Press Release
February 10, 2015

Joint Resolution No. 12

Last July 2014, the Secretary of Energy announced the probability of a power shortage in 2015 and publicly requested President Benigno Aquino to declare an imminent shortage in the supply of electricity in Luzon and ask the Congress of the Philippines for authorization to establish additional generating capacity. The President cited his power under Section 71 of the Electric Power Industry Reform Act of 2001 (EPIRA).

Your Committee on Energy fully agreed with the prediction of a shortage in 2015, even in 2016. In fact, your Chairman had been, in private, since 2011, asking the Department of Energy secretaries to lower the price cap in the Wholesale Electricity Spot Market (WESM) from P62/KWH to P32/KWH when he noticed extreme although random price spikes in 2011 at WESM. This advice went unheeded and in November 2013, the prices in the WESM rose to as high as P62/KWH during peaking hours for several days that the December billings showed an average generating cost increase of P4/KWH, from an average of P5/KWH to P9/KWH.

We all cannot forget the nightmarish days in 1992 when we suffered 4 to 12 hours of almost daily brownouts for months.

The knee-jerk reaction of the administration of President Fidel Ramos was to ask Congress for sweeping powers to contract, without need of open competitive bidding, an unlimited amount of electricity capacity, Congress responded by passing the Electric Power Crisis Act of 1993 (or R.A. 7648).

The rest is painful history.

The government signed highly priced power supply agreements and contracted too much power that by December 1994, the World Bank warned of a political backlash when the Filipino consumer learned that he would soon be made to pay for electricity he could not use. That was when the phrases "Take or Pay" and PPA (purchase price agreements) gained notoriety.

Between 2001 and 2010, hardly any new generating plant was built. Consumers had to work off the supply overhang. But by 2010, it became time to build again because the power supply/demand lines were set to intersect in 2015. Power demand had been growing at around 4% a year. This means over the past 5 years (2010-2014) power demand grew 22% (equivalent to 1,600 MW) without our building a new plant except for the 600 MW GN power coal plant, which is continually out of commission. And older plants such as 700 MW Sucat 100 MW Piñamucanwerealso decommissioned.

It takes around 5 years to construct a power plant. Unfortunately, by the time most of our people feel the effects of a power shortage (i.e. brownouts), it is 5 years too late.

The quick-fix solution is the most expensive one-diesel powered gen sets, power barges and similar bunker fuel facilities.

We believe the Filipino people can do better this time.

The problem, simply put, is like balancing our household budget. We must either increase income or reduce expenses or both.

Applied to the power shortage issue, the government can either expand capacity or reduce demand from the grid. We should always act with a watchful eye on costs. We must keep costs down.

Fortunately, a voluntary load curtailment program known as the Interruptible Load Program (ILP), has been applied in Mindanao and Cebu since 2010 owing to chronic electricity shortages. This is the program we shall apply to Luzon as a temporary measure during the short periods of electricity in 2015 and 2016 and whenever they occur.

The peak demand in 2015 for the Luzon grid will occur around the summer months of March, April and May. On the very hottest day or two it is expected to reach 9,000 MW.

The Grid Code mandates that the sector should have a margin of safety, a reserve level of about 1,650 MW to cover fluctuations in supply and cover for plants that are under scheduled maintenance or suffer unscheduled breakdowns.

The various Energy agencies and stakeholders confirm that the level of dependable capacity would be 10,700 MW. However, on certain very hot days, the reserve level would not be enough to cover demand spikes or the more than expected breakdowns.

But instead of applying the solution proposed by the DOE to lease 300 MW in generating sets at a cost of P6 billion for 2 years or P 10 million per megawatt per year, your Committee elects to propose the adoption of the ILP program.

The difference in cost per KWH is quite big. The genset proposal would cost our consumer around P 35 per KWH - including leasing fees, mobilization, demobilization, operations and maintenance and diesel fuel.

The ILP program would cost the consumer about P 7-8 per KWH.

The Luzon grid has around 3,100 MW of private gensets. Your Committee proposes to reduce the demand on the Luzon grid by asking the owners of those gensets to deload from the grid and to use their own gensets.

In this manner, up to 1,400 MW may be deloaded for a few hours (peaking) on certain days. The self-gen users would be refunded for the cost of diesel (around P14/KWH) and what they would have paid their utility (about P 6/ KWH). The resolution likewise will enable production from hydro and gas plants to be tweaked. For example, the CalirayaBotocanKalayaan (CBK) pump storage facility has been unable to deliver anywhere close to its 750 MW installed capacity owing to lower than optimum levels of water in Lake Caliraya. With gallant efforts of Ms. Gladys Sta. Rita of NAPOCOR and New Filipino Peter Wallace, a slight increase in water level of one-half meter would afford CBK to supply an additional 120 MW during peak hours.

For the 1,200 MW natural gas plants in Ilijan which are required to use biodiesel as their alternative fuel during days when the SPEX Malampaya Gas facility is under maintenance (as long as 30 days every 3rd year), an exemption from the Biofuels Law would allow Ilijan to deliver 160 MW more using pure diesel. This is subject of another bill which shall be filed on Monday.

The Committee recommends that government reimburses the private sector and NPC-PSALM for certain extraordinary expenses such as keeping whole certain PEZA locators who had been guaranteed by a previous administration lower than the normal grid rates. I refer to locators like Texas Instruments and Hanjin, among others.

Overall, your Committee has met and coordinated with about 2 dozen agencies, groups, parties to pick their brains. The result is the resolution now up for your consideration and approval.

Your Committee stands ready to respond to your queries on the issues pertinent to one of the most complex and ever changing industrial sectors in the world.

We believe that this special measure would alleviate the impending power shortage at least cost to the Filipino. And would enable government to keep its word that it would not compete with the investors in the generating sector.

We are hopeful that the resolution will merit the timely consideration and approval of this Honorable Chamber.


Copy of Joint Resolution No. 12

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