A series of unfortunate events led recently to what most consumers considered a thing of the past — rotating brownouts that may be minor inconveniences due to their short nature, but were indications nonetheless of Luzon’s vulnerable power supply. First, operators of several power plants decided to move up preventive maintenance schedules in seeking to ensure that there would be no blackouts during the May 10 elections. Amid the thin supply and as electricity demand jumped with the onset of the summer season, old power plants conked out one by one. The El Niño weather phenomenon made things worse — dams began drying up and cheap hydropower suddenly became scarce. This month, regulators announced that March power bills for Metro Manila and neighboring provinces would go up by 91 centavos per kilowatt-hour. But the actual increase sought by Manila Electric Co. (Meralco), the country’s largest distribution utility, was more than double that following a surge in spot market prices. Industry players and the government view the power shortage as nothing serious, citing "birth pains" following the mandated privatization of the state’s power assets. Critics, on the other hand, blame the Electric Power Industry Reform Act of 2001, which promised more efficiency in the industry and cheaper power through privatization. In Luzon, the grid first dived into "red alert status", which means it did not have enough reserve power, on January 25 after unit 2 of the Sual power plant conked out, taking out about 647 megawatts (MW). The system could have withstood Sual’s breakdown if not for the fact that a number of plants in the grid were also unavailable for various reasons. Quezon Power Philippines Ltd.’s 460-MW coal plant and the 600-MW Block B unit of KEPCo Ilijan Corp.’s natural gas-fed Ilijan power plant were under preventive maintenance, while the 620-MW Limay plant of San Miguel Corp. was down due to coal supply problems. Later on a 200-MW unit of DMCI Holdings Corp.’s Calaca plant went down due to a "boiler tube leak," a common ailment of aging plants. Jesusito H. Sulit, senior adviser to the president of the National Grid Corp. of the Philippines (NGCP), the private operator of the power transmission highway, said the main factor behind the brownouts was that many plants had been placed on early preventive maintenance. "Due to the upcoming elections, the maintenance of big power plants was done earlier, in the first quarter," Sulit said. "However during that time... there occurred forced outages of different plants, so we had rotating brownouts... na-tiyempo lang (They just coincided)," he said. Further exacerbating the shortage was limited hydroelectric plant capacity due to the El Niño-induced dry spell. National Power Corp. (Napocor) data showed that water levels at the 200-MW Angat, 75-MW Ambuklao, 100-MW Binga, 23.50-MW Caliraya, 360-MW Magat, 100-MW Pantabangan, and the 345-MW San Roque had been below the required levels at that time. Luzon’s power supply deficit was actually resolved that same day, in the evening of January 25, after Sual’s unit 1 came back online. The event, however, highlighted the grid’s precarious supply situation as Luzon remained on yellow alert, which means likely power interruptions since reserves were not enough to cover a breakdown of the grid’s single biggest power generating unit, which for Luzon is either of Sual’s two 647-MW units. Some of the problems were addressed by end-January but the NGCP warned on February 11 of a "red alert" from February 16 to March 11 as the Malampaya natural gas field, which supplies power to three Batangas power plants, was to be shut down for preventive maintenance. This came at a time when Korea Electric Power Corp.’s (KEPCo) 650-MW Malaya thermal power plant was running out of fuel, while Limay also remained unavailable. Malaya had been expected to run from February 12 to March 11 to partially offset the loss in capacity arising from Malampaya’s maintenance. The plant, however, was forced to operate in January due to Sual and Limay’s not being available at that time. The Malampaya facility feeds natural gas to KEPCo’s 1,200-MW Ilijan natural gas combined cycle plant and First Gas Power Corp.’s 500-MW San Lorenzo and 1,000-MW Sta. Rita. The First Gas plants had to run on the costlier liquid fuel condensate as substitute for natural gas. Limay finally came online last February 16, leading Energy Secretary Angelo T. Reyes to prematurely announce that there would be no more blackouts in Luzon until June. Things looked good after the pronouncement as the grid’s hydroelectric plants shored up additional capacity following "isolated rainy