OUTDATED ANTI-CONSUMER TERMS IN BOT-Type PSA Contracts Needs to be Prohibited (Part 2)
David Celestra Tan, MSK
4 December 2018
Part 2/2
History of Guarantee Payments during Downtimes
There was a time in the power crisis of 1990s when these guaranteed capacity payments are necessary to encourage power plant investors, most of them foreign, to invest in the much need power plants….in a hurry. The Philippines therefore needed to provide them revenue security to assure the financing can be serviced and recovered. Most of these are BOT contracts or build operate and transfer. The power generation and transmission sector were still government monopolies so it had to provide the sovereign guarantees for the assured payments whether the plants are used or not. Notice that there is a “T” in the end of the term, meaning ownership of the power plant were supposed be transferred to the government at the end of the 10 to 20 year terms. Meralco itself adopted this guarantee capacity provisions for the Lopez owned 1,500mw of First Gas Power. It sent its PPA charge to consumers to P10 per kwh.
Downtime allowances especially Preventive Maintenance Schedules
The typical coal power plant asks for a downtime allowance in their contracts of a total of 60 days a year. Power Plants do indeed need to be shutdown regularly for preventive maintenance and for when they just breakdown for various reasons called “unplanned”. Nothing wrong with that provision. However, that should only excuse them from providing the service or delivering contracted energy and should not entitle them to guaranteed downtime payments that are then passed on to the consumers.
How do we protect the consumers?
1. Power Supply Contracts that pass on to the consumers the guaranteed payments for downtime allowances should already be prohibited. This must be included in the template for PSA’s issued by the DOE and the Guidelines for Procurement of power supply that the ERC is trying to finalize.
For base-load supply contracts (24 hour service) charges must be based on energy delivered. Power Generators should incorporate their annual capacity fees into their kwh rate based on a contracted annual energy to be delivered. This way we know what is the true cost of energy without the hidden extra charges for downtime payments.
It is a different story when the plant is ready to deliver but is not dispatched due to excess supply in the system. In this case, there could be a fair capacity payments but there has to be an credible validation that the power plant was indeed able and ready but not dispatched. The DU or the IPP can be required to sell those in the spot market to someone mitigate the pass on charge.
Very few DU’s specially those in the off-grid areas bother to put in a system to validate the capacity availability on per hour basis to make sure they were paying for available capacity and not for capacity that were down in the first place.
2. For intermediate supply contracts (12 to 18 hours service) it must also be based on energy delivered although this would be expected to be more expensive. Alternatively It can be load factor based pricing.
For peaking and reserve supply service (3 to 10 hours service) Fixed Capacity payments are justifiable for their role is to be ready to run whenever called upon. If they are asked to run, they are paid for a pre-agreed running costs to cover such things are variable operating costs, lube oils and fuel. There needs to be validation however that their capacities are indeed available on hour to hour basis for them to be entitled to capacity payments.
3. Validation of Ready to Run Capacity
In Meralco it is not clear whether they are bothering to check if their contracted power plants are available to be entitled to capacity payments or if they have exceeded their downtime allowances, or, if they do, whether they are looking the other way. In the hearings MSK attended on validation of fuel surcharges during the Malampaya shutdown, it was evident Meralco do not bother to validate the fuel charges of their power suppliers. How much more the capacity availability by a sister company?
The process is non-transparent and there is no ERC or DOE rule to protect consumers from undue capacity charges.
For power plants on the grid and members of the WESM, it is easier to monitor because the system operator and the WESM monitors every plants status all the time. They however do not see the power bill that Meralco pays and pass on to the consumers.
In the off-grid areas, the local coops don’t bother to monitor daily available capacity mainly because they were not made to believe they needed to. So power generators bill monthly the capacity component of their contract whether they were down or not. Downtime allowances become the alibi for billing the coop and the customers for full capacity charges. This has been causing a significant rise in missionary subsidies. And sadly, those islands still suffer from brownouts.
Will this not result to higher per kwh rate to the consumers?
Yes, the officially declared kwh cost will be higher because this time it is the true cost with the hidden capacity charges already included. There is no real extra cost to the consumers. But we make them transparent and protects us from payments not deserved.
The real protection of the consumers however is when these power supply contracts are subjected to truly competitive bidding or CSP. Let the IPP’s sharpen their pencils to win the bid. Let them bid their most efficient cost, to assume 45 days downtime instead of 60 days, to offer the most efficient technologies.
Consumers will not enjoy the benefit of these “competitive” pressures if we continue condoning the negotiation of contracts between sister utility and power suppliers, the circumvention of CSP rules, the monopolization and cartelization of the power generation sector.
Let us start by prohibiting these outdated anti-consumer provisions in power supply contracts.
We are afraid that these sweetheart provisions are in the seven (7) midnight contracts of Meralco. At 3,551mw, we estimate the extra capacity payments during downtimes of P10.8 billion a year, or P216 billion over 20 years.
ERC Chair Devanadera, pwede po ba huwagninyoitopalusutin? KungGusto po natin talaga ng performance based methods, ito po yun. Let us pay when they are performing and not when they are down.
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
david.mskorg@yahoo.com.ph
matuwid.org
