Yellow alert

When the summer months kick in, the DOE will put the entire power sector on “yellow alert.” That sounds a little ominous. Yellow has become the color code for incompetence.

“Yellow alert” apparently means there will be power rationing in some form because demand exceeds supply. The rationing kicks in when even the smallest supplier to the grid suffers a breakdown or tripping happens anywhere along the grid.

All the power generators will be in full commission beginning next month. This includes the controversial Malaya plant in Pililia, Rizal.

The obsolete 650 MW Malaya thermal plant, running on bunker fuel, produces very expensive electricity. According to PSALM, running the Malaya plant will force operational losses of P1.35 billion a month. Government absorbs those losses.

If the Malaya plant remains idle, however, there will be serious power shortages, inflicting even larger losses on the economy. Having no power is more expensive than expensive power.

Power shortages impose an impenetrable ceiling on economic growth. We saw that dramatically during the Cory years when our economy screeched to a halt.

Of course, government can choose the pass on the operational losses to consumers. That will jack up everyone’s electricity bill immensely and kill businesses. There is really no choice but to subsidize Malaya.

Incredibly, the DOE failed to include Malaya in its list of must-run units. During the crisis period of November-December last year when generators not wanting to be dispatched quoted the maximum price for their electricity, PSALM chose to keep Malaya idle in order to protect government’s “bottom line.” That decision jacked up power rates.

When temperatures rise, beginning March, total electricity demand for Luzon is expected to hit 10,300 MW. The available supply, counting in Malaya’s production, is 10,500. That makes for very thin reserves and will require the more expensive peak-load plants to be running most of the time, pushing up the cost of power. Any breakdown in any of the existing plants will spell darkness.

When a breakdown or tripping happens, Energy Secretary Jericho Petilla will transform into the Prince of Darkness. His department will have to mandate rationing and schedule rotating brownouts such as those that bedeviled Mindanao for years now.

Things could be worse, of course. The restraining order issued by the Supreme Court on December’s price adjustment means that the pass-through charges Meralco should have collected from consumers for the power producers are not being paid. Some power producers can no longer afford to purchase fuel for their plants. The interrupted pass-through charges now runs at about P18 billion.

Things will definitely turn for the worse further down the road.

All the while, government has been assuring us that new power projects are in the pipeline and should soon complement present capacity. The truth is there are only two projects where work is on-going. These are the 135 MW coal fired plant being built by Luzon Thermal Energy Corp. (a joint venture of Trans-Asia and Ayala Corp.) and the projected 300 MW coal plant of Southwest Luzon Power Generation Corp. (of the Consunji group).

All the other projects Petilla loves to enumerate are merely “indicative.” Work on the new plants have not started. Some may actually cancel investments given the policy uncertainty and new risks (including judicial intervention) that became evident lately.

In short, the economy cannot continue to grow at 7.2% with only the two new plants under construction providing supplemental energy. There will surely be a period, beginning the summer of 2015 where available generating capacity is absolutely short of demand.

The DOE’s reason for being is to provide the country energy security through adept planning. The rotating brownouts due to hit us will signal this agency’s absolute failure.

All the talk of energy sufficiency, like all the talk about rice sufficiency, is simply propaganda. The power plants we need to support economic growth are all just on the drawing boards while policy incoherence discourages investors.

As for rice, all international trade indicators suggest smuggling of the staple now running at about a million metric tons annually. If the smuggling stops tomorrow, there will be shortage.

Blame game

With a major fiasco looming in the energy sector, the administration has characteristically mounted a propaganda offensive to shift the blame somewhere else, away from the DOE’s incompetence.

The first indication of this is when Akbayan, this administration’s ever-reliable rent-a-crowd, rose from hibernation to picket the Energy Regulatory Commission (ERC) and demand the resignation of Chair Zenaida Ducut. Even as we now know that electricity prices last December might have been reduced by 70% — from P21 per kWh to just P5 per kWh — had PSALM decided to activate the Malaya plant, the spike in electricity prices is now blamed on the ERC.

For his part, Palace spokesman Herminio Coloma in a recent press briefing adopted a strident tone, blaming the “unjustified” rate hike entirely on the private sector. On orders from the top, the Justice Department has now been thrown into the fray, investigating “collusion” and profiteering by the independent power producers.

Fine. Investigate them, but also take the DOE to task for the glaring failure to bring Malaya on-stream and mitigate the price surge that happened after the plants reliant on Malampaya gas went on maintenance shutdown.

The strategy of passing blame elsewhere other than the DOE, which has final responsibility for ensuring energy security, might allow the administration to conserve its popularity ratings amidst a power crisis. However, it will also create a large disincentive for potential investors coming into our debilitated energy sector. –Alex Magno (The Philippine Star)