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Cusi: NGCP violations doubled power rates

We have a problem in transmission, because the development in completing projects is delayed by one year to nine years

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The National Grid Corporation of the Philippines’ (NGCP) non-compliance with its task to provide ancillary services (AS) in the power supply distribution raised electricity rates to more than double, Energy Secretary Alfonso Cusi disclosed during a Senate Committee hearing on Thursday.

Figures are from an estimated P3 per kWh to P7 per kWh E, President Rodrigo Duterte’s alter ego stated.

In addition, the NGCP is charging customers about P0.34 centavos per kWh for the non-existing “firm contracts” with AS, in contrast to a mere P0.30 if there are actual AS that provide extra energy supply to avert outages.

The Energy chief hinted at the scheme that could be reeking of criminal touches.

“But why there is no reserve? We suffered brownouts because more than four plants tripped, and many power plants derated about 4,000 megawatts.

So, there’s a gaping hole in supply. The ERC (Energy Regulatory Commission), PCC (Philippine Competition Commission), and other agencies are already investigating the matter and we’re just waiting for their findings,” Cusi said.

“We have a problem in transmission, because the development in completing projects is delayed by one year to nine years.

We have stranded power in Mindanao, also in Negros, in Zambales… because of congested or uncompleted transmission lines or projects. These have accumulated…unused power. There’s a problem, really,” Cusi said.

Paper compliance

He mentioned that it is apparent in the concession contract of the NGCP that it should assure contract reserves.

The Secretary strongly suggested that the NGCP and the Energy Regulatory Commission (ERC) unbundle the P0.34 between the firm and non-firm contracts to determine the power being delivered and the amount paid by the consumers for undelivered power supply.

Cusi briefed the lawmakers that the currently installed power capacity at Luzon is 17,000 megawatts against a peak demand of 11,000 MW.

But with grid operating maintenance program and unplanned outages, the available capacity is reduced to almost equal to peak demand thus, the red alerts and eventual outages.

The Energy chief maintained that DoE policies are all put in place, from constructing the capacity to requiring the reserves, aside from the transmission that would ensure the delivery of energy to the consumers. However, there are still lots of issues with the transmission.

“In 2016, we asked about the reserve in a meeting with NGCP. We were assured that we have reserve. But I had to do an audit only to find out that there is no reserve! Reserve it turned out was only paper compliance because they signed non-firm contract. It was similar to a non-inflated spare tire,” he told the lawmakers.

He said it is bothersome why a concessionaire (NGCP) blatantly defies its contract to ensure there’s firm contract for reserves.

Moreover, the Energy chief said the reason for the surge in the price of electricity is technically due to the thin and unstable power supply.

“Price of electricity in a normal situation is P3. We see that it will kick up to P7 per KWH if there’s no reserve… when supply is thin.

To NGCP, comply with the reserve requirement, and the cost can be argued, but we cannot sacrifice the reliability and integrity of our grid. Do not use the cost as a reason.

You are stoking public fear with your unfounded claims of power rates increase if you comply,” Cusi reiterated.

He emphasized that it is only in the Philippines that the grid operator has no-firm power reserve, a gruesome practice.

“That shows mere paper compliance. It should stop,” he said. “If only the NGCP will fulfill its duty, we won’t have this problem.”

Brownout prevention

Cusi went on to describe NGCP’s functions based on its contract: 1) schedule preventive maintenance to ensure a reliable energy supply but avoid the peak months of April to June; 2) complete transmission lines to allow power plants to connect to the national grid; 3) contract GenCos (generation companies) to build power plants; and 4) sign forward contracting to enable existing power generators ready to connect to the grid and augment the supply.

“It is the duty of the NGCP to provide security and the efficient delivery of power supply,” Cusi said and added the Marubeni Power Plant in Leyte is available to add 70MW, and the Dinginin Plant with extra 68 MW could raise the available energy supply. “It is not NGCP’s function to unilaterally set rates, then sow fear and panic by circulating these unverified and unvalidated rates.”

Bribery bombshell

In the hearing, ERC chair Agnes Devanadera, deflected accusations of corruption, particularly in determining the NGCP’s weighted average cost of capital (WACC), which is basically the guaranteed margin of profit.

“I hope the ERC will dedicate technical experts with regards to WACC. How can we restore confidence on the regulators, especially with allegations of corruption and bribery raised by former Senator (Serge) Osmena?” Hontiveros narrated.
“Show us details,” Devanadera retorted.

Hontiveros backs Cusi

Also, during the hearing, Hontiveros said that the uproar against surging electricity rates remains the same old issue, with the same players, making lawmakers fed up with the matter.

“We keep on saying that power is more than a business. We have high expectations of our system operators. We expect that the country’s interest will prevail through proper service rendered to the consumers,” she said.

She said even the DoE couldn’t do anything against a seemingly more powerful firm, which imposes an anomalous and exorbitant weighted average cost of capital.

“We’ve been overcharged for six years already with these seemingly little charges. With due respect, the Energy Regulatory Commission had been negligent in lowering the charge for WACC to appropriate and reset levels since 2015. So please, ERC, get your shop in order. There’s a pandemic that makes us tighten our belts,” the lady Senator noted.

She said the issue is apart from the threat to national security. NGCP, a supposedly private company, is partly owned by the State Grid Corporation of China and has been blatantly disregarding the Philippine government’s policies and standards.

“That’s why I am pushing to get back the control of our main power grid system to the government. Because taking back control of our main power grid system requires a system of strict oversight by the state,” Hontiveros said.

Sanction authority

“The ERCs has authority over the grid and the power to sanction. When the Epira law was passed, the DoE was rendered toothless,” Cusi told the panel. “For the DoE to address the nagging issue of compliance, we propose to revisit these laws: RA 9511 NGCP Franchise Law, RA 9136 or the Epira law, and RA 7638, or the DoE Law.”

In the end, the committee chair reminded those present that the issue of reserves has been decided and the NGCP must approve AS contracts for reserve. At this point, Cusi reiterated his request for the NGCP to comply, but the firm stated it would fulfill its obligations as stated in their franchise.

“To attain our common goal of ensuring round-the-clock availability of reliable and accessible power services to consumers, we need the operational compliance of all our industry players. We continue to emphasize teamwork in building a strong power system for the benefit of our consumers and our economy,” Cusi concluded. – Komfie Manalo, Raffy Ayeng, Maria Romero, Sundy Locus

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