Putting our power supply at risk

Somehow, whenever there’s a cost increase in something, the immediate reaction is that someone must be gouging the public, some profit-hungry company determined to make as much profit as it can in whatever nefarious way it can. Those who complain so loudly don’t seem to care much about facts.

Let’s start with FACT #1: A significant portion of the P4.15/kwh price increase was meant to be for only one month to cover the higher cost of fuel due to the shutdown of the Malampaya gas field for its regular three-year maintenance (a schedule planned as early as May but delayed at government request to ensure there would be sufficient power during the two elections in May and October). Prices also rose during the last shutdown in 2010, but then reverted to normal.

Prices were high in the supply months of November and December. After that, prices would have returned to normal in the succeeding supply months. But due to opposition, the higher costs were now to be spread over three months at lesser monthly rates, but overall costing us more. Now with the temporary restraining order issued by the Supreme Court, the eventual cost will be even higher and spread over a longer period. Instead of sharp, sudden pain, we’ll be in greater, more expensive agony much longer.

FACT #2: This meant the three plants dependent on Malampaya gas had to partially shut down or reduce their output using more expensive alternative fuel for an overall loss of around 1,030 MW. The maintenance of three other power plants was also delayed or had extended maintenance programs, or were on forced outage, taking another 920 MW (average) or as high as 1,485 MW off the grid at some point during the Malampaya shutdown. With the reduced supply in the grid, prices increased significantly in the Wholesale Electricity Spot Market (WESM), where Meralco had to source a larger share of its requirements due to the reduced capacity of its normal suppliers.  Mind you, the scheduling of the shutdowns could have been better managed. That’s something Energy Secretary Jericho Petilla might want to look into.

FACT #3: You have to add to that the unexpected damage to Energy Development Corp.’s Leyte geothermal plant that took 525 MW out of the Luzon and Visayas grids. Of the 525 MW, 150 MW was serving Luzon. Add to that the loss of 250 MW from San Lorenzo plant due to a fire in one of its transformers. This was repaired only in December.

FACT #4: We wouldn’t even have this problem if we had more than enough generating capacity. We should have a reserve of at least 2,730 MW, but we only have 733 MW. That’s because new power plants have been blocked by those opposed to them.

A proposed baseload plant in Subic projected to generate 600 MW should have been under construction and would have been finished by 2015, but it’s been blocked for over three years now.

FACT #5: Meralco has nothing to do with it. It just happens to be the collecting agency. The charges it applies didn’t change and haven’t changed. As one of my good friends well said: “This kind of populist knee-jerk reaction over the long run will only make matters worse by way of making the Philippine regulatory environment inhospitable to new investments, especially in power generation, the root cause of this situation.” The issuance of a TRO on Meralco is like shooting the messenger bearing the bad news.

FACT #6: As to power companies allegedly colluding all at the same time so they could raise prices, why would they do that? If they are shut down there’s no income. For some it was actually worse. Some generators with forced outages had to buy from the market at a high price to cover delivery obligations.

FACT #7: The Energy Regulatory Commission was legally created to ensure the correct behavior of the power industry. Its role is to determine if there’s been collusion, or the Market Surveillance Committee of WESM if purchase is through the open market. It is not the role of the Supreme Court, which has no electrical engineers in its composition. So why is it accepting to rule on a technical issue? If there’s been collusion, surely that’s for a lower court to first determine. It isn’t the high court’s expertise. If the justices think it’s a constitutional issue (frankly, I can’t see how, but I’m not a constitutionalist so I’ll give them that leeway), then look at it. But that can and should be done while normal operations prevail (i.e., no TROs to disrupt the system and put society at a disadvantage).

FACT #8: The Supreme Court’s intervention in a case it shouldn’t even consider will mean higher cost caused by the delay. If the Court persists in review and decides it’s a valid increase, then shouldn’t the critics shoulder that extra increase, and not us the innocent consumers? If the Court denies the increase, that will lead to a more fundamental problem.  The Philippine government can’t afford to build power plants so it made the sensible decision to tap the private sector to help. And with the private sector’s ability to do things more efficiently and at lower cost (as the water concessionaires have shown), it does indeed make good sense.  But with opposition like this, and courts interfering in something where they don’t have the expertise, we aren’t going to get new power plants. Reserves are already far too low, meaning occasional blackouts are inevitable.

But, much worse, most plants are over 25 years old; they can no longer run at rated capacity and eventually will break down irreparably. New plants will be needed. New plants won’t be built if their revenues can be capriciously withheld.

Expect blackouts as President Aquino ends his term. A repeat of his mother’s predicament and our suffering.