Update: There is a cleaned up version of this post at Filipino Voices where I hope to contribute with some regularity – and not, in the future, be duplicative of postings here.
I remember sitting around the 2nd floor conference room table at the California Energy Commission along 9th Street between “P” and “O” Streets in downtown Sacramento in the Spring of 2003. All government agencies impinging on electricity supply problems had been called to devise ad-hoc initiatives and plans for avoiding brownouts in the State for the upcoming summer peaks – with the still-fresh memories of previous years’ brownouts and political repercussions.
And as I read through DOE’s list of initiatives for the Visayas, I recognize the similarities. The DOE list is a good list – if implemented diligently.
I suggest we not forget that this is primarily a failure of Napocor to meet it’s contractual obligations to the cooperatives and other distribution utilities. The coops in particular have done the appropriate things – they entered into binding contracts on a timely basis primarily, but not exclusively, with Napocor to secure adequate power to meet their customers’ load requirements. Napocor has been unable to fulfill those commitments. And PNOC-EDC (since partially privatized) has failed to meet certain contractual supply commitments from the Northern Negros field.
From a legally technical perspective, Napocor has “an out” in their contractual language so they are not in technical abrogation of the contracts – but I suggest they are effectively not meeting the performance requirements everyone expected them to meet. For example, I doubt seriously ERC would have allowed the ECs to pass on to customers the hedging costs required to cover the “outs” that Napocor has in the contracts, since the contracts supposedly “covered” the load requirements of the ECs.
So one additional initiative I see no hint of here is a mechanism to permit the distribution utilities to enter into emergency supply arrangements with private sector entities to meet or to hedge that part of the Napocor’s obligation that Napocor may not be able to meet. To make this work, there needs to be concomitant and appropriate contractual relief to the distribution utilities related to payment obligations under the Napocor contracts. And ERC would need to allow cost recovery of such emergency contracts on a basis that does not unduly “add” risk to the utilities’ ability to recover supply power costs. This is a possibly complex but probably effective way forward – and may be worth the effort to implement since we are talking about two years worth of exposure (the remaining term of most NPC contracts).
Secondly, the ECs have to get serious about the procurement process for replacing the (non-performing) Napocor contracts after 2010. Which means both the DOE and ERC have to get serious about the procurement process – something both agencies have given scant attention to.
In California, the regulator carried through on the short-term, stop-gap initiatives for the summer of 2003 with far reaching reforms of the procurement process to avoid having to do the stop-gap every year. It’s time we too move in that direction of power procurement reforms – before we reach critical shortages in Luzon, which would be yet even more devastating than the shortages in Visayas are.