Blackouts in Luzon

In my first year of law practice, I worked in one of the country’s biggest law firms, which handled numerous clients in the electric power industry. Several companies began investing heavily in the generation sector because of an energy crisis that paralyzed the economy then. As a result, our team of lawyers became pioneers in power plant documentation.

The year was 1991. Metro Manila and parts of Luzon were on a literal descent into ‘darkness,’ smack in the middle of hellish summer weather. The people suffered from daily outages or blackouts that even extended until nighttime. Only those with money or resources were able to afford private generators. Industries, small businesses, government offices, health care facilities and schools almost ground to a halt. The failure of the Aquino government to invest in new power facilities and formulate a long-term energy plan to meet the country’s energy needs were cited by critics as the main factors, according to a Washington Post article.

The situation would worsen two years later. From October 1992 to May 1993, power interruptions of up to 10 hours were recorded daily in much of Luzon, based on a Los Angeles Times report. To address the problem, Congress gave President Ramos emergency powers to fast-track the approval of contracts with independent power producers (IPP) to build new power stations. In 2004, The STAR ran a Philippine Center for Investigative Journalism series that exposed the disadvantageous power deals that the Ramos government had with the IPPs.

Why am I recalling these matters now? A few nights ago, blackouts hit several parts of Luzon. The Department of Energy (DOE) explained that the Luzon grid was on a red alert following a transmission line tripping of the Bolo-Masinloc 230 kV Line 2. The reduced generation supply in Luzon affected export to the Visayas grid, which placed the latter under yellow alert.

I suspect the five power plants that conked out are at least 20 years old. In another ten years, their value will fully depreciate. If these facilities are not replaced soon, we might have to endure more outages in the future. Or experience intermittent power supply at the very least. We should never repeat the mistake of the Aquino government, which did not build a power plant during its term.

In the past, coal-fired power plants were the backbone of the country’s energy supply. I commend the Marcos government for continuing the moratorium policy on coal projects. As the cheapest but dirtiest energy source, coal has been tagged by the United Nations as a primary contributor to greenhouse gas emissions which lead to global warming and climate change. Last year, Secretary-General Antonio Guterres stated that the topmost climate priority is to phase out coal in countries belonging to the Organization for Economic Co-operation and Development (OECD) by 2030 and the rest of the world by 2040. Our country remains among the most vulnerable to climate-induced disasters.

A cleaner alternative to coal that can generate power supply for Luzon is liquified natural gas (LNG). However, the Malampaya gas field is expected to be depleted by 2027. According to Reuters, the country has to import more than 3,000 megawatts of LNG for the power generation and transport sectors.

Now, allow me to make a full disclosure. The insights and learnings I acquired from my early legal practice have informed my decision to partner with a Japanese company to invest in the country’s clean and renewable energy sector. We are in the process of building a 1,200-megawatt liquified natural gas (LNG) plant in Bataan and 300-megawatt solar plants in Cebu.

These new power stations intend to meet the growing demands of local end users, regardless of economic standing, who opt for affordable yet reliable and cleaner energy sources. It aligns with ensuring customer choice and promoting their interests as provided under the 2001 Electric Power Industry Reform Act (EPIRA).

I also had a meeting with China Water and the National Irrigation Authority. The Chinese company intends to construct mega-dams in Ilocos Norte, Ilocos Sur, Abra and Cagayan Province to provide electricity (20 megawatts), irrigation and drinking water to the residents of the four provinces. Typically, hydro and LNG power plants take five years before completion. The operability of LNG plants can be expedited, given the availability of floating storage and regasification facility.

At the height of the energy crisis in the 1990s, IPPs received incentives in the form of a “pass on” or a fuel cost provision that insulated them from fluctuations in global fuel prices. It meant the end users shouldered the fuel cost incurred by a generation company. This incentive has been absent in the more recent coal plant projects. I understand why few investors would refuse to expose themselves to huge financial risks by taking on power plant projects.

Take the case of San Miguel Global Power Holdings Inc. (SMGP), which operates the 670-megawatt Ilijan gas plant in Batangas City. Last December, it terminated a Power Supply Agreement (PSA) with the Manila Electric Company (Meralco). The PSA is a bilateral agreement between a generation company and a distribution utility for the supply and purchase of power. The Energy Regulatory Commission (ERC) rejected the petition of both companies for a temporary rate hike. San Miguel cited the continuing losses suffered by the Ilijan power plant due to the spiraling global petroleum cost and the government restrictions on the Malampaya gas facility. It explained that the hike would have been the cheapest option for consumers since a PSA termination would lead to higher electricity rates for the end users. In March, SMGP also terminated its supply deals with Meralco for 2024 and 2025.

I hope that the government will prevent a similar case from happening again. May it find a solution that resolves the competing interests of the power industry and the consumers.