14 Feb 2014
Much has been said about PSALM's supposed fault by not trading the Malaya Thermal Power Plant (Malaya) capacity in the Wholesale Electricity Spot Market (WESM) during the 2013 Malampaya shutdown, thereby allegedly causing or contributing to the MERALCO price hike. As a consequence, Malaya has been incorrectly branded as a useless plant.
"It appears then that Malaya's vital contribution to the power supply in Luzon for the last three (3) years, at the least, has been overlooked or downplayed unfairly," stated Power Sector Assets and Liabilities Management (PSALM) Corporation President and CEO Emmanuel R. Ledesma, Jr. Since January 2010, Malaya has actually been dedicated to operate as a Must-Run Unit (MRU), which, as a 650 MW baseload plant, is capable to sustain operations longer and to provide higher capacity than other MRUs. Malaya has since then been instructed to run as MRU, by the grid's System Operator, the National Grid Corporation of the Philippines (NGCP), for around 92 times for an aggregate period of 454 days, for the purpose of either preventing brownouts arising from planned or unplanned power plant shutdowns, and Malampaya shutdowns, or providing voltage support to stabilize the grid in view of the strategic proximity of Malaya to Metro Manila. For the 2013 Malampaya shutdown, Malaya was instructed by NGCP to run as MRU beginning December 2 for Unit 2 and December 6 for Unit 1 until December 12, to address the insufficiency of supply commencing on these periods. Clearly, Luzon customers have benefited from the power produced by Malaya during such crucial times.
The 38-year old Malaya plant has not been trading in the WESM due to justifications of technical limitations and financial losses to be explained henceforth. For these reasons, PSALM submits that it did not violate the WESM's Must-Offer Rule (MOR). The law does not intend or require the impossible.
The confluence of the technical limitations of Malaya, such as the slow start-up time, low fuel replenishment rate, high consumption rate, and fuel delivery constraints, render PSALM's compliance with the MOR an utter impossibility. If Malaya is traded and dispatched in the WESM and runs at its full capacity of 650MW to comply with the MOR, it can run continuously for only 28 days, absent any technical problems. It will then take three months for Malaya to refuel and fully operate again, despite round-the-clock refuelling while running. During this three-month period, Malaya's compliance with its more important responsibility as a security plant is put to risk as Malaya will not be fuel-ready, in the event it is needed to avoid brownouts or for grid stability.
To illustrate, if Malaya is now traded and dispatched in the WESM at full capacity, it will run out of fuel by mid-March and will be able to operate again only in mid-June. This will then deprive the Luzon grid of energy security during the summer, when Malaya is needed the most. In the same way, if Malaya was traded and dispatched in the WESM at full capacity during the 30-day 2013 Malampaya shutdown, Malaya would have run out of fuel on the 28th day. As a result, Malaya would not be available as MRU on the 29th and 30th day, or in case of an extended Malampaya shutdown or an unexpected contingency happens. More than ever before, Malaya had to be ready as MRU during the 2013 Malampaya shutdown because of greater contingencies surrounding it compared to previous Malampaya shutdowns.
The concern for financial losses arises primarily from the historical WESM market clearing prices (MCPs), which have been consistently below Malaya's average production cost of around P10/kWh, prior to the Malampaya shutdown. To be included in the WESM dispatch process, Malaya's technical limitation requires it to start up for about 16 hours and run at its minimum stable load of 130MW for each of the two units, without a certainty of being dispatched in the WESM. As it is already running, PSALM is forced to continue running Malaya and trading it in the WESM at a loss, to try to recover its cost. With this precedent in the WESM MCPs, PSALM could not have been reasonably expected to reconsider its position and form a solid judgment that trading in the WESM would be profitable during the 2013 Malampaya shutdown as it turned out. Losses from Malaya form part of the National Power Corporation's (NPC) stranded debt (SD). Under the EPIRA, these losses should be recovered by PSALM as Universal Charge (UC) from all power consumers in the country. With this, consumers whose power does not come from Malaya or other PSALM plants, particularly those from Visayas and Mindanao, would be unnecessarily charged. As a government corporation chaired by the Department of Finance, and unlike other WESM trading participants, PSALM has a special mandate to liquidate the huge NPC debts that stand at billions of U.S. dollars, and reduce the UC SD, among others.
It has to be noted that the illegality of PSALM's "open breaker status", or non-synchronization to the grid for dispatch in the WESM trading process, has not yet been established in the proper forum in accordance with due process. In June 2013, PSALM has painstakingly explained to the Philippine Electricity Market Corporation (PEMC) Market Surveillance Committee (MSC), copy furnished the PEMC and the Department of Energy (DOE), its aforesaid technical and financial reasons for not trading Malaya in the WESM, and reserving Malaya as an MRU. PSALM explained that the open breaker status is the only way that PSALM believes it can comply with the MOR, and that if found non-compliant by the MSC PSALM would have no other option but to de-register Malaya from the mandatory membership in the WESM. PSALM's letter was in response to the PEMC MSC's May 2013 letter, which unlike the usual requests for explanation for possible non-compliance with a WESM rule, requested for a mere clarification on the open breaker status when not run by the NGCP as MRU. To date, the PEMC MSC has not yet responded to PSALM's letter. It is well to note, however, that PSALM has already questioned the jurisdiction of the PEMC to investigate and penalize PSALM, and elevated the matter before the Supreme Court in August 2012 in a different case. PSALM argued that under the EPIRA it is the ERC, and not the PEMC, that has the original and exclusive jurisdiction over all cases involving disputes between and among participants in the energy sector and all cases contesting rate, fees, fines, and penalties imposed by the ERC in the exercise of its function to promote competition, encourage market development, ensure customer choice and discourage/ penalize abuse of market power in the restructured industry. As a result, PSALM argued that the memorandum of agreement between PEMC and ERC as to their supposed delineation of powers is prohibited. The ERC has requested PSALM for an explanation on the open break status last month.
In recognition of Malaya's peculiar contribution to the Luzon grid, Mr. Ledesma wrote the DOE Secretary Carlos Jericho L. Petilla as early as August 2013, consistent with PSALM's previous requests to DOE, PEMC, and NGCP, to formally declare Malaya as an MRU, and to exempt Malaya from the WESM's MOR. This request was formally granted through a DOE circular dated 22 January 2014, which affirms the special purpose for which Malaya has been assigned as explained above.
Strategic Communications and Partnership Division |