GMA signing of Transco franchise bill into law heralds new era in grid operation

Philippine President Gloria Macapagal-Arroyo signed on Dec 1 the TransCo Franchise Bill into law that would transfer the operations of the national power grid under a private group, the National Grid Corporation of the Philippines (NGCP), which won the bidding for the rights earlier.

The franchise bill is officially known as Republic Act No. 9511 or "An Act Granting the National Grid Corp. of the Philippines (NGCP) a Franchise to Engage in the Business of Conveying or Transmitting Electricity through High Voltage Back-Bone System of Interconnected Transmission Lines, Substations and Related Facilities, and for Other Purposes."

The signing of the bill culminated years of attempts by the government to privatize the national electricity transmission grid as mandated by the Electric Power Reform Act (EPIRA) of 2001 amidst opposition by nationalist groups and well-meaning individuals to the sale.

The NGCP is composed of Calaca High Power Corp., the Monte Oro Grid Resources Corp., and the State Grid Corp. of China.

The NGCP was granted the franchise "to operate, manage and maintain, and in connection therewith, to engage in the business of conveying or transmitting electricity through high-voltage back-bone system of interconnected transmission lines, substations and related facilities, system operations, and other activities that are necessary to support the safe and reliable operation of a transmission system, to construct, install, finance, manage, improve, expand, operate, maintain, rehabilitate, repair and refurbish the present nationwide transmission system of the Republic of the Philippines."

The franchise is good for 50 years but may be repealed or amended by Congress "when the common good so requires," the law said.

What is significant in the signing is that operating the transmission grid, which is traditionally viewed as a natural monopoly of the state, is now in the hands of the private sector. The grid operations will now be subject to more to economic forces than the previous setup. This is why traditional nationalists, who usually view big business with jaundiced eyes, see danger to security and higher prices for end users due to added profit motives of the new operators. Some of them have gone to the extent of trying to reverse the privatization process.

But this is a short-sighted view.

Grids around the world are increasingly operated by the private sector with better results than the previous state operation. This is to be expected since electricity transmission is not just about connecting power from generators to retail distribution facilities. It is also about efficient and cost effective operation. Increasingly, it is relying more on new technologies and materials.

A state monopoly does not have the nimbleness or savvy to operate in this competitive new world.

Take for example the traditional view that the flow of electrons is just one way: from the generators to the grid lines, to the distribution companies and finally to the user. No longer.

Advanced countries are now moving towards a two-way transmission and distribution systems wherein users who have excess capacity can actually sell it back to the grid. This is made possible by deploying so-called smart meters which could regulate which way electricity is flowing.

Fans of the successful transfer of operations to the private sector see more improved services. For example, they hope that the gridlock (pardon the pun) in transmission which occurred recently as a result of a breakdown in a critical transmission node would no longer recur.

But can the new operator hurdle inconveniences such as the recent court ruling dismantling a major transmission line as a result of a vanity complaint by residents of a plush village in Makati?

The bottom line is, the new grid operator has been given a great responsibility to improve the electricity transmission system of the country. It should not view the franchise awarded as a license to mint money quickly at the expense of the population.

Everybody will be watching you, the new grid operator.

Suppressing the electricity price spikes

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  Recently, the Philippine Electricity Market Corp. (PEMC) is mulling to suspend the operation of the country’s wholesale electricity spot market (WESM) of which it is tasked to operate and oversee, to halt “significant’ spikes in trading prices.
  
  PEMC president Lasse Holopainen threatens to impose such halt if the Energy Regulatory Commission does not intervene to smooth out the sudden price upticks in the market.
  
  “That is an option. But we prefer that ERC do something about it first. The ERC can intervene and correct these prices and affect a time-of-use (TOU) rate,” Holopainen said.
  
  Under the WESM guidelines trading in the market can be imposed in extreme cases such as a wholesale failure of the grid system, threat to system security or a force majeure.
  
