No to the WESM in Mindanao

By David A. Tauli

http://iiee.org.ph

A CLAMOR has been raised to establish a wholesale electricity spot market (WESM) in Mindanao, now that there is an excess of capacity of power plants.

This paper shows that: (1) The WESM cannot address power supply problems in Mindanao, and will result only in increasing the rates that will be paid by consumers; and, (2) Officers of private corporations and public agencies in the electric power industry who are campaigning for the establishment of a WESM in Mindanao are either engaged in a scheme to increase the profits of the generating companies, or ignorant of the economic and technical principles that govern the operations of electric power systems.

This paper also warns the officers of electric cooperatives in Mindanao against supporting the establishment of a WESM in Mindanao. The officers in 16 of the 28 grid-connected electric cooperatives in Mindanao are involved with generating companies in ongoing schemes to con more money from consumers through the manipulation of prices of bulk-power generation. If schemes for excessive increases in the prices of generation are being carried out by the gencos in a regulated market, can we believe that the gencos will stop the practice in a fictitiously competitive market?

1. The WESM cannot address power supply problems in Mindanao, and will result only in increasing the rates that will be paid by consumers.

1.1  The main reason for this is that are only six significant generating companies in Mindanao, and it would be easy for these few gencos to collude with each other to manipulate market prices.

The WESM in the Luzon-Visayas grid has many more large gencos than Mindanao, but the Luzon-Visayas electricity market has remained an oligopolistic electricity market that has been controlling the price of power generation in the two grids. Moreover, the ERC has concluded that the gencos have been colluding to increase the price of generated electricity during periods of power shortages.

1.2 The reason why a WESM in Mindanao will not address the “problem” of overcapacity in power plants (it is considered only as a problem by the gencos, but it is a blessing to power consumers) is that the excess capacity is in base-load power plants, whose generation should not be sold in an electricity spot market. The generation of base-load power plants is sold through long-term power supply contracts.

1.2.1 Ancillary services also are not sold in a spot market, but are contracted for a term of several years by the power system operator.

1.2.2 Only the generation of intermediate-load power plants and peaking power plants (generally these are oil-fueled or natural-gas fueled power plants) are sold in a spot market. Only two gencos own significant capacity of diesel-fueled power plants: the Aboitiz group and the Alcantara group. It would be very easy for these two gencos to manipulate the price of electricity sold in an electricity spot market.

1.3 An interconnection between the Luzon and Visayas grids with the Mindanao grid is required before an economically efficient WESM could be established in Mindanao. But an interconnection is not economically justifiable for Mindanao. The costs (mainly in increased payments for electricity) to consumers in Mindanao of a Visayas-Mindanao interconnection greatly exceed its economic benefits.

2. Given the foregoing characteristics of the electric power industry in Mindanao, which should be known to anyone in any position of authority in the electric power industry, it can be concluded that: Officers of private corporations and public agencies in the electric power industry who are campaigning for the establishment of a WESM in Mindanao are either engaged in a scheme to maximize the profits of the generating companies, or ignorant of the economic and technical principles that govern the operations of electric power systems.

2.1 Who have been clamoring for the establishment a WESM in Mindanao?

The Philippine Electricity Market Corporation (PEMC), which has been stopped by Mindanao power consumers in its scheme in 2013-14 to establish the Interim Mindanao Electricity Market (IMEM).

From 2009 to the end of 2015 there was acute shortage in power plant capacity in Mindanao, resulting in frequent blackouts of long durations. In such a situation it is irrational, and even downright criminal, to establish a market for electricity because it will inevitably result in very high prices. But there was the PEMC, supported by the Department of Energy, engaged in a hare-brained scheme to establish the IMEM. And here again is the PEMC “clamoring” for the establishment of a no-less hare-brained WESM in Mindanao.

2.2 The other voices that have been raised for a WESM in Mindanao come from the Davao Light & Power Company (DLPC) and the Mindanao Development Authority (MinDA).

The MinDA does not have in-house expertise in the electric power industry, and they have not engaged any consultant to advise them concerning the EPI, so they are simply parroting the “expertise” of the DLPC, which they have been doing in previous occasions of power crises in Mindanao, most recently when Davao City endured hours-long rotating brown outs when one of the two units of the TSI coal plant suffered outages.

The DLPC is part of the Aboitiz group of companies, so it is not ignorance of the EPI that makes them raise a clamor for the WESM.

3. The electric cooperatives can stop the establishment of the WESM in Mindanao.

3.1 The foolish, if not malicious, scheme of the PEMC and DOE to establish the IMEM in Mindanao was stopped mainly because it was opposed by the AMRECO, the Association of Mindanao Rural Electric Cooperatives, the umbrella organization of the 34 electric cooperatives in Mindanao, grid-connected and off-grid. This new attempt of the PEMC to establish an electricity market in Mindanao, which would enable gencos to make money by cheating power consumers, will be stopped if the AMRECO opposes the scheme.

3.2 There are legitimate doubts that the AMRECO will exert effort to stop the WESM because the organization has not done anything to stop many of the electric cooperatives from cheating their own member-consumers by conniving with gencos to charge exorbitant rates for base-load power supply that were contracted by the ECs.

3.3 Nevertheless, there is hope that the 17 “good” electric cooperatives in the AMRECO will be able to outvote the 16 other electric cooperatives, when it comes to an AMRECO decision to support or not support the establishment of the WESM in Mindanao.

3.4 If the “Other” ECs succeed in getting the AMRECO to support the establishment of the WESM in Mindanao, we will have to carry out campaigns among the member-consumers of all  ECs to boot out their EC officers for working against the welfare of their own member-consumers.

(Engr. David A. Tauli is the president of the Mindanao Coalition of Power Consumers, a consumer advocacy group and think tank dedicated to protecting the consumers welfare in the Mindanao power industry)