SENATOR WIN GATCHALIAN'S INTERVIEW ON ANC'S HEADSTART WITH KAREN DAVILA ON THE NGCP SENATE PROBE AND CHA-CHA

Q: I had NGCP on Headstart a day ago. So I want to ask for the overview, let's talk about the whole system, the whole issue. So four days ago, there was a blackout in Panay Island, wherein seven power plants actually tripped, closed, lost power was under maintenance for some reason, one way or another. Three of the biggest including first is that typical, why did that happen?

SEN. WIN: Karen, there are two accountable actors here. Primarily, number one will be the power plant, because if there's no power supply, obviously there'll be disruption in the system. And then number two, the system operator because in cases of aberration, the system operators have full control over what to do. And it has protocols that it should follow in order to not disrupt the entire system. So in this particular case, PEDC went on an unplanned shutdown or a forced shutdown because of technical issues. And that should have been a prompt to NGCP to reduce demand so that they will maintain the integrity or the balance of the entire system. In yesterday's hearing, NGCP insisted that the grid was still under normal state, a technical issue, and basically what they were seeing was, we're still normal. Now, we don't have to do anything, but we're still normal. But when we looked at the definition, under the Philippine grid code, it's no longer in a normal state. In fact, it's in an emergency state. Because one of the plants copped out, one of the plants went down and then that should have prompted NGCP to balance out the grid to prevent a widespread collapse of the system, but they didn't do that. That's why the other plant, the six other plants, tripped because the system was imbalanced or unbalanced anymore.

Q: Okay, that's a very clear explanation. So I want to start first with this. So Panay Energy Development Corporation has three plants. One I believe shut down, and then something at 12 noon. The first one went on maintenance shut down. Am I correct? Another one. These two plants, I think supply was at 83 megawatts roughly. When those two plants of Panay Energy Development Corporation shut down, should NGCP have come in because a third plant which was PCPC shut down and instead of getting back in two hours, it went back after four days or something of that sort. So when should have the NGCP acted?

SEN. WIN: The first step is to determine the status of the grid. And this is where the debate lies. In fact, yesterday there was a debate because NGCP is insisting that even after PEDC, the first plant that conned out, the grid is still under normal state, meaning I don't have to do anything because the frequencies are still within the band. I don't have to do anything. But when you go into the definitions of under the grid code, the definition of the different status, it is no longer in the normal state. It's under an alert state or in an emergency state.

Q: Is that open to interpretation?

SEN. WIN: No, it is not. If you look up the definition, the Grid Code is very detailed, it's a very thick document, and it's very detailed, and it has conditions where you can declare an emergency state or an alert state. So in one of those definitions, when one plant comes out, it goes into an emergency state and it goes into several protocols on what to do. One of which is to do a manual load drop, because the theory here is, since the supply is not ready but your demand is still high, you have to lower down demand. So it's balanced, in a simple explanation. But that didn't happen so it was maintained, the demand maintained on a higher level and that therefore tripped other plants to go down and that created a widespread blackout. So in other words, there are protocols to follow in different states of the grid. And from the hearing yesterday, it seems to me that NGCP failed to follow those protocols that led to a widespread blackout in Panay.

Island.

Q: So what's shocking, Senator is I'm assuming people at NGCP are professionals. I'm assuming they're experts in their own field as well. If the Philippine grid code is so clear, why won't you just follow it?

SEN. WIN: Human error is something that can be unpredictable. You think that you have trained your people very well. You think that your people have undergone simulations, you think that your people are in top condition when they go to work, but there are things like human error. This is my own personal assessment. That's why I would say that we have to, ERC should pursue a deeper investigation on this, including management, including the people who were there when all of this happened. We have to remember this happened last January 2. So this is pretty much after the new year. So we have to look at all of those details in order to find out what really happened, who was involved, not only NGCP, but who in NGCP should be accountable. Is it the supervisor? Is it the operator who calls the shots at that particular time? Is that person well trained? Is that person well versed with the Grid code? Is that person well versed with the protocols? That is something that we need to go deeper into.

