Power failure

Energy officials want Congress to review the franchise of the National Grid Corporation of the Philippines or NGCP because around 80 percent of the country’s electricity problems may be linked to the “generous franchise” given to the NGCP in 2008 by former president Gloria Macapagal-Arroyo.

Due to the delays in NGCP projects, “we end up with many generation plants that are unable to connect to the grid,” an energy undersecretary told reporters after the hearing.

An ex-NEDA chief told our Viber group that he had been crunching the numbers and found out that NGCP has been generating until recently a very high 36 percent return on equity or ROE. Worse, it had declared 90 percent of profits as dividends.

That’s like printing money, suggesting that ERC is probably letting them overcharge consumers. Very little reinvestment. It was only in the last two years it started to reinvest 50 percent of profits after transmission problems were popping up all over.

The State Grid of China owns 40 percent of NGCP. Reports have it that it is the Chinese who control the technical aspects of NGCP’s operations.

Credit China-loving former president GMA for allowing the Chinese state-owned company to get into a vital infrastructure with national security implications.

Over a week ago, the dreaded power failures started to happen. According to the Department of Energy (DOE), the tripping of the Bolo-Masinloc 230 kV line 2 caused the tripping of Masinloc Units 1 and 2 with 618 MW. With other power plants already down, that was enough to put the entire grid on red alert. There were no typhoons or earthquakes that could have caused the tripping even if NGCP initially claimed a lightning strike.

NGCP’s explanation was sheer gibberish. Energy Secretary Popo Lotilla gave a simple explanation: outages in Panay and Negros, along with the blackouts in Luzon last May 8, have been due to inadequacies in the transmission system.

I have been told that in Iloilo, “the root cause is not power generation capacity. The root cause is NGCP’s inefficient protection system. Because of that, it limits the entry of generated capacity. The Palm Concepcion power plant has 243 MW output, so the problem is not generating capacity.”

Clearly, NGCP has not been enthusiastic about spending capex even if their investments will be reimbursed by electricity consumers after the projects are completed.

I remember Henry Sy, Jr. or “Big Boy” telling me some years ago why the Mindanao interconnection to the Visayas and Luzon grids was not needed. He was saying it is too expensive and there are cheaper ways of assuring adequate power supply in Visayas and Luzon.

I guess Big Boy could only see it from the point of view of an investor who will have to advance big bucks and temporarily forgo profit dividends. He couldn’t see it from the point of view of the country that will benefit from having all the power grids interconnected.

NGCP eventually pursued the interconnection project under extreme pressure from energy officials, but not before the Luzon grid could have benefited from the excess power from the new Mindanao coal plants that were underutilized. Actually, NGCP must also upgrade the interconnection capacity between Luzon and Samar to truly have an adequately functioning national grid.

I asked Secretary Lotilla about the status of the transmission projects of NGCP. This is his response:

“The Hermosa–San Jose 500 kV Transmission Line Project will ease the congestion in the Bataan corridor with its capacity to accommodate 4700 MW.  The project is expected to be completed by July 2023.  NGCP cited the reason this has been delayed from its original target completion in 2019 is due to the  pandemic and other permitting and construction issues.

“The Cebu-Negros-Panay 230kV Backbone Stage 3 Project will increase transfer capacity from 200 MW to 800 MW once completed by August 2023.  Its original target completion was December 2020.

“The Mindanao-Visayas Interconnection Project is expected to be completed and in full operation by August 2023 also.  Its testing and commissioning started on April 30, 2023 with an initial load of 22.5 MW and is expected to gradually increase the transfer capacity to 50 MW by mid-May, and 112 MW by the end of the month, before energizing to its full transfer capacity of 450 MW by August 2023.  This was originally scheduled to be in operation in December 2020. Once completed, we will already have one grid, one market.”

Actually, that Mindanao-Visayas interconnection should have been done decades ago. I was with the late energy minister Ronnie Velasco when that project was proposed, but the congressmen from Mindanao didn’t want it because they were enjoying very low power rates from the Agus River complex. They didn’t want to share that benefit.

The weather patterns changed and drought hit the Agus River and it was only then that the folks in Mindanao realized they need resiliency. So, they now have coal power plants and agreed to be interconnected nationally.

Beyond transmission, our power sector is in a serious crisis and there is very little being done about it.

Maybe it is time to review EPIRA, the law that governs the industry. Under EPIRA, only the private sector can build power plants. It was a reaction to the very expensive failure of government-owned and managed Napocor. But the private sector is now discouraged by the red tape and policy inconsistencies.

EPIRA was premised on competitive market forces assuring supply and reasonable prices. But there are so few power industry participants and that makes it an oligopoly. With very thin available supply, a few power plants going off-grid raises spot market prices.

How can more power producers be encouraged to enter the market? And now there is a strong public clamor for clean energy, complicating decision processes of potential investors.

So, how do we regulate the power companies? ERC has not been effective and is suspected of regulatory capture. There must be real competition with more market participants. There is a proposal to allow the government to put up power plants again, but that’s how our problems started.

How can we have a power industry that will be reasonably competitive to assure efficiency in service and pricing? Not an easy challenge for Sec. Popo.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco.