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(Second of three parts)

In its letter to the Energy Regulatory Commission (ERC) last month requesting for a P4.14/KwH rate increase, the Manila Electric Company (Meralco) said it was merely passing on to its customers the higher cost of power generation charged by its suppliers in November and December. The spike in the generation charge, Meralco said, was brought about by a confluence of “forced” and unscheduled shutdowns by several power plants coinciding with the scheduled maintennance shutdown of the Malampaya natural gas facility from November 11-December 10, 2013.

Shutdowns, supply disruption expected

Whenever the Malampaya natural gas facility shuts down, the big power plants supplying Meralco’s power have to shift to more expensive condensates to continue operating, thus raising the cost of generated power. Last year’s shutdown was not unforseen and had been announced a year before on March 2012. According to the Department of Energy (DOE), they held meetings with industry players in July, August and November to prepare for the event. From these meetings, they learned that several plants had scheduled their own respective “maintenance” shutdowns overlapping with Malampaya’s turnaround shutdown, specifically Pagbilao 2 from Aug. 31-Nov. 13; Ilijan Block B from Nov. 9-Dec. 16; Calaca 2 from Dec. 1-Feb. 28, 2014 and San Lorenzo 1 from Nov. 1-Dec. 28.

However, DOE also got the assurance from several power generating companies that they would be running their plants to augment the expected supply shortfall resulting from the overlapping shutdowns. In particular, independent power producers promised to run the following power plants: Ilijan Block A for 420 MW from November 9 to December 3, 2013; Malaya 2 for 350 MW and Malaya 1 for 260 MW.

For its part, Meralco claims it contracted a supply contract for 238MW of power from the Aboitiz’s Therma Mobile to insulate its consumers from the projected supply gap and its possible price spike.

In other words, despite Malampaya’s one-month shutdown from November to December, the industry appeared to have taken steps to cover the expected supply shortfall with minimal impact on consumers.

Reneged commitments, unscheduled shutdowns

But what actually happened? Simply put, commitments were not honored and a number of plants went on unscheduled shutdowns:

– Malaya 1 and 2 did not operate for the whole month of November and by December delivered only a fraction of its capacity;

– Pagbilao 2 extended its scheduled maintenance shutdown and failed to deliver;

– Pagbilao 1 went on an unannounced outage on November 29 and also failed to deliver on its commitment;

– Therma Mobile could only deliver 90MW out of 283MW committed to Meralco.

– Several plants made unscheduled shutdowns, including GN Power 2, Ilijan Block B, Calaca 2, San Lorenzo 1, and the Masinloc plants all coinciding with the Malampaya shutdown.

The following tables, culled from the congressional hearings last December 10, 2013, show the extent of unscheduled and forced shutdowns during this period.

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Interestingly, it appears that during Malampaya’s previous maintennance shutdowns in October 2011 and July 2012, a number of power plants would also shutdown, raising prices more than it should normally have.

Skyrocketing prices

These series of events apparently resulted in two things: one, power plants using Malampaya’s natural gas had to use more expensive condensates to run their generators and two, the simultaneous shutdown of the other power plants reduced the supply of power, forcing Meralco to get a substantial portion of its power from the Wholesale Electricity Spot Market (WESM) which, under the guise of invisible market forces, began charging exorbitantly high rates for power. From an average price of about P13.74/KwH, WESM prices increased to P33.22/KwH even reaching an incredible P62/KwH on certain days. Even officials of the WESM agree this was unprecedented and extraordinary.

To illustrate the impact of the high WESM prices, consider that Meralco bought only 11% of its supply from WESM but this comprised a whoping 70% of the additional generation cost it wanted to pass on to its consumers.

During this period, WESM prices were being dictated by three sellers – Millennium Holdings Inc. which owns the Limay power plant, the Aboitiz Group which owns Therma Mobile, and 1590 Energy Corp. which owns the Bauang Diesel Power Plant.

Curiously, Meralco, who had control of all of Therma Mobile’s supply at P8.65/KwH by virtue of its supply contract, also joined the bandwagon and ordered the generation company to sell at the peak WESM price of P62/KwH.

This “confluence of unfortunate incidents,” resulting in the highest single power rate hike in Philippine history, raises a number of questions:

1. Why was the DOE inutile in ensuring compliance from the power generation sector on their commitments? How could it be caught flat-footed when the gencos started extending their shutdowns and going on unscheduled outages?

2. Was there collusion among the power plants to jack up prices? At the very least, did they exploit the totally predictable and expected Malampaya shutdown by artificially reducing supply via scheduled and unscheduled outages, resulting in a spike in power rates?

3. Was there price manipulation in the WESM? Did the power generators, including Meralco which had effective control of Therma Mobile’s supply, use the opportunity to reap windfall profits?

The circumstances of the present and previous spikes in electricity rates are telltale signs that there is collusion or market manipulation in the power sector. It now falls on the DOE’s and ERC’s lap to make that determination or, given these agencies proven failures in regulation, for the Supreme Court or Congress to save the day. Uh-oh.#

3 thoughts on “The curiousity of power shutdowns and price spikes (part 2)

  1. I don’t believe that there’s competition in a “market” w/ very few suppliers (power generators) & one major distributor. Then MERALCO can have direct supply deals from sister company power generators. Then they instituted WESM? How stupid

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