Q: So human accountability is one thing, but NGCP as a corporation, they are responsible for securing reserve power via ancillary services. Have you determined, senator, if they've actually done that part? Have they secured, have they contracted reserved power?

SEN. WIN: In fairness to NGCP, this was actually Karen, we've talked about this many times. During Luzon, when we had brownouts in Luzon in the past, one of the solutions that the committee recommended is to contract firm, not firm, but firm power, meaning at any given time you can draw power from that reserve, which is a firm contract. And that is a reform that the committee suggested in a reform that ERC implemented about a few years back, and in fairness to NGCP for the Visayas grid, I saw the numbers and they have contracted as high as about 90% reserves in the firm manner. So meaning they have firm contracts.

Q: Why didn't they use it?

SEN. WIN: Apparently, based on the information yesterday they did use it but it's not enough, meaning the plant that went down is quite significant. We're talking about seven plants that went down all at the same time. So apparently based on the reports that I've seen, the reserves couldn't handle all the plants that conked out.

Q: But then I'm curious, if the First Panay Energy Development Corporation unit, that unit one which had 83 megawatts. And there was a two hour span before the second unit. Actually, I believe, I wouldn't say the word conked out. But what's the right term sir?

SEN. WIN: The term that they use is tripped.

Q: Okay. So it tripped.

SEN. WIN: The grid became unstable so that created the tripping of the plant that eventually shut down the plant automatically.

Q: Ang tanong ko with unit one of Panay energy development corporation should NGCP have used their reserves at that time?

SEN. WIN: Apparently they did. This is something that's a very good point. This is something that we need to go deeper into. Apparently they did. The theory, you're absolutely correct, the theory in contracting reserves, they make sure that when the plant goes out, there's a reserve that comes in to stabilize the grid. From the numbers that I've seen they have reserves, from the reports that I've seen, they dispatched the reserve, but it's not reflecting in the situation that happened because obviously the reserve didn't fit in for two hours, so is that something that we need to look at? It's a very technical issue that we need to address and go deeper into.

Q: So Senator, what came out in the hearing is NGCP used it first, they have reserves, from the reserves, they contracted the reserves, they used it when Unit One of Panay Energy Development Corporation conked out so to speak or shut down. They used it. Tama po ba in layman's terms to say hindi pumalo yung reserved na ginamit ng NGCP?

SEN. WIN: Apparently, hindi. In simple terms, I think the common sense results should be if the reserves kicked in, then the grid should have been balanced, meaning there's power coming in replacing the PEDC plant. But that didn't happen for two hours, that's why the entire system tripped and six plants went down. So that's something that we need to look at. I also have to say this, this is a very important facet. Also, if if the other expansion projects are already online, we could have avoided this scenario. There are two very important projects that should be online by 2020. This is the Mindanao to Visayas interconnection. There's a surplus of about 1000 Plus megawatts in Mindanao that can be transmitted to Visayas. And the expansion of the Cebu-Negros-Panay interconnection. Because I think connection is very, very under capacity. It's under capacity ready. So we need to expand the capacity. So if these two plants, if these two projects were online, then excess power from these different islands could have come into Panay to help stabilize the grid. But then obviously, that's not happening because those projects were also delayed.

Q: So clearly what you're seeing there is a connection between the delayed projects of NGCP, they've been delayed since 2018. I'm correct.

SEN. WIN: Yeah. 2018. The commitment date was supposed to be 2019, 2020. But it's already 2024 right now. So that's the offshoot of delayed projects, not only in this particular case, but we saw that in Luzon. We saw that in other areas. That's why it's important for NGCP to make sure that the projects come online on time, because as power consumption grows, we need to expand the lines. We also need to have backup lines. And this is not happening right now. And it's really catching up, my analysis here is, these things are already catching up with our grid and the consumers are now suffering because of those delayed projects.

