 percent of your contracted supply?
Supply contracts or power supply agreements (PSAs) are typically time-of-use (TOU) rates plus true-up for fuel. What then is the cost of replacement power (if Meralco ever took that into account in its contracts), when its contracted plants are on maintenance shutdown?
These are concerns seeking honest answers, and if the utility firm fails in explaining these – in the public eye, its profit motive will always be suspect. And “no birth pains” excuse please – it’s no longer acceptable for a power utility which counts more than 100 years of operational experience.
Spot market gamble?
Industry watchers who understand the complex workings of the restructured electricity sector opined that “Meralco may have gambled in the market (WESM) for a portion of its supply hoping that it can get cheaper supply, but it lost… and sadly, its customers were held as its pawn.”
Of course, Meralco will deny that. But still, it can’t escape from being scrutinized on basic facts: Why had it exposed 11.5 percent (or about 500 to 600 megawatts) of its demand when supply tightness had been widely anticipated with Malampaya’s shutdown? Applying the basic tenet of supply and demand, it was already widely expected that when supply gets dearth, the naturally occurring consequence will be soaring prices.
Meralco President Oscar S. Reyes told media that the company “would not want to over contract”; but if that has been the company’s argument, again – what type of protection then was there for Meralco customers when its contracted capacities can’t deliver their committed volumes?
Reyes further emphasized that to temper the portended rate hike, it had “instructed First Gas to run on liquid fuel and Ilijan on biodiesel.” Complementing these had been its recent move to enter into a new power supply agreement with Therma Mobile Inc. (TMO) and its appeal to end-users “to be more energy efficient.”
In Meralco’s presentation, it was shown that its total volume procurement from the WESM had just been at 9.5-percent, but it indicated that for its captive customers (meaning residential and smaller commercial end-users not yet covered by retail competition and open access), the total exposure had been at 11.5 percent, which simply entails that it sacrificed such segment of its customers to higher power prices.
“Fully contracted utilities have less price volatility than partially contracted distribution utilities,” Luis Miguel Aboitiz, president of the Philippine Independent Power Producers Association Inc. (PIPPA) has opined.
In all things that happened, the Energy Regulatory Commission (ERC) was equally frustrating. When two of its Commissioners took the bench, their assertion had been: “We’re not actually here to do public consultation but to help Meralco explain its rate hike.” Say that again! This is the parallelism: Have we actually seen a court aiding a defendant absolved from a case? Had the watchdogs been sleeping or were too complacent in exercising the regulatory powers vested upon them?
Yes, rules can create problems, but that doesn’t mean it is alright to give green light to just anything – especially on financially-punishing rate hikes. Policies and regulations must offer the viable incentives to investments, but these should also be used as tools to sanction companies which have been under-performing or committing some abuses.
Collusion?
The Department of Energy (DOE), via the statement of Energy Undersecretary Raul Aguilos at the investigation of the House committee on energy, has been quick to point out that “collusion” happened between and among power plant owners – primarily on supposed forced outages of several power plants, thus, WESM prices surged.
But there have been clear facts that the energy official missed from the official documents presented to the House body. As tempting as it was, but he should have refrained from generalizing prior to understanding that there is a major difference between planned or scheduled shutdowns vis-à-vis forced outages.
The DOE should have known better that if it is a scheduled shutdown, this goes along with the government-designed Grid Operating and Maintenance Program (GOMP), therefore, its prior imprimatur had been sought for such. And has the government forgotten that it requested the power plants to defer their maintenance schedules to ensure reliable power supply in May’s mid-term elections?
The nine power generating units mentioned by Mr. Aguilos to have supposedly colluded on simultaneous shutdowns were all scheduled – suffice it to say that the downtime or maintenance schedules of these plants had already been cleared prior by the DOE. These plants include the Pagbilao, Sual 1, GN Power 2, Sta. Rita Module 20, 30 and 50, and Ilijan 1 and 2. Even for these scheduled maintenance, only three coincided with Malampaya’s shutdown: The Pagbilao, San Lorenzo Module 50 and Ilijan 2 units.
On the more controversial forced outages, only two had overlapped with Malampaya’s – the 300-MW Calaca Unit 1; and 300MW GN Power Unit 2. The rest of the facilities which suffered forced outages happened prior to the gas facility’s shutdown – namely the 300-MW Masinloc unit 1 on October 31-November 8, 2013; and Quezon Power coal plant on October 4-5; and October 8-10. The 250MW San Lorenzo Module 60 had long been on shutdown due to fire damage at its transformer.
Now it rests on the DOE to provide incontrovertible evidence to back up its claims, although just days after his subaltern made the allegation, Energy Secretary Carlos Jericho L. Petilla sounded off doubts that collusion can ever be proven.
Quezon Power managing director Frank Thiel explained that the October 8 outage at their plant had been due to problems at boiler feed pump motor and their boiler’s steam drum.
American firm AES, the owner and operator of the Masinloc coal-fired plant noted that its facility also suffered boiler problems for units 1 and 2 and condenser leaks for unit 1; while Pagbilao which is operated by TeaM Energy, had to undergo replacement of “leaky condenser tubes.”
PIPPA’s Mr. Aboitiz stressed that “in the future, it would be best that any mention of collusion should only come from the result of an investigation,” adding that “it should be specific as to who colluded and how. Otherwise, the innocent parties can be negatively affected.”
And while the penalty provisions in the existing WESM rules had been perceived to be loosely worded, Mr. Aboitiz said such must “not mean that the penalties will be lenient. In fact, the loose wording allows for substantial penalties.”
Private sector players, when they shut down their power plants, will suffer foregone sales and they shall absorb corresponding costs for such losses – unlike state-owned firms which can transfer losses to national government’s account and may eventually be levied as taxes to the public. This is a question that must be asked then: Which power generator in its right mind would shutdown its power plant and suffer losses just so prices in the WESM could be pushed higher? (To be continued) source
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