Monday, January 27, 2014

Who screwed the power consumers?


 (The Philippine Star) 

The problem with that hearing is that it was mostly the lawyers talking and we all know lawyers aren’t as interested in unearthing the truth as they are with protecting their principals. They will obfuscate the issues and because of the technical complexities of the power industry, it is easy to obfuscate.
There was also failure to ask more tough questions. I am however glad that enough was said to confirm most of the points I have raised in this column. But the smoking gun was nowhere in sight.
Indeed, the issue of collusion was all but forgotten. I feel the way to get to the truth of who was responsible for that catastrophic rise in our power bills is to follow the money. By this I mean look into the records of WESM to see who gave a maximum bid of P62/kwh and actually got dispatched.
Some executives of generating companies were reportedly popping champagne bottles and computing their expected outsized bonuses because of the extraordinary profits from that national tragedy. But some of them are saying they were not the only ones who earned a bonanza. They tell me we should also focus on possible “trading profits” of Meralco.
Let us try to follow the money. Based on records, here is the list of generators who submitted bids in the 60s level during the time in question. Their bids were dispatched, thus setting the clearing price.
In sum, there were 23 out of 744 intervals (hours) in November and 68 out of 720 intervals in December that cleared at approximately P60/kwh during the time that the Malampaya platform was being maintained including at non peak hours.
For the November billing period (Oct. 26 to Nov. 25), these were the days and plants that offered >60 P/kWh.
November 10: 1590 (Bauang), Pan Asia (Limay)
November 15: 1590 (Bauang), Therma Mobile (Navotas)
November 16: 1590 (Bauang),Therma Mobile(Navotas)
November 17: 1590 (Bauang), Therma Mobile(Navotas)
November 20: 1590 (Bauang), Therma Mobile(Navotas)
November 23: 1590 (Bauang), Therma Mobile(Navotas)
November 25: 1590 (Bauang), Therma Mobile(Navotas)
For the December billing period (November 26 to Dec. 25), these were the days and plants that offered >60 P/kWh.
November 26: Pan Asia (Limay), APRI (Makban)
November 27: Pan Asia (Limay),
November 30: Therma Mobile(Navotas)
December 1: Therma Mobile(Navotas)
December 2: Pan Asia (Limay),
December 3: Pan Asia (Limay),
December 5: 1590 (Bauang), Pan Asia (Limay),
December 6: 1590 (Bauang), Therma Mobile (Navotas), Pan Asia (Limay),
December 7: Therma Mobile(Navotas)
December 8: 1590 (Bauang), Therma Mobile(Navotas),
December 11: 1590 (Bauang), Therma Mobile(Navotas),
December 12: Therma Mobile(Navotas).
These are all diesel powered plants except for APRI (Makban) an Aboitiz geothermal plant. The 1590 Bauang plant is owned by a company called Vivant, a company that also owns VECO. The Limay plant used to be owned by San Miguel who supposedly divested it to another company which many in the industry believe is still related to San Miguel. Therma Mobile belongs to Aboitiz Power and fully contracted to Meralco which in effect makes it a Meralco plant.
It should be interesting to know how much these companies earned during the Malampaya shutdown emergency. Checking the details of the records can help tell us the presence of collusion.
On the other hand, we can also point out the appearances of collusion by analyzing the bidding behavior. We start with the fact that all the generating companies know Malaya is hardly dispatched. Thus, in making their bid calculations, they assume Malaya is out of the picture.
Did they can see the thin reserve and agreed with each other to all submit bids on the high side… up to the limit of P62/kwh? Or did they give their bids as independent rational decisions based on market conditions?
The NGCP as system administrator, on the other hand, sees all the available generating plants including the diesel fired plants quoting at P62/kwh and concludes there is enough supply and Malaya need not be called.
Or did NGCP collude with some generators to keep rates high? Note that NGCP also failed in its duty as system administrator to properly schedule maintenance shutdown of some generators in the light of the Malampaya shutdown. Henry Sy Jr.’s Triratna group once made an offer to buy Meralco from the Lopezes in alliance with San Miguel, presumed owner of one of the generators that submitted maximum bids shown above. 