Q: So Senator, I mean, you're an expert on this. You were I mean, you've been handling energy for so long. How would you first describe the state of the NGCP grid? Because I've heard several analyses that the grid can't handle it right now. There's a lot of renewables that have come in and the grid is not built for that. So, overall, holistically, how would you assess the state of the NGCP grid?

SEN. WIN: Okay, I'll assess it in two ways. Number one is, it should respond to the growth of our demand. And obviously it's not. Our demand is growing at about four or 5%. Economy grows, electricity consumption grows, and our grid should also expand but obviously it's not. We have a lot of brownouts happening in our country and I've seen that list of delayed projects, that's about 51 delayed projects, a lot of which are expansions to create more capacity. And some of them are for redundancy because of possible blackouts, and that's one of the heaviest grounds why legislators are looking into the review of NGCP franchise and a possible revocation because of those delays. Number two is the whole world is changing. You're right, RE is now becoming a very important technology and our grid is not flexible enough, meaning our grid should enable to ramp up supply. For example, to ramp up supply as fast as we can. For example, there is no sun in a particular area because of solar. So it has to be flexible enough to adjust to different conditions because of what we call the variable renewable energy and it's not doing that. But what we need to address is what we need now. That's the more important aspect because if you don't address the needs now then we will have cases like Panay.

Q: Now, so you've talked about several issues there. So given the fact that number one, there are two major projects that could have helped right? In terms of giving extra power, that could have helped prevent the Panay blackout as well. The question now is this, those projects I'm assuming, are you expecting them to be ready by 2024 or 2025?

SEN. WIN: The target is for the Mindanao-Visayas interconnection to be completed by this March of this year and the Cebu-Negros-Panay net respond is this year June. That's the report that I've seen. So hopefully it will come online this year.

Q: Okay. So the projects are one thing that would remain to be seen. We have to see that. Another issue I think is the protocol issue. Because I was watching the Senate hearing yesterday. And what's actually confusing, let's say a consumer to watch is the confusion with protocol, because ideally it's not debatable right. Protocol is protocol. Right. You know what to do when there's an earthquake, you know what to do when a tsunami but yesterday in the Senate hearing, NGCP is insisting that we followed protocol we, followed protocol. Ang tanong ngayon, should there be another body that actually calls on NGCP to check in a crisis situation like this, like in the middle of something, did you do this? Did you do this, do this now. I don't know how these things work. Obviously, the PRC will do that on a daily basis. But clearly, there has to be a body on top that will flag them and pull them out to do it.

SEN. WIN: In different jurisdictions, the system operators are different. What they called the transmission network owners are different, meaning those in different jurisdictions, a different entity owns the lines and expands the lines, a different entity operates the lines and that's the system operator. And the theory behind there is there's a check and balance within these two. Because you have to understand that transmission operation is a monopoly. We don't have any choice if you don't like NGCP, we don't have any choice. If they charge us this amount, we don't have any choice but to pay. So in other jurisdictions, these two entities are separate so that's their check and balance. In our system, it's one in the same. So ERC is the regulator making sure that it follows all the protocols.

Q: ERC responds after, I mean clearly, what they're going to do is investigate and make a report, make a recommendation. They're essentially findings but as a regulator, should you be on the ball also?

SEN. WIN: There should be a constant performance review of NGCP, whether it's through the legislative route or the legislative mode, or whether through the ERC or regulatory mode or regulatory route. So there should be a constant review, especially on protocols. And in our system, since ERC only comes into play when something happens, there's actually a presumption that the system operator is fully aware and fully knowledgeable of the protocols. And maybe this is something that we need to look at, instead of reacting to every constant review of the responses of NGCP by the regulator, because the assumption here is that the system operator or NGCP knows very well what to do. But obviously, we're seeing some deficiencies in that and there should be a proactive approach in terms of reviewing the protocols.

Q: Okay, so before we move to the franchise issue of NGCP, the call to review its franchise, I wanted to ask you, so under the grid code, I'll read some points now that our research team put together. So in terms of the reserve power via ancillary services, NGCP is supposed to have regulating reserves that are readily available and dispatchable, contingency reserves, dispatchable reserves, so three or four types of reserves, when a unit trips, was this determined in the Senate hearing? if NGCP has all of these reserves?