weather." From only 360 MW on February 16, the Kalayaan hydroelectric plants in Laguna produced 540 MW the next day. By February 19, the Luzon grid could export up to 150 MW to the Visayas grid, which had been experiencing deficiencies for some time. Then on March 1, two- to three-hour power interruptions bedeviled Luzon after the grid incurred a 478-MW supply shortfall. The shortage came after the forced outages of a Sual unit and the 315-MW Masinloc unit 1 of AES Corp. Power interruptions from 30 minutes to an hour plagued Luzon for at least four days before the supply situation stabilized later in the month as reserves increased to relatively more comfortable levels. The Malampaya field finished maintenance on March 13, allowing Ilijan, San Lorenzo and Sta. Rita to resume normal operations. Even then, Meralco spokesman Joe R. Zaldarriaga said it was still hard to say if the Luzon supply had stabilized. "Based [on] the past few weeks, the situation has been erratic so it’s hard to tell what will happen next so we just do day-to-day schedules. It’s hard to forecast now," he said. Post-asset sale ‘challenges’ linked to RP's power woes The recent round of power interruptions in Luzon, according to former Energy secretary Francisco L. Viray, was due to the birth pains of an industry still being shifted from the government to private hands. "The problem in Luzon is that there have been simultaneous outages and maintenance of plants. Actually, we have many reserves in Luzon," said Viray, who now heads the Trans-Asia Oil and Energy Development Corp. of the Phinma group. The Luzon grid’s capacity — if all plants are running and have sufficient fuel and water — is over 10,000 megawatts (MW), according to Jesusito H. Sulit, senior adviser to the president of the National Grid Corp. of the Philippines (NGCP). Peak demand this month has been estimated at close to 7,000 MW. "Privatization happened in just the last two years and we were not that prepared. This is the first time [that almost all of capacity is in the hands of the] private sector. Probably we didn't see that there should have been more proper coordination of the maintenance of the plants, said Viray, who served as Energy secretary from 1994-1998 during the Ramos administration. Republic Act 9136 or the Electric Power Industry Reform Act of 2001 required the government, through the Power Sector Assets and Liabilities Management Corp. (PSALM), to sell 70 percent of the capacity of the state’s generating assets, a precondition for open access and retail competition that would hopefully lower power rates. This threshold was breached after the sale of the 600-MW Calaca coal-fired plant to DMCI Holdings, Inc. What remains to be done is meeting an identical 70 percent threshold for the privatization of capacities contracted by the state-owned National Power Corp. (Napocor). The PSALM has achieved 44 percent as of December last year. Jaime T. Azurin, senior vice-president for finance and business development of Global Business Power Corp. — the energy unit of the Metrobank group — agreed that the country had been caught by transitional woes en route to a privatized power sector. "I don't think the government can be blamed. It’s just that we got caught in a transition period," he said. Azurin noted that privatization plans had been delayed and the private sector was focused on bidding for state power plants rather than on building new ones. Nobody may have looked at the situation as a whole, he said. A more malignant and pronounced power crunch has actually been unfolding in the Visayas and Mindanao, with the first quarter of the year checkered by rotating power interruptions. The Visayas grid has been experiencing power shortage since 2008. The shortfall in the grid, however, is expected to be resolved before end-2010 as the Cebu Energy Development Corp.’s 246-MW coal-fired power plant in Toledo, Cebu is completed. The plant’s initial 82-MW unit is now operating and undergoing commissioning tests. Its other two units are expected to come online by June and December this year. In Mindanao’s case, the supply shortfall came as the capacities of the island’s hydroelectric plants, relied upon to deliver over half of the grid’s electricity, evaporated due to the onset of the El Niño weather pattern. The Napocor’s 727-MW Agus hydroelectric plants and the 255-MW Pulangi plant have been putting out less than a tenth of their capacity due to declining water levels. Mindanao’s power supply deficiency has been running at 500–600 MW since last month. The Visayas and Mindanao are also having problems attracting bigger investors as some in the industry claim Napocor