Power sector still plagued with more issues

With the Supreme Court ruling voiding with finality 99 power supply agreements that did not go through competitive biddings, the 52 affected distribution utilities are now starting anew the process of securing much-needed power supplies that they will sell their customers.

Things may seem easy-peasy now, but it unfolds that a number of loose ends – which may be more than we all bargained for – need to be tied up lest big parts of the country are plunged into more brownouts and higher power rates.

Apparently, some ambiguity in the Supreme Court (SC) decision may result in an immediate end of supply contracts made after June 30, 2015 and currently operational. This would affect 743 megawatts of electricity consumed in various distribution utility (DU) areas.

The immediate option of the affected DUs would be to get electricity instead from the spot market, where pricing is very much affected by supply and demand, and can swing from P5 to as high as P30 per kilowatthour. Normal DU supply contracts, on the other hand, carry contract prices from P3 to P6 per kwh.

If the DU is based in Luzon or the Visayas, well and good. It’s bad news if the DU is Mindanao-based because the spot market currently does not operate in the area, which only means power outages will happen.

The good news is that affected DUs can have a competitive bidding concluded within the year, and a valid contract with selected power supplier delivering electricity shortly thereafter. There will be some adjustments made, however, if the power supply contractor is not the invalidated contract holder.

Deterrents to foul play

Questions about the transparency of competitive biddings have arisen, specifically since some of the power supply bidders for Meralco are affiliates.

Hopefully, this will not become an issue that would further delay the completion of supply contracts for the country’s biggest DU, which we are all aware of, is responsible for providing electricity to Metro Manila and its surrounding environs.

This year saw Meralco stretching its supplies to the maximum, with calls for several yellow and red alerts during the summer months when intense heat pushed consumption demand higher and diminished supply from hydroelectric power plants.

The Department of Energy (DOE) sits as an observer in the biddings, but DOE’s role may not be enough to ensure that the consumer will in the end benefit from the best price offer.

The memorandum of agreements signed between the Philippine Competition Commission and the DOE, and between the PPC and the Energy Regulatory Commission, should be a better deterrent for any price manipulation as DUs bear in mind that any agreements they make may be rescinded in the future should there be proof of foul play.

‘Murang’ kuryente

The signing into law of the Murang Kuryente Act last Aug. 8 should help partially alleviate the growing liabilities of the National Power Corp. (NPC) even after the power industry had been deregulated through the 2001 Electric Power Industry Reform Act (EPIRA).

By tapping into P208 billion of the net government share of the Malampaya funds, the Power Sector Assets and Liabilities Management Corp. (PSALM) hopes to avoid billing electricity users with a universal charge, found in monthly consumer billings, that covers stranded contract costs and stranded debts of NPC.

PSALM also sees the law as a chance to use the Malampaya funds to cover its yearly shortfalls as well as avoid additional borrowings to cover NPC’s maturing debts.

The Murang Kuryente Act is expected to bring down electricity rates by P0.86 for every kwh until such time that the Malampaya funds will be available. In the end, consumers are paying for the sins that NPC committed since its inception in the 1930s.

Still struggling

Now on its 18th year of existence, PSALM is still struggling to pay off the loans that NPC had incurred prior to the passage of EPIRA, then estimated at more than P800 billion, and since then with its management of power plants that supply electricity to missionary areas.

PSALM, as the government corporation tasked to privatize NPC’s assets, is still optimistic of bringing its balance sheet to the black by 2026 when its corporate life ends.

As of end-March, PSALM reported total liabilities at P436.3 billion, of which P258.9 billion were debts and P177.4 billion being lease obligations with independent power producers or power generators with contracts with NPC.

In June, however, PSALM secured a $1.1-billion syndicated loan to pay off some of NPC’s maturing loans. The previous year, it had borrowed P23 billion largely to cover for overdue accounts of IPPs and electricity cooperatives. All these loans are guaranteed by the Philippine government.

Unremitted collections

Earlier this month, PSALM reported that 11 electricity cooperatives owed P238.3 million in universal charges it collected from electricity users but had not remitted to the agency. Demand letters have been sent out with appropriate warnings, but collection would be a big challenge given the huge amounts.

During the remaining years of PSALM’s corporate life, it plans to accelerate the divestment of NPC’s remaining assets to be able to fulfill its mandate. There is widespread skepticism that this will be enough to pay off all the debts accumulated through the years, especially since NPC continues to pile on debts.

No wonder the Philippines has still one of the highest costs for electricity in the region. Is EPIRA really working?

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