Electric Coops Need DOE, NPC, and NEA Guidance in Power Supply Planning and CSP

David Celestra Tan, MSK

4 June 2017

The power generation supply contracting of electric cooperatives is an area that is being overlooked that had also been resulting to high generation rates to consumers due to negotiated contracts and over or improper contracting. In the off-grid areas, it is resulting to higher missionary subsidies that are passed on to the national electric users as Universal Charge. Billions in avoidable charges are lost every year.

The National Electrification Administration is overseeing the provision of electric services to most of the Philippines land area by the country’s government organized 122 electric cooperatives, 49 in the off-grid areas and 73 in the national grid. They sell an estimated total of 16 billion kwh of energy in 2016 to about 21 million people, a big part marginalized citizens who can least afford overpriced electricity.

Power Supply Contracting by 73 EC’s that are Connected to the National Grid

The largest electric cooperatives in Batangas, Central Negros, South Cotabato (Gensan), and Bataan have high electricity rates due to insufficiently guided negotiated rates and over-contracting.

Since they are on the grid, bidding their power supply contracts had not been required. Many enlightened ones have elected to band together and nonetheless hold aggregated bidding, like the group of 8 in Northern Luzon. In the Western Visayas and in Mindanao, electric coops formed associations for supply contracting but they negotiated nonetheless.

Without guidance and check and balance, at least two of the largest coops got into ill conceived and or excessive power supply contracts that have been hurting their member consumers by P1 to P2 per kwh.  One coop signed for much higher guaranteed minimum off-take than they really need. Aleco in Albay started its billion peso tailspin when it incorrectly planned its power supply mix strategy by gambling on the WESM.

Hidden Billion Peso Abuses in the 49 EC’s in Off-Grid Missionary Areas

In the off-grid areas, the missionary subsidies of NPC-SPUG had increased to P10 billion a year instead of reducing from the supposed privatization of the 14 largest islands in 2006. Still the power supply is not reliable like in Palawan, Mindoro, Romblon, Marinduque, Masbate, and Catanduanes.

Ironically, EC’s in these missionary areas are supposed to be covered by a clear DOE requirement that their power supply contracts must be subjected to bidding (competitive selection process) established in 2005 by DC2004-01-001 because those contracts are subsidized by the government and the consumers. (True cost of generation in the grid is P5.50 per kwh compared to P10 per kwh in the off-grid areas. To support the islands development power is being kept at P6.80 per kwh with a subsidy of about P3.20 per kwh which is then recovered from the national consumers through a universal charge called UC-missionary which is now P0.19 per kwh)

The implementation however by the DOE itself had been inconsistent, political, and lacked commitment to a vision. DOE itself circumvented its own rules on CSP. It looked the other way in obviously manipulated biddings and condoned sham biddings like “unsolicited proposals” or swiss challenge based on a shallow interpretation of the BOT law. The DOE is supposed to certify to the ERC that bonafide CSP’s had been undertaken by the EC as a condition of ERC approval. The certifying officer however only had been issuing certifications that the EC conducted a CSP and silent on whether the process was bonafide and truly competitive. Complying with the letter but not the competition spirit of CSP.Newly installed DOE Secretaries do not have time to realize.  These tolerated manipulations had been resulting to higher missionary subsidies. In one island the bidder won with a P7.07 per kwh price but ended up with a P12 per kwh contract. In another the official bid was P9.38 but the contract was signed for P12.80 per kwh. In those two the missionary subsidy increased by P350 million a year or P5.25 billion for their 15 year terms. Not small potatoes.

Now more EC’s in the off-grid areas are seeking permission from the DOE to do swiss challenge. And the DOE has been looking the other way.

The misguided supply contracts go beyond price. They result to unfair contract terms and wrong equipment configurations all resulting to higher true cost of generations that are subsidized by the government and passed on to consumers. There is a unit under the ERC called Distribution Management Committee that is supposed to have established a distribution code that includes guidelines on proper supply mix. We have not heard these being actively implemented.

