The sizzling summer months left Mindanao consumers snared in a double whammy of long-hours of rotating brownouts, and the subsequent price spikes also cut deep into their pockets.

It’s already July, but situations haven’t really improved much for them – the power supply crisis of the past months, to say the least, truly left them an indelible experience.

The loudest of voices inordinately cast the blame on parties that provided scant power during those crisis times – that whatever remedial measures have been resorted to – for the complaining customers and distribution utilities, the whole strategy all spelled “f-l-a-w-e-d.” The rap sheet talked of power providers allegedly cornering hefty returns and the regulators supposed indiscretion at its decision allowing cost recoveries for power supply wheeled into load customers of system operator National Grid Corporation of the Philippines.

If anyone merely listens to the heated debates, everything seemed convincing. The situation is desperate after all, so it’s easier falling into the trap of sensationalism rather than dealing with the issues of real substance.

But for the more inquisitive ones: There are more realistic and tough questions seeking answers: What really went amiss in Mindanao? If important facts are to be ignored, can Mindanao power supply problem be solved? And if the truth is shunted aside or becomes hostage in the realm of mudslinging, will future developments turn our better for the consumers?

The grid’s supply condition

Blame it on the El Niño phenomenon that the grid’s main source of power, the Agus hydro plants, had extremely de-rated capacity when Lakae Lanao (the water source) reached drought levels. Data from NGCP had shown that Mindanao’s predicament of rolling brownouts started February this year when power supply plummeted and generation deficiency reached 308 megawatts (monthly average). Such condition persisted and even worsened in succeeding months, until June. At the height of the crisis in March, gross reserve deficiency slipped to 615 megawatts; and out of the forecast peak demand of 1,366 megawatts, dependable capacity was only logged at 751MW.

It is common knowledge that hydros don’t always sit on lucky science – the cycles could come either “too dry” or “too wet.” Telltale signs of power supply crisis were manifesting as early as September 2009, when the weather bureau PAGASA raised warnings on the strike of El Niño phenomenon. From then, reserves in the grid have been chronically declining to a level not consistent with the prudent requirement of a power system to run efficiently. NGCP data further showed that reserves started falling to 83 MW that time (September 2009) and were also below requirement from October to December 2009 and until January 2010.

Sure, there are people and government leaders who should be taking the flak – and the Department of Energy is on top of that list, for it failed miserably in planning for remedial measures that should have eased Mindanao’s grueling experience of brownouts.

What happened in Mindanao actually revealed drawbacks of not having diversity in one grid’s energy supply portfolio. Without the hydros, what measures were available then for the grid? It can count on some thermal plants, like coal and diesel; as well as from the generation of Mt. Apo geothermal facilities, but these were not enough to plug the capacity gap triggered by the hydros’ lack of generation. Suffice it to say that all remedial measures also came “too late and too little” as the entire grid was already plunged into rotating power outages of 8 to 12 hours.

It is similarly a matter to consider that Mindanao consumers are historically not used to paying expensive electricity rates, since the hydros are relatively cheaper to draw power supply from; compared to other technologies of which fuel utilization are subject to volatilities of global indices, the diesel plants in particular. And that’s where the bigger controversy on the rates began.

Ancillary services contracting

In the complex world of energy, consumers may have grown aware of the power supply wheeled into the load centers of distribution utilities which are subsequently delivered through the wires into our homes and businesses.

But beyond provision of the power supply, there is also a critical need to maintain reliability and security as well as to ensure power quality in the system – and that is best served by NGCP’s contracting for its ancillary services needs. Why is that important? Because, even split-second disturbance or deviations from having high-quality of and reliable power supply (including voltage sags or surges) can affect the operations of the power system and may result in unwanted power outages.

For Mindanao grid, system operator NGCP has contracted a fraction of its ancillary services (AS) requirements from Therma Marine Inc. (TMI) of the Aboitiz group, owner of the recently-privatized Power Barges 117 and 118 which have aggregate capacity of 200 megawatts. The one-year contract covers 100 MW (or 50MW from each facility) of the transmission operator’s AS needs.

As explained, ancillary services are “support services necessary to sustain the transmission capacity and energy that are essential in maintaining power quality, reliability and security of the grid.” These requirements will include those for regulating reserve (this accounts for 2.8% of hourly system demand), contingency reserve which sets the necessary capacity replacement when the largest scheduled generator is taken out from the system and also congruent to that of dispatchable reserve; reactive power support services (for system voltage condition) and blackstart (necessary to restore power from partial or total system blackout).

NGCP officials noted that they will need up to 240 MW of ancillary services for Mindanao, but they opted to contract 100 MW only from TMI so they can exercise more flexibility in sourcing that part of the system requirements with other providers.