 NGCP is not concerned about the impact of high dispatch rates to consumers. The massive profits of the group of Henry Sy Jr and their Chinese government partner at NGCP are protected by ERC on a formula that allows full recovery of claimed costs plus margin.
 On the other hand, PSALM, the government entity that now owns Malaya, is not keen on running the 620 MW power plant because it is expensive to do so.
Malaya is a base load plant designed to run for long periods of time. It takes 16 hours of running offline before it can be lined up for dispatch. Indeed it makes no sense to burn diesel for almost a day only to run for two hours to satisfy peak demand. The other diesel plants can be dispatched in less than half an hour.
Still, the Malampaya shutdown was planned in advance and PSALM could have arranged to run Malaya not only to prevent a brownout and also to prevent spot prices going too high during the entire period. Malaya operated only from Dec. 2 to 10, or too late to arrest the surge in generation rates.
Meralco president Oscar Reyes observed that “There is an analysis of the behavior of the WESM, if Malaya was online and offered during the Malampaya shutdown, the WESM average price Nov. 11 to Dec. 10 would have gone down by as much as 70 percent from P21 per kwh to about P5 per kwh.”
PSALM’s Emmanuel Ledesma Jr did a Pontius Pilate and insisted “NGCP is the one who determines dispatch. My understanding was the supply was sufficient. NGCP never mentioned anything to us with regard to insufficiency of supply.”
NGCP, for its part, stressed that during the Malampaya shutdown from Nov. 11 to Dec. 10, there was actually no shortage in supply. “There was no deficiency in the system. In that period, there was sufficient capacity,” Raul Saludo, head of NGCP’s system operations for Luzon, also said during the hearing.
That’s because NGCP was only looking at the technical sufficiency of demand, that is, there was no system condition (e.g. voltage problem) that would trigger the call for must run units. But NGCP should have also been looking at what was happening in the spot market. Or maybe, that is the job of the Department of Energy who should have had an active monitoring team during those critical days.
What do I see from all these facts? Collusion may be hard to prove but I clearly see there is no one looking out for the consumers. The private sector generators were after maximizing profits which the deregulated environment under EPIRA allows.
The diesel power generators saw an opportunity to make big money. Their plants are idle most of the time and this was a rare opportunity to loudly ring the cash registers. Because the Energy Secretary declared Malaya to be on economic shutdown and knowing how reluctant PSALM is in running Malaya, they were emboldened to bid at the maximum allowed.
If Energy Secretary Jericho Petilla was more alert and decisive, he should have surprised all of them by ordering Malaya to run and thus screw the generators before the generators could screw the consumers. The behavior of the generators in a tight market should have been predictably obvious to Petilla, who after all, is energy secretary.
Indeed, there is a protocol that former Energy Secretary Rene Almendras used in past Malampaya shutdowns and other emergencies called the Grid Operations and Maintenance Protocol which Secretary Petilla should have used.
As it turned out, Malaya proved to be a paper tiger. It was the only weapon the Secretary of Energy had and he failed to use it.
Of course the Secretary will say he also has the mandate to maintain a power industry environment conducive to more investments in power plants. Using Malaya the way Almendras did to dampen rates would have given a negative investment signal.
The tunnel vision of NGCP and PSALM can only be described as an absence of malasakit for the consumers. That, plus the incompetence of ERC and DOE sealed the negative outcome for all of us.
 Sec Petilla should have realized that his most immediate responsibility is to protect the consumers. Allowing the rates to go haywire as it did produced a serious political backlash that is bad for the power industry too.
Now they are telling us that the average price of power to consumers last year was lower than the year before. That may be true but allowing that extreme volatility to happen makes that fact simply incredible to consumers.
The senators must follow the money if they want to know who had the most number of orgasms from that rate orgy.   source
Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

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