rates there are artificially low. Compared with the P4.0271 per kilowatt-hour (kWh) Napocor rate in Luzon, the Visayas rate is lower by P3.7710/kWh, while Mindanao is much lower at P2.8459/kWh due to the presence of cheap hydroelectric power. Napocor rates are lower in the Visayas and Mindanao since its power plants there are much older and therefore have fully recovered capacity fees — costs incurred in the plants’ construction. For instance, the 727-MW Agus — the main power dynamo of Mindanao — is already half-a-century old. "It’s hard to compete because Visayas and Mindanao rates are artificially low," Azurin said. Fernando Y. Roxas, a power expert from the Asian Institute of Management (AIM), said Mindanao has the wrong price signals. Rene B. Azurin of the University of the Philippines-College of Business Administration (a first cousin of Global Business’ Jaime T. Azurin) said more liberal price ceilings should be set in Mindanao. "Over the years, Mindanao has been spoiled by cheap power. Given that rates are very low [that’s a disincentive] for additional capacities to be ushered in for Mindanao. The ERC (Energy Regulatory Commission) should allow higher rates to entice additional investors," he said. ERC Executive Director Saturnino C. Juan, however, sees no need to modify the pricing structure in Mindanao. "Based on existing regulations a new independent power producer does not have to compete with the Napocor. Even if their rates are higher, we can approve them so long as the Napocor will not say that they still have capacity to offer to the prospective off-taker of that IPP. They're not capped to Napocor grid rates," Juan said. We don't have to be more liberalized than what we are now, he added. Roxas said one solution for Mindanao is to privatize the Napocor plants and let competition take its course. The 10-year prohibition for the privatization of the Agus and Pulangi plants under the law that deregulated the power industry, meant to preserve the island’s cheap power rates, is due to expire next year. Mylene C. Capongcol, director of the Energy department’s Electric Power Industry Management Bureau, said the government was doing a detailed mapping of the required capacities of the Visayas and Mindanao. "What we are trying do is to present indicative sites, to show possible locations of new generation plants. We will try to make the Visayas and Mindanao more attractive," she said. In Metro Manila, meanwhile, one nagging problem is the spike in power rates during summer months. As a consequence of the supply shortage in Luzon, prices at the Wholesale Electricity Spot Market (WESM) — created under the deregulation law — recently spiked. Manila Electric Co. (Meralco), for instance, saw its generation charge increase to P6.76/kWh for the February supply mix, the highest in three years from the July 2007 level of P5.69/kWh. Meralco was forced to get 17 percent of its power supply from the WESM; the minimum under the law is 10 percent. The WESM’s average price rose to P12/kWh in February from P6/kWh a month earlier. Prior to this, Albay Governor Jose S. Salceda, an economic adviser of President Gloria Macapagal-Arroyo, called attention to alleged price abnormalities at the WESM from Februrary 11 to 13. He claimed WESM prices on these dates had spiked to an astronomical P68/kWh. The Philippine Electricity Market Corp., the WESM administrator, has said an investigation was under way. The AIM’s Roxas, however, said pricing imbalances were bound to occur under a deregulated environment. "In all deregulated markets, people will try to get the best price they could get, and sometimes that borders on the dysfunctional, and that’s where the regulator steps in," he said. In a recent report titled "Dark Power Rising," the Freedom From Debt Coalition (FDC) hit the ineffectiveness of RA 9136, saying the persistence of market concentration is rooted not in the delay of privatization but more in the inherent failure of the deregulation law to break the monopoly structures in the industry and establish a strong regulatory framework. To expect the highly concentrated Philippine electricity market to respond positively under the WESM is to assume theory to reign over reality, the FDC said. Amid calls for amendments to the law, Roxas said it would be best to leave the law alone to ensure politics will not play a role in the power sector. The power industry’s ongoing privatization is presenting the government with newfound challenges, Capongcol said. "We are... now finishing with privatization, [and found many] challenges we did not expect," he added.
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