ANC Headstart Interview of Senator Win Gatchalian with Karen Davila on Luzon blackouts

Q: I watched the hearing yesterday and I wanted to ask you, do you feel frustrated?

SEN. WIN: Well, I wanted to be assured, at the very least, that we will not have brownouts in the next few months, especially this coming month and next month. But I didn't get that assurance. In fact, the only slide that I have is a slide from NGCP which states that we will have a potential brownout system in June and July. So, I will take that as it is, because they are the system operator. But there's also a caveat to that because DOE will get back to us to validate those numbers which they should have done a long time ago. but for now to be prudent about it, I'm preparing myself for an eventuality of a brownout this coming June and July.

Q: There was a lot of finger-pointing that was going on yesterday, and the DOE stands, well, essentially by blaming the NGCP why the rotational brownouts happen. From your perspective, could this have been avoided, and how?

SEN. WIN: Both the government and NGCP and also the gencos for that matter, On the generating plants have their own shortcomings and they have themselves to blame. I don't believe the government is inutile. Government has all the powers to enforce. In fact, the government should not plead for compliance, we should not beg for compliance. Government should enforce compliance, and if the private actors are not compliant, they should be penalized and punished accordingly, because that's how you create discipline in the environment. But right now since enforcement is weak, of course the private players can do whatever they want and that's what's happening right now. So, first the government should enforce it. Second is the issue of reserves, it's important to have reserves, and it's the responsibility of NGCP to contract reserves, and on top of that, deliver power, and this is where the delayed transmission projects come in and that's their responsibility also.

Q: So, in terms of, let's talk about compliance. What you said we should not beg for compliance. Let's start first with number one, the Energy Regulatory Commission, what is their accountability in all this?

SEN. WIN: To put it simply, the power sector is the regulator, meaning the private sector, puts in cash and operates the entire power sector. DOE is the policymaker. They create policies for the betterment of this sector. And then ERC enforces those policies and if the actors don't comply, they can be penalized.

Q: Is ERC doing its job?

SEN. WIN: ERC from what I've seen yesterday is delayed in terms of enforcement. And they have to improve their communication with DOE and these two actors should talk and they should act fast. For example, I will give you a specific example.

Q: The DOE says they can't penalize.

SEN. WIN: They can't because they are the policy maker but they can come up with strong policies in order for ERC to enforce those policies but they have to talk. Because if they don't talk, then we have that finger pointing. And there are many mechanisms for them to talk. They know that because there's already a Supreme Court ruling that they should coordinate closely. So, yes there is a delay in enforcement for example in the reserves, that is quite controversial right now, that has been a policy since January, 2020, but until now it's not being enforced. So, in other words there's a delay in enforcement.

Q: So, in a situation like that, it seems that parang rules tend to be a recommendation, so to speak. It's like, follow it, don't follow it, there are no penalties, you still keep your franchise, or let's say if you're a power plant, and you take a vacation leave or a sick leave during the peak months, Look, we can't close you down, we can't shut you down but then the consumers are left to suffer. So the question is, let's start first with each sector, the power plants, how do we know if power plants are performing up to par? These are big contracts, right? So, if DOE says they're calling out on two, they're investigating for that they're calling out on two who should have not taken a leave during these peak months.

SEN. WIN: To put it simply, the power plants are also governed by rules and they're allowed to do maintenance work. But the maintenance work cannot happen during Summer. That's where the demand comes in. And if they violate that rule, ERC can penalize them. ERC also came up with what we call a reliability experience wherein they already identify the number of days that they can go on outage, and if they violate that, they can be penalized. So in other words, Karen, rules are present, and gencos should follow that because if they don't follow it, then we get affected, as consumers. And the only way they should follow, the rules should be followed. If they violate those rules, then they should be penalized.

Q: The ERC, I mean, also coming from the hearing yesterday, the ERC identified some gencos that did not report plant outages right? But after reporting it, even to you, the question now is what do you do with those gencos I think that's the bigger issue. Okay, so, it's deregulated but what do you do with gencos that are not performing up to par, you have gencos that are excellent and then you have gencos that are earning and instead of contributing to power in the country is doing a bad job.

