Security of Power Supply and The Futility of Sec. 71

David Celestra Tan

31 October 2014

While a lot of attention is on invoking Epira Law’s Section 71 to grant emergency powers to the President of the Philippines to deal with an “imminent power crisis” this coming summer, there are many larger issues that have become evident on the drawbacks of this power crisis provision and its futility in dealing with a power shortage, much less for assuring timely and cost effective solutions.

Section 71 of the Epira Law of 2001 is called “Electric Power Crisis Provision” says “upon determination by the President of the Philippines of an imminent shortage of power, Congress may authorized through a Joint Resolution the establishment of additional generating capacity under such terms and conditions that it may approve.”

The reason for this is under the Epira Law that prescribed the privatization and deregulation of the power industry, the government is no longer allowed to own power plants or enter into new power supply agreements. The private sector is supposed to do that and meet all the power requirements of the country at fair and reasonable costs. Section 71 was supposed to be a fall back position to allow government to get into power generation if there is going to be a power crisis.

Now Thirteen (13) years after the Epira Law was passed and its Implementing rules and regulations passed in 2002, the Filipino consumers have the worst of both worlds, high power rates and unreliable power supply.
The Department of Energy has predicted that there will be a power shortage for a few hours in a few days in the summer of 2015 and Secretary Carlos Jericho Petilla had broached the idea of asking Congress to grant President PNoy emergency powers to rent 300mw of rental generators for two years at a cost of more than P10 billion. Later, that shortage prediction was increased to 1,200MW in a worst case scenario.

The debate is on- going but the drawbacks and futility of Section 71 have become evident.

1. Declaring an imminent power crisis is easier said than done. We need solid numbers. Foreseeing one in sufficiently ahead of time is not easy.

2. Getting congressional approval is contentious, political, and time consuming that by the time the President and DOE gets one, it may be too late for a timely solution.

3. Quick and temporary solutions are both limited and very expensive.

4. The private sector cannot be counted upon to provide a comprehensive solution on their own. They seek profit opportunities but not necessarily, as a group, undertake a total solution.

5. Despite privatization the electricity is a public service that the government must still assure and the people expect it to step up and be responsible.

6. The public is leery and suspicious of negotiated contracts and any government official overseeing it cannot escape being smeared.

7. Section 71 is not an adequate mechanism to assure security of supply for the country.

When The Epira law was still being framed in 2000, Section 71 was supposed to be a “Security of Supply” provision that designates the government, specifically Napocor as the generator of last resort. That was in recognition of the fact that in the end the people still expect the government to solve any problems in power supply and high rates in this very essential public service. The vested interests and their Congressional allies won’t hear none of it because they were so afraid that if the law opens a window for the government to hold on to some power generating assets, some of Napocors power plants that they so craved might not be privatized. (well, the rest is history).

As long as Congress is hot on the issue of Section 71 and emergency powers, it is an opportune time to look at the broader issue and the larger interest of the country by recognizing these drawbacks and the futility of Section 71 and pass instead a Security of Supply amendment, albeit belatedly. The government through Napocor should be allowed to retain and establish strategic power generation assets with specific grid roles both to assure supply and even to intervene in the market if the prices are going unreasonably and painfully high for the consumers.

If the government is to be expected to step in anytime and do it cost effectively, it needs ready capability to Maintain and build strategic power generating capability for the long term with appropriate planning and strategy. Napocor practically gave away some key power plants that could have been strategic in securing power supply. The only reason it still has the 600mw Malaya power plant is there have been no takers. They could also have retained the Naga power complex and the 100mw Dingle power plant for the Visayan grid. They could have retained the diesel plants in Mindanao which provides strategic reserve capacity. They did not even privatize those. They allowed them to be foreclosed by the LGU! What an anomaly!

In any case, at this stage Congress can establish limits of generating capacity to say 15% of installed dependable capacity. They can even be assigned to be the provider of reserve capacity and ancillary services. Napocor still has very capable technical people and organization.

And because it is government, it doesn’t mean it has to be a losing proposition. Costs can still be recovered from the rates but this time it can be kept at a minimum because the profit margins don’t need to be there.

Things are clear on the futility of Section 71. Things are clear on the inevitability of the government stepping in to solve any power problem. Let us hope Congress will recognize reality, step up to this patriotic duty, and do what is clearly essential to assure power supply and lower rates for the country’s industrial competitiveness.

Let us turn Section 71 into a Security of Supply provision (or Law). It is a bigger and long term Emergency!

Have a safe All Saints Day weekend.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.