Crisis is in power prices

If we are to believe official government pronouncements, there is nothing to worry about the country’s future energy requirements, especially on power supply. At least, until the end of term of President Benigno “Noy” Aquino III on June 30, 2016.

No less than President Aquino announced several power companies are set to build new plants in Luzon, with a total of additional 2,412 megawatts (MW) in generation capacity in the run-up to 2016. The President made this announcement last Tuesday when he led the ceremonial groundbreaking of the San Gabriel natural gas-fired power plant project in Batangas City.

The San Gabriel plant is being put up by the First NAtGas Power Corp., a wholly owned subsidiary of First Gen Corp., one of the companies operated by the Lopez clan who previously run the Manila Electric Co. (Meralco). The Lopezes had since sold and reduced to just three percent their shares in Meralco.

First Gen is one of the largest Filipino-owned independent power producers (IPPs) in the country that has an existing plant portfolio of about 2,763 MW of generation assets. It boasts of power plants that primarily utilize indigenous, clean and environment-friendly renewable fuels to run electricity. It is headed by Federico Lopez as chairman and chief executive officer.

Once operational, Lopez cited, the first of the three power plants will generate 414 megawatts (MW) of electricity that will be added to the Luzon grid. Aside from an efficient gas turbine technology, Lopez explained, the San Gabriel project will enjoy operations and maintenance synergies with the adjacent 1,000-MW Santa Rita and 500-MW San Lorenzo combined cycle natural gas-fired power plants, both owned by their company.

P-Noy acknowledged the newest plant will be “crucial” to our country’s energy picture, especially coinciding within the remaining years of his term. It takes two to three years to build a base-load power plant of this size, he cited.

“By 2016, we expect that the Luzon grid’s energy demand will have risen to around 11,000 megawatts from the present demand of 10,294 megawatts. We know that one cannot simply walk into a store and order an extra thousand megawatts of power,” President Aquino pointed out.

Of course, the President stressed, the goal is not simply to meet demand but to surpass it. “We intend to have a safe surplus of generating capacity,” he vowed. The surplus or excess generating capacity will become the source of reserve supply of electricity.

The reserve capacity fills the supply gap if any power plant shuts down due to emergency repair or regular maintenance. The reserve capacity kicks in to prevent power interruption or blackout due to sudden supply disruption for whatever reason or cause.

Obviously, we have very thin reserve capacity when the Malampaya natural gas plant was shut down for scheduled preventive maintenance. Malampaya supplies 45 percent of the fuel requirements of power plants in the Luzon grid, The situation was further worsened when eight power plants also shut down at the same time purportedly for repair maintenance.

The Department of Energy (DOE) reported this to the House energy committee public hearing last month when it looked into the resulting record-high increase in generation charges that Meralco collects from electricity consumers in December last year.

Several weeks after this raging issue cropped up President Aquino finally broke his pregnant silence on this pestering concerns over the power supply situation in the country over the immediate future. The issue came to a head when several consumer groups and individuals questioned before the Supreme Court (SC) the latest Meralco power rate increase.

Now we know why the Chief Executive is cold to suggestions by eager beavers in his administration allies in the 16th Congress to grant him emergency powers to avert feared electricity shortage in the country.

P-Noy kept quiet even as he is warned of possible repeat of the dark days during the administration of his late mother, former President Corazon Aquino when the country experienced long hours of blackout. The power supply crisis was the offshoot of the decision of then President Cory to mothball the 600-M Bataan nuclear power plant without building alternative power plants.

As far as he is concerned, P-Noy obviously feels secured he has enough powers to deal with potential problems on energy as being foisted now. In fact, P-Noy cited he could invoke the country’s 1987 Constitution. He specifically quoted Section 17, Article XII: â€œIn times of national emergency, when the public interest so requires, the State may – during the emergency and other reasonable terms prescribed by it – temporarily take over or direct the operation of any privately owned public utility or businesses affected with public interest.” 

But here’s the catch. Under Section 6 of the Electric Power Industry Reform Act (EPIRA) of 2001, it provides that the power generators are not classified as public utilities. And yet, Meralco and transmission companies are classified as public utilities regulated by Energy Regulatory Commission (ERC).

Through a strong lobby during the 12th Congress, this provision was apparently inserted when EPIRA was approved into law. Noy was then a first-term congressman from Tarlac. 

The EPIRA came into law several years after the previous Congress granted emergency powers to then President Fidel V. Ramos and authorized his government to enter into negotiated contracts with IPPs. Among other things, the negotiated contracts granted “take-for-pay,” or a special proviso to attract investors to build new base-load power plants. With government sovereign guarantee, the “take-for-pay” passed on the burden of excess supply to consumers to pay for electricity generated, whether they use it or not. 

Thankfully, more power plants were built later on without these “take-for-pay” provisions that were granted during that limited period of Power Crisis Act. But there is still the EPIRA that allows this situation where consumers like us are placed at the mercy of power generators.

The High Court has included this provision of EPIRA’s Section 6 as among the issues that would be debated in the scheduled oral arguments on Tuesday when they tackle the petition against the record high Meralco rate hike. Very clearly, the crisis is in the power prices.