Making money out of power crisis

Is there a looming power supply crisis anew in the Philippines? The return of the rotating blackouts in the Luzon grid starting last May 31 raised this specter of power outages anew when consumers of the Manila Electric Co. (Meralco) suffered power interruptions. Being part of the Luzon grid, these Meralco-franchised areas in the national capital region and surrounding provinces suffered rotating blackouts.

The National Grid Corp. of the Philippines (NGCP) placed its Luzon grid under Red and Yellow alerts for three straight days – May 31, June 1 and 2 – causing rotating power interruptions. There were at least five baseload power plants that underwent unscheduled and unplanned shutdowns purportedly due to major technical troubles. The Energy Regulatory Commission (ERC) reportedly issued already “show cause” orders on the operators of the five generating companies (gencos) that suspiciously conked out all at the same time.

As of this writing, the ERC – headed by chairperson Agnes Devanadera – has not identified yet the five gencos. The ERC has the law enforcement authority under Republic Act 9136, or the Electric Power Industry Reform Act (EPIRA). It was signed into law on June 8, 2001 by former president Gloria Macapagal Arroyo to whom Devanadera served then at one time as her Justice Secretary. The EPIRA also created several spin-off companies like the NGCP when the government privatized the erstwhile state-run National Power Corp. (Napocor) power plants and its other assets and properties. This task was mandated by EPIRA to be implemented by the Power Sector Assets and Liabilities Management (PSALM) Corp. to undertake the restructuring of the country’s power sector within 25 years, unless extended by law.

Other than the ERC, Department of Energy (DOE) Secretary Alfonso Cusi had also sought the assistance of Justice Secretary Menardo Guevarra and the Philippine Competition Commission to look into the alleged possible “economic sabotage” angle behind the May 31 blackout in the Luzon grid.

Sen. Sherwin Gatchalian, chairman of the Senate committee on energy, echoed same suspicions during our Kapihan sa Manila Bay virtual news forum last Wednesday. When the Luzon grid power supply took a dive, there was sudden spike of price at the Wholesale Electricity Spot Market (WESM). Sen. Gatchalian learned the spot price of electricity got as high as P19 per kilowatthour (kwh) on May 31.

“Was there collusion among traders at WESM when these power outages happened all at the same time?” Sen. Gatchalian rhetorically asked. The WESM is the centralized venue for buyers and sellers trading electricity as the commodity. As such, the prices in the WESM shall be determined based on the actual use (demand) and availability (supply).

So it is the law of supply and demand, not EPIRA, that could dictate the prices.

Looking at the market, Gatchalian noted one of the obvious reasons is still power supply shortage problem in our country. It takes at least four to five years to build new baseload power plants. But with red tape, Gatchalian deplored it takes additional two years to put up a power plant with the required initial public offering for new genco investors.

As created by EPIRA, the WESM is run by an autonomous group market operator and governing body called as the Philippine Electric Market Corp. (PEMC).

Electric utilities and distributors like Meralco get their reserve power supply from the WESM to get competitive prices that they can pass on to their consumers to lower their monthly bills.

Meralco official spokesman and also the vice president for corporate communications Joe Zaldarriaga who joined us in our Kapihan sa Manila Bay zoom webinar confirmed the power utility firm gets at least ten percent of their reserve electricity supply from the WESM. But largely, Zaldarriaga cited, Meralco secures 90% of its power supply from bilateral contracts with the gencos. Despite their power requirements constantly “amply covered,” Zaldarriaga explained, Meralco must share the burden of reducing the supply shortage by resorting to manual load dropping or rotational brownouts to maintain the integrity of the Luzon grid system.

But Sen. Gatchalian noted with dismay the ERC has apparently failed to fully discharge its mandate “to discipline” the players of the power sector industry. They are the private companies currently operating previously government-owned and run power plants, transmission lines, electric utilities, other assets and properties that were privatized or sold to the private sector under EPIRA.

Gatchalian vowed to ferret out the facts and not the “finger pointing” among government energy officials during the virtual public hearing at the House of Representatives last Friday. The finger pointing was confirmed by Pampanga Rep. Mikey Arroyo, chairman of the House committee on energy who also joined us in our Kapihan sa Manila Bay zoom webinar. Rep. Arroyo is Gatchalian’s co-chairman of the Joint Congressional Power Commission (JCPC). The ERC, the WESM, the JCPC were all created under the EPIRA in a bid to restructure the power industry sector of the country.

Both Sen. Gatchalian and Rep. Arroyo agreed there is a need to revisit and update the more than 20-year old EPIRA. With the technology advancements to efficiently manage not just the country’s power sector but the entire energy industry on long-term basis, the lawmakers approved last week the proposed law replacing the JCPC with Joint Congressional Energy Commission.

Two decades later, we still suffer the same old problems of power supply crisis and the inefficiency, if not the continuing high cost of electricity services.

A very popular Chinese belief goes that for every crisis, there is both danger and opportunity. This is because when written in Chinese, the word “crisis” is composed of two characters: one represents danger and the other represents opportunity.

But when one gains opportunities to make money out of people’s misery, this is simply not an acceptable belief.