SEN. WIN: That's a very good observation, Karen, they should be penalized and the costs of economic losses on behalf of the consumer should be passed on to them. For example, if we went on, unplanned outage, the consumers are the one bearing the economic losses, that should be transferred to the gencos. So meaning they should be penalized. In the rules so far how gencos will be penalized if they don't follow the prescribed number of outages. Again, there's a review..

Q: That's number one, are they actually penalized in any form, for performing badly?

SEN. WIN: Not yet. You go back again to enforcement and that's why the government as a whole, should be held accountable for the delay in enforcement or no enforcement at all. Again, in a deregulated environment, it's important to have rules, it's important that the rules are being enforced or else it will be chaotic, and there will be no discipline among players.

Q: Number two is the ERC Jurassic for today's modern times? I'm not saying it is. I'm just saying, do they lack dynamism? Is it acting, is it slow, is it old?

SEN. WIN: I wanna be fair, Karen, and under the leadership of Chair Agnes, there's a lot of reforms that she implemented. One of the things that she pushed very hard, are the delays in the approval of permits. Before that was a perennial problem. We want power plants to be put but the delays in the permitting in the hands of ERC, prior to hers, leadership was really, really a big concern. Sometimes types permits take a year, two years just in ERC so she managed to fix that. But they have to do it, they have to perform better. Because after fixing the delays, now we're talking about enforcement and this is one of the things that they have to improve on, discipline and enforcement. The last thing we want to see is what we call regulatory capture. Meaning the regulators are really captured by the entities being regulated. And we don't want that to happen, we don't want that perception, even that inkling of that perception to be in our minds.

Q: A viewer says, gencos, today, are penalized when they buy the replacement power, and it's so much more expensive than operating themselves.

SEN. WIN: Of course, they should find the replacement power. You're the one who went on a forced outage so it's your responsibility to find a replacement power and it's your responsibility to bear the cost. That's another feature, again, that's another feature that they released a few years back. Now it's the responsibility of the gencos to find replacement power, before it was the consumers responsibility to the deal. So we bear the brunt of buying expensive power from the environment.

Q: Let's move now to the NGCP, the DOE already wants to review the franchise of the NGCP and Secretary Cusi is going as far as saying, frankly, it should be under the control of the government again.

SEN. WIN: Karen, I thank the Secretary for coming up with very comprehensive solutions from review of franchise, all the way to the government stepping back into generation, and other reforms, and I have to give him credit. That means the Department is really putting a lot of brain power in reforming the power sector. However, I have a lot of reservations about the government stepping back into business because when the government steps into business, corruption ensues, and that's for sure. And the reason why the government moved out of the power sectors is because of corruption. Remember in the past, Napocor was saddled with trillions of pesos of debts, because of corruption and we don't want that to happen. So my take on that is I have a lot of reservations in going back to the power sector, what I'm open to is strengthening the DOE, strengthening ERC and bring in more power and more budget to perform its mandate.

Q: The NGCP for example, the DOE's circular that the NGCP has to get into contracts for ancillary reserves have been there, and yet they've been debating because their points is number one, two points, there is not enough power, number one to actually buy the reserves, and number two they claim, prices will go up. So you will have, even if the circular is there, you have essentially agencies of government that are debating among themselves on policy itself.

SEN. WIN: Actually, Karen, the first point is that they're concerned, if there's supply or not, there might be force to buy for reserves. Whether the supplies are available or not, that's the problem of DOE, that's not their problem. In terms of the rates increasing, I don't believe that. And that will not happen because there are other mechanisms to mitigate that. For example, the reserves should be paid by the gencos. The aim of having reserves is to make sure that we have constant power in the event that gencos fail. So it's like a performance bond, pass it on to the gencos. Let the gencos pay for it. Why will the consumers pay for your performance bond? So there are other mechanisms to mitigate loss by passing it on to another, to the generals or to another entity.