In his testimony at the Energy Regulatory Commission (ERC), Mr. Roderick Fernandez, head of accounts and customers at NGCP’s Revenue Regulatory Affairs unit averred that the company explored other providers for ancillary services, especially for the critical months of summer, but none came with firm offers.

He bared that roadshows were undertaken to solicit proposals on their intent to contract for higher volume of ancillary services, but only two other companies – Dole Philippines and Mindanao Energy Systems (Minergy) – came forward. Nevertheless, the offers were just preliminary. Fernandez added that Minergy’s proposal to transfer a gas turbine facility from Navotas in Luzon had been wrought with “technical dilemmas;” while Dole Philippines had not followed through with a solid proposition.
When asked by the regulator what options were left then for them on ancillary services contracting, the NGCP official’s crisp answer was “lacking.”

The cost issue

Under the Ancillary Services Procurement Agreement (ASPA) inked by the parties, TMI started supplying the contracted AS of NGCP from Power Barge 118 in February, while PB 117 came later in March. Without the additional capacity from the two barges, NGCP noted that supply curtailment (or the extent of power interruptions could have lasted longer to 24 hours) and generation deficiency could have tumbled extremely to 855MW in March.

The cost issue though emerged the trickier part. Distribution utilities in Mindanao, chiefly Cagayan Electric Power and Light Company (CEPALCO) along with more than 20 electric cooperatives rapped NGCP of unjustly raising the rates by as much as P1.00 per kilowatt-hour (kWh) for their customers, especially for the billing months of April and May and they attributed it to the transmission firm’s AS contracts with TMI on the power barges.

To explain the turn of circumstances, NGCP went back to the “lack of option” and “lack of supply” that plagued Mindanao in the last five months, and running the diesel-fired power barges beyond their nominated capacity (for ancillary services) were necessary to ease the brownouts which equally pester consumers and have also been triggering massive opportunity losses for businesses in the area.

For its part, TMI chief operating officer Jovy Batiquin emphasized that the cost recovery for fuel alone in running the barges was at P6.50 per kWh; while the rest of the P8.59 per kWh billed for April recovery accounted for capital recovery, operation and maintenance (O&M) fees and cost components allowed under the provisional ruling rendered by the ERC for their ASPA.

He likewise explained that the sudden increases in ancillary services charged by NGCP in April and May were partly due to the pass-on of deferred cost recoveries which accrued in February and March at the pendency of the ASPA approval. Mr. Batiquin qualified further that negotiations for the AS contracts ran for several months from September last year, contrary to allegations that these were concluded hastily.

Typically, it was gathered that to run diesel power facilities would entail cost recoveries of P7.00 to P9.00 per kWh within the heavily-subsidized areas of the Small Power Utilities Group (SPUG) of the National Power Corporation; and when full costs are reflected, industry simulations indicated that rates could be as much as P12 to P15 per kWh.

At the ERC hearing, cost comparisons were also presented to illustrate the price variations of the AS capacity contracted by NGCP or to compare the level of cost recoveries of other power facilities in Mindanao – taking into account cost components such as capacity fee, O&M and energy fees (minus fuel costs). What came forth were these figures: Two other power plants in Mindanao have these costs: Minergy diesel plant at P2.054 per kWh; and FG Bukidnon hydropower facility has P2.9707 per kWh. Among the facilities providing ancillary services, the calculated pass-on costs are as follows: Magat hydropower facility which is contracted for AS in Luzon at P2.1443 per kWh; PB 118 at P1.25263 per kWh and PB 117 at P1.24801 per kWh; and the Nabas diesel fired plant which provides ancillary services in Visayas at P1.4058 per kWh.

Mr. Fernandez of NGCP noted that the Nabas plant was made the price reference for the negotiations on the TMI contracts for ancillary services, but the resulting rates for the capacity from the Mindanao barges were still lower.

It must also be noted that former Energy secretary Angelo T. Reyes explored the option of deploying modular gensets for Mindanao, but NPC calculations revealed that these will come at a higher cost of P12.40 per kWh. The leased gensets of Aggreko and Monark serving some areas in Mindanao were reported to have been running at an even heftier rate of P22 per kWh.

Either way, NGCP has been trapped in a damn-if-you-do and damn-if-you-don’t dilemma – for if it did not contract for those ancillary services, Mindanao had to suffer horrible supply interruptions stretching 24 hours and that’s a sure trigger for consumer revolt. It took the option of running a facility with more expensive fuel, but it had to endure condemnation from consumers who are routinely used to paying lower rates of hydro-based capacity.

In the whole scheme of things though, many could be behind the curve in appreciating the real score on the issues at hand. But one thing is for sure, the power supply problem in Mindanao, or the entire country for that matter, cannot be resolved with mere coin flipping or endless blame-game. Keeping the lights on will be an enormous task ahead for the new government leadership. And for the consumers, they must start learning to “pay the right price” if they want to ensure that electricity will continually flow into their homes or businesses. (To be continued)