power problems of mindanao

An article is now being circulated and shared among Mindanaoans regarding the power problem. Starting early this year, Mindanao has been a victim of scheduled and rotating power outages, and even if the blackouts are gone, the power bills have steadily increased that now it's almost a 100% increase from the usual monthly figure, mine included.

Written by Engr. David Tauli, Senior Vice President of the Cagayan Electric Power and Light Company (CEPALCO), everyone is invited to read and ponder on the ideas he presented in his paper, a portion of which is below:

1. The Short Term Power Supply Problem

As of July 2010 there are two critical short-term power supply problems in Mindanao:

(1) Unwillingness and inability of NPC to meet their obligations to Mindanao customers under existing Contracts for the Supply of Electricity; and
(2) Extremely high rates for Ancillary Services charged by the NGCP in the transmission services bills to power customers for the months of April and May 2010, which will continue for a year if the application for the NGCP-TMI Ancillary Service Procurement Agreement (ASPA) is given final approval by the ERC.

The second problem resulted from the first, but it has taken on a life of its own and, consequently, needs to be addressed separately.

1.1 Unwillingness and Inability of NPC to Meet Their Obligations to Mindanao Customers

In the period February to June 2010, the National Power Corporation(NPC) was not able to supply to their customers in Mindanao (distribution utility companies and directly connected industries) the amount of power and energy that were contracted from them under Contracts for the Supply of Electric Energy (CSEE). The NPC contracted to supply a total of around 1,350 megawatts to Mindanao customers, but were able to provide just 50% to 80% of the requirements of their customers during these months, resulting in brownouts in the franchise areas of distribution utilities that lasted two to eight hours daily and shutdown of operations of the industrial customers. Economic losses by NPC customers in Mindanao due to the massive power shortages have been estimated to be in excess of one billion pesos per month for all the months in which extensive brownouts occurred.

The Power Sector Assets and Liabilities Corp (PSALM, owners of NPC) and the NPC have been blaming El Niño for their inability to provide the requirements of their Mindanao customers, but it has been shown conclusively that the main cause of the power shortages was the heavy drawdown by NPC of the water stored in Lake Lanao during the last quarter of 2009, resulting in year-end water surface elevation that was about one meter lower than the lowest year-end elevation of Lake Lanao in the previous decade. This one meter of depletion in the stored water would have been sufficient to supply the requirements of Mindanao customers over the dry period from January to May (along with the generation from the non-hydro plants owned or controlled by NPC operating at their normal levels for the dry period). Because of the low year-end water surface elevation, the hydro plants on the Agus River produced only from 100 to 300 MW in the first half of 2010, while they had been capable in previous years of producing in excess of 500 MW during the dry period from January to May.

1.2 Extremely high rates for Ancillary Services charged by the NGCP in the months of April and May 2010

In April and May 2010 the bill of the National Grid Corporation of the Philippines (NGCP) to their customers included charges for Ancillary Services at the rates of 560.44 pesos per kilowatt and 606.88 pesos per kW, respectively. This can be compared with the average Ancillary Service charges of 49.76 pesos per kW per month in the year 2009, showing that the rates in April and May were more than ten times the average rates last year.

Despite objections by NGCP customers to the extreme rate shocks due to the AS charges, it is expected that the NGCP will continue to charge these exorbitant rates because of the Provisional Approval given by the Energy Regulatory Commission(ERC) to the AS Procurement Agreement between NGCP and TMI. Hearings at the ERC are being conducted as of this writing, and it is the hope of the Mindanao customers that what has been considered as both exorbitant and illegal AS charges will be disapproved by the ERC, and the amounts collected by NGCP (and passed on by the distribution utility companies to their customers) will be refunded to the customers.

2. The Long Term Power Supply Problem

Large power plants in Mindanao are estimated to have total dependable capacity of 1,600 megawatts, while total peak demand prior to the power shortages in 2010 was approaching 1,400 MW. Growth in power requirements throughout Mindanao have been projected to be in the vicinity of five percent per year. Large power plants need to be constructed in Mindanao to meet demand in the coming years. There have been proposals from the private sector for the construction of enough power plants to meet the expected growth in demand, but to date none of the proposed projects has been able to aggregate enough power purchase agreements (PPAs) to commence project implementation.

The main reason for the unwillingness of the electric cooperatives to enter into PPA’s with prospective power plants is that the price being quoted is five pesos per kilowatt-hour or more for long-term power supply, while the customers of NPC are purchasing their bulk power at around three pesos per kWh. This problem in perception would not exist if the NPC had unbundled their bulk power rates into hydro and non-hydro components, so that customers could see that the actual rates are at most two pesos per kWh for generation from the hydro plants on the Agus and Pulangi rivers, and at least four pesos per kWh for generation from the non-hydro plants. Further unbundling of the rates would show that the rates are in excess of eight pesos per kWh for the oil-fueled plants, but this may introduce administrative problems in the billings by NPC. Moreover, the two-component unbundling would show that the low average rates are due to existing hydro power plants that have a limited dependable capacity of around 800 MW only. Power customers could see that no more low-cost power is available in Mindanao, and should readily enter into contracts for the relatively expensive generation of all types of large power plants that are being proposed for Mindanao by the private sector.

Hence, the long-term power problem is basically a price-perception problem that could be addressed by the PSALM and NPC through: (a) unbundling their rates, (b) entering into long-term contracts (CSEEs) with Mindanao customers for the generation of the existing NPC-owned hydro plants, and (c) entering into CSEEs with their customers for the generation of non-hydro power plants that is still owned or controlled by NPC. However, the PSALM and NPC have been making unreasonable excuses for not unbundling their rates and contracting out the generation of their power plants, their main excuse being the privatization of NPC generating assets that is being carried out by the PSALM. But this is really an unacceptable excuse, which the PSALM and NPC will not be able to invoke when Congress passes a resolution that will extend indefinitely (beyond the year 2011) the non-privatization of the Agus and Pulangi hydro plants that is mandated in the EPIRA.

This last point underlines the urgency for Mindanao power customers to work on the non-privatization of the Agus and Pulangi hydro plants, not only to prevent an increase in rates of electricity in Mindanao, but also to move the electric cooperatives to enter into long-term power purchase agreements with prospective power plant projects.