Q: But I think at the end of the day for the consumer, the question is this, bakit ba tayo nagba-brownout? Did we already, ang tanong ng consumer ito, coming from, I even covered, I remember, former President Fidel Ramos' time when we had to get into very expensive contracts remember Senator, just to make sure we don't have intense brownouts. So, you have the consumer asking, hanggang ngayon ito pa rin ang problema? So if you're a regular consumer ang tanong mo ito, power is already very expensive in the Philippines, compared to other countries in Asia, ang tanong bakit pa tayo nagkaka-brownout?

SEN. WIN: I put it in a very simple explanation, there are two reasons. Number one is supply and the government needs to make it easier for power plants to come in. I saw the comment of Mr Ramon Ang, he said, 'gusto na nga naming mag-invest kami pa ang pinahihirapan.' So, in other words, a lot of investors are eager to put in the money to put the plants up, but red tape, bureaucracy is delaying them. So we have to make the environment conducive. Number two...

W: Do we lack power plants? Do we lack power and the supply?

SEN. WIN: At this point in time, no, but our country is growing at a rapid pace. In fact, you will be surprised Karen, in our May, I was looking at the May numbers, our May consumption is even bigger, the May consumption is at the level of the pre-pandemic time. So meaning, even during this pandemic people are probably working from home, everything is online so people are consuming more power now. So in other words, our country is growing and we need more power. We need to make it conducive for investors to come in. And then number two is issue reserves and these reserves are really a mechanism for us to make sure that the grid is stable, and it has constant supply and that is absent for now. And that's why DOE came up with the resolution to make sure that is present, so that we will not experience brownouts.

Q: Now, that was the first hearing, what are you expecting, Senator Gatchalian. I mean, clearly it's gotten into finger pointing, but somebody's got to be made accountable to ensure there are no brown-outs in the next few months. If it's an issue of reserves, someone may ask, can the NGCP just be ordered at this point, to buy those reserves and get into those firm contracts?

SEN. WIN: It can, it can, actually that's the fastest way. In fact, you don't need a lot of technical expertise in that. Government should just order, ERC for that matter should just order NGCP to contract for reserves.

Q: Can't DOE, just will essentially but I mean, a basic question is, is there a faster mechanism where the NGCP has enough to get into these contracts and bigger power plants just end up selling more at a period in time when some power plants, break down without the NGCP involvement?

SEN. WIN: In our rules, it's the system of NGCP, which is a system operator is the one to pass to make sure that there are reserves, and that is the, it's like, it's like a performance bond or insurance that it's always there. If something breaks down, we can dip into that and make sure that the electricity flows. So that's number one. That's the fastest, and then number two is build more plants, again making the environment conducive. These are two ways of increasing supply. But you're absolutely correct, everyone has to be made into account or take into account, the government, NGCP, as well as the gencos. All of these players have their own responsibility and they have to take responsibility.

Q: And have you done, I mean, has anyone at least presented to you, or done the math, that if you start buying reserves, how much increase consumers will have in prices?

SEN. WIN: Yes, a lot of a lot of different entities have done the math, the gencos have done the math, ERC has done the math, NGCP has done the math, DOE also came up with their own mechanism, but then again, I believe that we can contract reserves, without passing it on to our consumers.

Q: And who will pay for it?

SEN. WIN: The gencos should pay for it. Again, It's like a performance bond, when you hire a contractor...

Q: So the gencos, all gencos or you mean the gencos that shut down?

SEN. WIN: There's a mechanism, either the gencos that failed or shut down and all gencos as a performance bond. For example, if you hire a contractor, and the contract failed, you can take into his performance bond to compensate you. It's the same mechanism. So, you can compare it to a performance bond.

Q: I can imagine the gencos reacting to that particular suggestion already, what is needed for that to actually happen?

SEN. WIN: DOE needs to enforce that. DO already has a comprehensive study on this, but basically it's the gencos pay that bears the cost. Then, the DOE just needs to enforce it and it's a concept that is being practiced all over the world.