  But no such event ever occurred to justify any suspension. The mere threat of a temporary stop to trading in a fully functional, open market sets a dangerous precedent and could ultimately derail the ongoing electricity reforms.
  
  The recent price spike was traced to the failure of the San Jose transmission line in Bulacan which prevents the dispatch of power from the” more efficient” (read: lower priced) power plants. However, the plants referred to by the official are the Sual and Masinloc coal-fired plants, with a combined capacity 0f 1,800 MW are hardly the efficient plants around.
  
  The effect of this breakdown was that based on PEMC’s estimates, the settlement prices – the price the trader pays to WESM- have spiked to as high as P18 per kilowatt-hour which could ultimately redound to a higher price for the consumer.
  
  “This is an unusual occurrence and the congestion will be there until September to October. But National Transmission Corp. (TransCo) said they are now repairing it,”
  Holopainen said.
  
  We beg to disagree.
  
  Equipment maintenance is a necessary part of doing business and with proper execution and timing, the effects of an “unusual occurrence” such as a breakdown of a major high-voltage transmission line could have at least been mitigated. But what caused the spikes is more than unusual. It is more due to inherent and systemic weaknesses of our electricity grid.
  
  On the transmission side, we do not have much redundancy on the main backbone. While a full redundancy cannot be advisable on economic grounds, at least there should be some backup in highly critical nodes along the backbone such that power could be transmitted on an alternate line. At the very least, the effects of such breakdown can be confined to a limited geographic area.
  
  But the worse problem is on the generation side.
  
  In a normal grid, the operator desires to have some reserve capacity at any given time. Which is obvious since not all plants would be running at peak capacities due to maintenance and technical considerations. But what we have is a reserve capacity which is barely useful when a major plant breaks down. While a reserve capacity of say 2,000 MW looks good on paper, it is no more than the capacity of two major coal-fired or natural gas power plants.
  
  The rated capacities of the existing plants may not dependable at all. Many of the older power plants—coal-fired, diesel-fired and geothermal plants— have actual capacities much lower than their rated capacities. Can anybody tell us how much the Bohol and Panay diesel plants –two plants under auction- are actually generating? For all we know, the old Panay plant could be worth more if sold as junk than being operated as a power plant.
  
  Can anybody guess how much the Bacman I plant (rated more than 100 MW) is currently producing? If you say 50 %, your guess is too high. This one is easier: How much is the Northern Negros geothermal plant (the capacity is 49 MW, or 40 MW, or 26 MW, depending on when you got the information) currently producing? You should have gotten it. The answer is nil.
  
  There are also reserves that may not be delivered to where they are needed most. For example, the abundant power from geothermal in the Visayas could be considered a reserve for the Luzon grid because it is connected to Luzon via a submarine cable. But the history of its performance tells a different story.
  
  What we have is what the industry players call “thinning reserves”. The reserve is there but it is so small that a minor disruption in the supply could send electricity prices at the wholesale electricity spot market (WESM) to the heavens. If you are operating cement or a semiconductor plant, you cannot afford a respite in operations. You need to buy power at exorbitant costs for a hopefully short period of time. The alternative is massive losses.
  
  Then there is the ownership structure of the generating plants. Much of the generating power is still in the hands of the Napocor-PSALM combine, so in theory, a collusion among the traders in the same cabal could influence the price at the spot market. This has been alleged to have happened before.
  
  WHICH brings us back to the question of what to do with the price spikes. Dampening the electrical price oscillations, as the engineers would phrase it, cannot be effected by political intervention. A systemic overhaul is required which include:

1. Broadening the ownership of the generation assets. In the near term, it means hastening the privatization process.

2. Improving the transmission grid. With the privatization of the transmission grid, we could only hope that the new owners would improve the system.

3. Increasing the number of generators. With a more dispersed ownership, one can be assured of a more functional spot market. Collusion would be minimized. The thinning reserves would be “thickened”. But then, encouraging new investments is a different question altogether. Our legislators could re-start the process by passing the renewable energy bill.

We hope to delve more deeply into these matters in the near future.