Among the technical guideline especially in off-grid areas is the maximum size of the largest generating unit which should be about 10% of the islands demand. The largest generating unit in an island determines the amount of fast starting reserves  that is needed to assure continues power service in case of mechanical breakdowns of those large engines. The Philippine grid code requires a minimum reserve standard of “N-1” but realistically it should be “N-2” for more secure reliability in the island.  N-1 is one where, to assure continuous normal operations, there is a reserve generator equivalent to the size of the largest generator which if it is 4mw would require a 4mw ready reserve. Better if there are two 4mw reserve capacity under N-2.  Reserve capacity is expensive so it needs to be prudently installed. In one island with a 40mw demand and should have 4mw as the largest generating unit, the local coop contracted with DOE and ERC approval of 6.5mw units 62% bigger than it should be. Hence the reserve capacity on the island which is expensive will have to be 6.5mw instead of 4mw or 13mw under N-2 instead of 8mw. Those additional costs become part of the missionary subsidy.

The absence of an assertive guidance and supervision by the DOE and NEA in the power supply contracting activities of these EC’s created a “power vacuum” that naturally is filled in by the local politicians, mainly the Governors, Mayors, and Congressmen who do not normally have the qualified guidance on power supply mix and compliance with CSP processes. They dictate the power supply contracting activities of the local coop. If not the Coops directors themselves undertake the misguided power supply contracting.

One island had not fixed its power supply problems for almost 10 years because the Governor’s anointed brokers could not put the right solution together.

The National Electrification Administration has been MIA (Missing in Action)

The Epira law of 2001 mandated NEA under Section 58 to develop and implement programs:

(a) To prepare electric cooperatives in operating and competing under the deregulated electric market within five (5) years from the effectivity of this Act, specifically in an environment of open access and retail wheeling;

(b) To strengthen the technical capability and financial viability of rural electric cooperatives; and

(c) To review and upgrade regulatory policies with a view to enhancing the viability of rural electric cooperatives as electric utilities.

NEA shall continue to be under the supervision of the DOE and shall exercise its functions under Presidential Decree No. 269, as amended by Presidential Decree No. 1645 insofar as they are consistent with this Act.

If the NEA would step up to this mandate, billions of unwarranted power charges and missionary subsidies can be avoided. 

 This important NEA mandate was not even included in the new NEA Law under Republic Act 10531 which appear to be more administrative in nature, clarifies its power over the electric coops including those under CDA and mostly reiterated NEA’s powers under PD 269, which touched upon contracting and procurement under its Section 4 L

“(l) develop, set and enforce institutional and governance standards for the efficient operation of electric cooperatives such as, but not limited to, the observance of appropriate procurement procedure, including transparent and competitive bidding. Such standards shall he enforced through a mechanism of incentives and disincentives to complying and non-complying electric cooperatives, respectively;

Procuring for power supply are bigger contracting commitments of the EC’s than their procurement for equipment and supplies.

The National Power Corporation

This government institution has so much technical capability that can be utilized by the DOE and NEA in assuring the proper power mix and generation supply planning of the Coops in the off-grid islands. They are the administrator of the missionary subsidies and it is its duty to assure prudent incurrence of subsidies and that starts with the scope and terms of the power supply that will be bidded.

If the DOE can ask for a technical evaluation by the NPC before they approve the terms of reference of the proposed CSP of the coops, it will go a long way to preventing misguided supply contracts.

The Department of Energy

Both the NEA and NPC are under the supervision of the DOE.  Things will not go in the right direction in the power sector unless the DOE provides the guidance and impetus in implementing programs.

It may not be being recognized but the CSP policy is actually finally providing the DOE the long needed enforcement teeth for power development and energy mix.  Their policy guidelines used to rely mostly on persuasion.  CSP provides DOE the power to impose their will on power development strategy.

Speaking of CSP, we hope that the DOE can step up to resolve the issue on the seven (7) midnight supply contracts that is pending at the Supreme Court, the Ombudsman, and the ERC. The future power supply in the Meralco area is on the line here. The DOE can come in as the honest broker to come up with a win-win solution in the questionable extension of the CSP policy by the ERC and the consequent fast-track signing by Meralco of 3,551mw of coal power supply contracts with companies controlled by its sister company MeralcoPowerGen only 4 days before the new ERC deadline.

Otherwise, a “power crisis” situation will again be asserted and the public will have to swallow again the negotiated and overpriced power supply contracts for the next 20 years.

We hope the new DOE will not allow this to happen and proactively do something now.  Billions a year in avoidable charges to consumers are on the line both from higher rates on the grid and higher missionary subsidies in the off-grid areas.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

matuwid.org

david.mskorg@yahoo.com