Think tank: Petilla has doubts on I.L.P.

First of two parts

NEW York-based market research firm Global Source Partners Inc. said Energy Secretary Carlos Jericho L. Petilla appears “less confident” that the Interruptible Load Program (ILP) alone can help address the power shortage next year.

The think tank particularly
observed the ILP is voluntary. Also, there have not been enough
incentives seen extended to the program’s participants.

Under the ILP, customers with large loads, like commercial establishments, will be asked to operate their own generator sets if the grid operator anticipates a need to augment generation capacity in the Luzon grid. Through this, the aggregate demand for power from the system will be reduced to a more manageable level, helping ensure the availability of supply during the season.

With the ILP, power supply from the grid that will not be consumed by participating customers will be available for use by other customers within the franchise area.

Targeted ILP participants are those with large embedded generation capacities, such as malls, large business establishments, and factories.

“There is now a tug-of-war between private players and the energy department over the best option for filling the forecast 600-megawatt [MW] deficit. The former believes that a well-managed ILP that aggregates private companies’ self-generating capacities, together with energy-conservation measures and more prudent plant management [including plant rehabilitation and scheduling of maintenance shutdowns], will be enough to close the gap. So far, commitments to the ILP are less than 150 MW, about a tenth of available capacity, but the business sector is hopeful that with the government providing the proper incentive framework, more will sign up,” Global Source Partners said.

What Petilla likely prefers is for the government to contract additional capacity to guarantee adequate supply and this could be done only if Congress grants President Aquino the emergency powers to do so.

The request for such powers is pending before Congress and the Senate. While there is uncertainty if such will be granted, the Department of Energy (DOE) is pushing for ILP and probably a mandatory implementation of energy-saving measures for both the government and the private sector, among others.

“We are keenly following three things now on Congress’s plate given their crucial role in keeping confidence and economic growth up in the very short term, as well as over the longer haul. The more immediate one is the President’s request for emergency powers to address a forecast shortage in electricity supply in the Luzon grid next summer. There is some urgency to this, and we expect a favorable joint resolution from Congress, likely within the month. However, the burning issue is not whether or not emergency powers will be granted but what those powers will be,” Global Source noted.

Petilla had recommended to the President to invoke Section 71 of the Electric Power Industry Reform Act of 2001 (Epira-2001) granting the head of state, emergency powers, to resolve the power situation in 2015.

Invoking the power of Section 71 of the Epira would accelerate the efforts of the government to provide additional power supply to the grid and avoid possible power shortages or blackouts next year.

Epira prohibits the government from putting up power pants. However, Section 71 of the said law states that the President, upon determination of an imminent shortage of supply of electricity, may ask Congress for authority through a joint resolution, to establish additional generating capacity under such terms and conditions may approve.

However, there is a pressing concern. Cost.

“The fear among private players is that the government may end up with costly, extended contracts that not only burden taxpayers and/or end-users with needlessly high power bills but which, beyond the critical summer months, will serve as government-owned reserve capacity that can be sold to the spot market, contravening the intent of the Epira,” Global Source added.

Several lawmakers have publicly expressed reservations about the government’s preferred option, also citing cost considerations.

Global Source also noted that ILP may burden consumers in terms of paying for more in their electricity bills. “Overall, the main attraction of this packaged option is that government’s role is less heavy-handed, and the ILP kicks in only at particular points in time, thus keeping added costs to a minimum.

“While the energy secretary openly recognizes the value of these measures, he appears less confident that the ILP can produce the needed volume, thus preferring that the government contract additional capacity to guarantee adequate supply.”

 

Preventing abuse of power

For Global Source, the joint resolution granting the President special powers should not be unlimited. Also, there should be clear-cut rules in implementing the resolution.

“Our best case here is a well-studied, time-bound resolution, clearly defining the parameters of the authority granted to the Executive, which leaves little room for perceptions of abuse of power to arise. Additionally, the resolution needs to be accompanied by clearer policy direction from the energy department and its regulatory arm that turn around perceptions of non-market-based price setting. This will help preserve private players’ confidence in the Epira, ensure that this episode is seen as a one-off case, and make needed private investment in additional generating capacity take place,” Global Source said.

Some business groups have, likewise, expressed their concern.

“The Philippine Chamber of Commerce and Industry and the Makati Business Club are not supporting unlimited powers. They feel that the government should be completely out of power generation. The moment this starts, what’s preventing this from happening again? That’s what they are worried about,” said energy committee head of the Management Association of the Philippines, Ernesto Pantangco.

And with the controversies hounding the Executive branch on the Disbursement Acceleration Program, many are worried there could be abuse of power. It can be recalled that former President Fidel V. Ramos exercised emergency powers during his term to buy more capacity, albeit on a take or pay basis which led to higher power rates because consumers had to pay for electricity that was not consumed.

In order to contract additional capacity, the government will have to pay the power generators for the power that will be leased from them. Petilla made an estimate of $18 million to $20 million per year for every 100 MW.  He said partial funding may be sourced from the Malampaya Fund, which was earlier linked to the Priority Development Assistance Fund scam.

To dispel worries on possible abuse of power, Pantangco suggested that the emergency powers for President Aquino will be limited to power supply contracting for two years only covering 300 MW.

Petilla also gave assurances that these additional powers won’t be similar to the emergency powers that Congress granted to Ramos   to secure additional power supply to fix the power shortage that began with the Cory Aquino administration.

The Ramos emergency powers had been blamed for the high cost of power in the country.

To be continued

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