Yearender: New faces, old problems for energy sector in 2016

MANILA, Philippines – The first half of 2015 was a period of uncertainty for the energy sector, especially after the Aquino administration warned in the previous year of a looming power crisis which could take place in Luzon during the summer months.

Authorities attributed the negative power situation to delays in the start of operations of committed power plants and the month-long maintenance shutdown of the Malampaya natural gas facility in Palawan, aggravated by occurrence of unplanned power plant outages.

Failing to get the go-signal from Congress granting President Aquino special powers the previous year, the Department of Energy (DOE) did not give up on pushing for the emergency powers to avert any chance of power outage in the Luzon grid.

The House of Representatives had already approved in December 2014 Aquino’s request for such powers but the Senate remained lukewarm to the idea of giving the much-sought emergency powers to the Chief Executive.

The DOE continued its campaign to draw more support for the so-called Interruptible Load Program (ILP), as well as for public to do their part by employing energy-saving measures in their own households and at their place of work.

In February, then Energy Secretary Carlos Jericho Petilla launched “Energy Sense, Saves Cents” aimed at increasing public awareness of energy efficient practices which include putting the thermostat of cooling systems to 25 degrees Celsius and encouraging employees to wear clothes with light materials.

Meanwhile, the ILP is a program wherein commercial and industrial customers voluntarily use their own generators, instead of getting supply from the Luzon grid, to ease the strain on the grid.

Under the program, participants would be compensated at a cost to be determined by Energy Regulatory Commission (ERC) and would be shouldered by consumers.

“In times like this, we need the collective effort and assistance of those who are willing to extend their hands. Our search has never been in vain. In fact, ILP participants have been growing, reflecting the private sector’s role in this initiative,” Petilla said.

Manila Electric Co. (Meralco), the country’s largest power distributor, had signed up 79 private companies and one government office for the ILP. These participants can contribute to 755.55 megawatts (MW) of de-loading capacity to the Luzon grid.

In March, the Senate finally passed its version of emergency powers for the President to address the looming power crisis.

However, both Houses failed to agree on a joint resolution for the emergency powers due to contradicting views on who will pay for the cost. In its version, the Lower House said government should shoulder the cost while the Senate version passed it on to the consumers.

Fortunately, even as the Luzon grid neared the critical power reserves level in certain days, not even an instance of blackout took place and the ILP was not tapped because electricity supply remained stable.

“I am happy to announce that from March 1 up to the present, we have not had any brownouts despite the one-month maintenance shutdown of the Malampaya natural gas plant in Palawan,” House Committee on Energy chairman and Mindoro Oriental Rep. Reynaldo Umali said in April.

New faces in the Energy family

The year also saw new faces in the energy sector.

In April, Petilla announced his resignation to pursue his plans of running for the Senate but President Aquino had asked him to stay until a replacement had been named.

His resignation took effect on July 3, turning over the DOE portfolio to Undersecretary Zenaida Monsada as officer-in-charge (OIC).

Monsada was then sworn into office as ad interim secretary of the agency on Oct. 22, becoming the first woman DOE secretary.

In May, the Department of Finance (DOF) announced the suspension of Power Sector Assets and Liabilities Management Corp. (PSALM) president Emmanuel R. Ledesma Jr. due to findings of the Governance Commission for Government Owned and Controlled Corporations on anomalous transactions in the privatization process of state-owned power assets.

The agency has appointed Lourdes Alzona, PSALM vice president for finance, as officer-in-charge of the state-run firm.

She was elected as PSALM president and CEO in Aug. 2 after the President appointed her as board member of the state-owned firm, replacing Ledesma for the unexpired term of office from July 1, 2015 to June 30, 2016.

This makes Alzona the sixth CEO of PSALM and the second woman to assume the position.

The President also appointed a new Energy Regulatory Commission (ERC) chief after Zenaida Ducut ended her seven-year term last July 10.

On July 31, Aquino signed the appointment of then Justice Undersecretary Jose Vicente B. Salazar as chairman of the commission.

As chairman of the power regulator, he vowed to pursue transparency and impartiality in handling of cases.

“I’ve always been known to be not just impartial but fair...Of course, you have to remember that I am the chairman but I have four other commissioners with me. I only have one vote out of the five,” Salazar said. “Another component that’s important is the element of transparency.”

Finally, the National Transmission Corp. (TransCo) also elected a new OIC following the resignation of its former president, Rolando T. Bacani. Effective Sept. 1, the TransCo board elected Generoso M. Senal as OIC.

The controversial CSP

Industry stakeholders were also caught in a temporary deadlock after the DoE released a circular in the middle of the year directing all power distributors to bid out power supply contracts to generators.

Before vacating his post, Petilla issued the circular mandating all distribution utilities (DUs) and electric cooperatives (ECs) to go through a competitive selection process (CSP) in securing power supply agreements (PSAs) which aim to determine the least cost of power through demand aggregation.

To further strictly enforce goals of the circular, a third party will conduct the CSP.

Once the circular was issued, industry players were uncertain whether to continue on with their bilateral talks with power producers or wait until the rules are out.

Following the issuance, the DOE and ERC have to conduct public consultations to get the side of all stakeholders.

“The other question with this new circular from the DOE and ERC is what happens to contracting, does it stop? Will the DUs and ECs continue to write bilateral contracts or wait for the CSP implementing rules and regulations to be established and rolled out?” AC Energy Holdings Inc. president and CEO Eric Francia said.

A number of players have also criticized the CSP, saying this would lengthen the process of securing power supply deals.

The most vocal is Meralco, which opposes the mandatory component of the directive because it said no power distributors have the same requirements.

Meralco president Oscar Reyes earlier said the CSP is a “nice, attractive concept” but a one-size-fits-all process will not promote the best interest of consumers.

“We would think that in order to have more platforms in ensuring cost competitive or least cost power, having a mix of bilateral negotiations and CSP on a voluntary basis will be a more appropriate way,” he said.

Meanwhile, Francisco Viray, a former energy secretary and current president of Trans-Asia Oil and Energy Development Corp., questioned the third party requirement in the implementation of CSP.

He noted a third party “adds another layer” to the bidding process and this could delay the delivery of power to consumers.

Instead of tapping a third party to oversee the CSP, the DOE and ERC should ensure the implementing rules and regulations (IRR) are clear to make it work, Viray said.

From a consumer point of view, it is only now the government has come out with a directive that protects consumers, said David Celestra Tan, co-convenor of Matuwid na Singil sa Kuryente Consumer Alliance and founder of the Philippine Independent Power Producers Association.

He said competitive bidding would result in fairer and more reasonable rates.

“This is good for the consumers and for the country. There should be no argument on this truth and reality,” he said.

It was on Nov. 4 when the ERC issued the go-signal for DUs and ECs to conduct the controversial competitive bidding to generation companies to secure supply contracts for their captive markets.

“Now the CSP is effective, those supply agreements filed prior to start of CSP are not yet covered,” Monsada said.

However, the DOE and ERC seem to have not met eye to eye on the CSP.

In the recent ERC order, the power regulator did not mention anything about the third party component.

“It’s hard if people expect us to still amend the CSP. This is it. If you look at the rules, it’s very general but the objectives are very clear,” Salazar said.

But on the part of the DOE, it is just a general statement that the CSP has started.

“What the ERC issued is a general statement that the CSP has now started. Now, the details are being drafted by the DOE and we will discuss with ERC. We’re preparing the implementing guidelines as we see as necessary pursuant to the circular issued,” Monsada said.