A ticking time bomb in the power sector

Like a ticking time bomb, the impasse at the Energy Regulatory Commission (ERC) – after four of its commissioners were suspended – will not only affect consumers with possible brownouts in the coming summer months, but likely derail the economic takeoff enjoyed by the country during the last two decades.

It’s been almost two months now since ERC commissioners Geronimo Sta. Ana, Josefina Patricia Magpale-Asisrit, Gloria Yap-Taruc, and Alfredo Non were suspended by the Office of the Ombudsman for a year for allegations of inefficiency and misconduct, and our concerned officials are still scrambling to find a solution.

The ombudsman ruling has become a double jeopardy for power producers who have applications for approval of power supply agreements (PSAs). Many of them have been complaining of excessive delays by the ERC, dragging on for over a year.

Power generating companies need their PSAs approved with the least bureaucratic delays because of the huge investments in engineering, procurement, and construction (EPC) made for the power project.

Delays in the PSA approvals raise financing costs, which inadvertently translate to a higher capital recovery rate for the power generator. If PSAs are approved faster, then the potential for bringing down generating costs is greater.

Not just PSAs

A crippled ERC does not only affect new power projects. More recently, Aboitiz Power Corp. appealed to Malacañang to step in and resolve the problem faced by ERC. Three of its plants (the 400-megawatt Pagbilao facility expansion in Quezon, the 340-MW Toledo plant in Cebu, and the 68.8-MW Manolo Fortich hydropower project in Bukidnon) are about ready to be connected to the grid.

For the three plants to commercially operate, the ERC needs to give its go-signal. Being a collegial body, at least three members of the commission need to sign any ruling, including those on pending contracts and renewal of certificates of compliance (COC) of several generation companies and cooperative that are due to expire soon.

Since power companies and cooperatives would not be able to operate, it would only mean that electricity supply would be cut off, leading to serious power outages.

The proposed capital expenditures of distribution utilities as well as the National Grid Corp. of the Philippines, also need to be approved. Consumer complaints need to be heard. The ERC also has to go after violations of industry players of existing laws, rules and regulations.

Petitions for rate increases by distributors and electric utility firms have also been put on hold. Although this may sound as good news to consumers, it is, however, detrimental to the health of the companies involved. Many of them rely on a rate increase for improved operations or expansion plans.

Seemingly helpless situation

So far, few measures have been put forward to solve – even temporarily – this unprecedented deadlock that has paralyzed the country’s power sector. And even the suggested solutions do not seem adequate to surmount the crisis the ERC faces.

The Department of Energy (DOE) is looking at temporary replacements for the four suspended commissioners, but this would need firmer legal legs to stand on.

The Palace named a new ERC acting commissioner a few weeks ago, but the person had declined the posting, most probably because technically, there is no vacant position for a commissioner since those suspended were not “out” of office.

Given the seemingly helpless situation, wishful thinking arises: if only the four – or just even two – suspended commissioners would decide to resign. Or, in hindsight, would it have been better if the ombudsman had sacked, not just suspended, the four commissioners?

Would a Presidential Decree giving the President emergency powers over the power industry help? In a crisis situation, what seems to be an extreme measure could become acceptable.

The best that the DOE can do now is to mitigate any effect on the country’s power supply and demand situation, especially since the peak demand period for electricity is just a couple of months away. But even doing this faces some difficulty.

The upcoming expiration of COCs of a number of power generating companies and cooperatives may just have to be put on hold for a few more months under a force-majeure principle to protect the economy and the nation.

Yet, the DOE’s recent efforts to accept the offer of power plants without COCs or permits to operate has not been well received, with many questioning the basis for the DOE’s decision to bypass ERC’s regulatory powers, for fear that this may result in future legal problems.

Regulatory paralysis

ERC chairperson AgnesVST Devanadera has expounded extensively on the devastating effect of having the regulatory agency’s leadership pummeled by something like an Ombudsman ruling. Perhaps, now is the time to reflect on how to avoid a similar situation arising in the future.

Regulatory risk studies should also be initiated in similar government agencies to avoid the occurrence of what happened with the ERC.

We understand that the various ERC departments, with business as usual in mind, continue to do the basic day-to-day work it is expected to accomplish. With two months of work piled up, a new working commission will have plenty set before it.

The delays have already caused extensive damage to stakeholders of the power industry, even affecting negatively on the cost of future power generation. Let us all learn whatever we can from this experience so that it does not happen again.

Facebook and Twitter

We are actively using two social networking websites to reach out more often and even interact with and engage our readers, friends and colleagues in the various areas of interest that I tackle in my column. Please like us at www.facebook.com and follow us at www.twitter.com/ReyGamboa.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.