SEN. WIN: It's not 100% when they contracted. I saw the numbers it's 100% contracted, but in fairness, it was high, it was between 70 to 90%. So that's quite high- Q: But it violates their franchise. So that's the next question. If it's under the grid code that you are mandated, this is not optional, it's not discretionary, although NGCP yesterday in the presscon said, if they secure all the reserves, it will mean an increase in rates. But regardless, the problem is it's in the code. So sir if they haven't secured all everything that's in the code, is this a violation of the franchise?

SEN. WIN: If you stick with the code strictly, yes, it's a violation. In fact, there's no room under the code to contract less than 100%. It just says you have to contract 100% on a firm basis. There's no 90%, there's no 70% but I'm giving them leeway now because there's also a process to get your firm contract approved by the ERC. Prior to the policy on firm contracts, there was no firm contract, there were no firm contracts to speak of. A lot of them are unfirm. And when something comes out, when a plant conks out, they cannot call on that contract because it's unfirm but it has improved tremendously. But you're absolutely correct that the grid code is very strict and that's grounds for a violation of the franchise and also the performance of NGCP.

Q: Okay, so now you have lawmakers calling for a review of the franchise of NGCP. I wanted to ask you, I want to balance this conversation with NGCP as well. NGCP has often said in interviews, they feel that they're attacked. They're actually targeted to a degree, that they're always blamed, instead of lawmakers not per se anyone in particular. But instead of the industry looking at it as a whole power situation in the country, they feel that they're always blamed. What are your thoughts on that?

SEN. WIN: Again, this is a natural monopoly. There's only one of its kind in our country. It's not subjected to competition. On the part of us, the consumer, you and I, we don't have any choice in that there are many many instances where they will increase the rates but we don't have any choice but to pay those rates. And I have to credit the present ERC because of their reset or review of the rates, they managed to lower down the recoverable amount of NGCP because they saw expenses there that should not have been passed on to our consumers. So for example, advertising expenses. Why will a monopoly advertise to consumers? So my point of the matter is, the expectations of NGCP are very high because it's a natural monopoly, and that should be expected of them. Another case is that the franchise is a privilege. It's not your right to have a franchise. It's a privilege that is given to you, but in exchange for good service. And this is where Congress should scrutinize very carefully whether that service being given to their consumers is within the standards or up to par.

Q: Okay, so with the review of the franchise, so NGCP right now 60% is actually divided by two Filipino corporations. Correct? And the 40% that's owned by China. So the question now is in the review of the franchise, how does this affect the services to the Filipino people If hypothetically, there is a revocation and a change in ownership? Because I would assume, how would you change ownerships?

SEN. WIN: That's a very good question, Karen. And that's why, we also need, us, as legislators, we need to also be very careful in our recommendation, whether to revoke the franchise because this is a very technical operation. And there are operators around the world who will operate this asset, but we cannot just abruptly terminate and get someone to come in. It will take time, so we need to talk about this and think about this very carefully. And we need to also lay down the grounds very carefully. There's a contract between NGCP and the government and of course the contract also protects the interests of NGCP. So while we can revoke the franchise, we also need to be mindful that NGCP can file cases against the government and trigger an arbitration that will create a lot of problems, not only corporate problems, but operationally, because my thought, my worry is that it might cascade operationally. So we need to be very careful. And we need to plan this out as a government not only as legislators or as in passing the Senate, but also as one government.

Q: If the ERC, you said which should be issuing performance reviews, right. Performance reviews, you'll be able to to see the capacity efficiency, the practices within NGCP. Have you seen a report from the ERC already regarding NGCP that would then merit whether or not they deserve the franchise?

SEN. WIN: The reset before regulatory reset is going into its final stage and with that reset, we also included performance evaluation. We also included a cyber defense audit. We also included other facets of transmission operations. So it's not only going to look at the rates, it's going to look at the entire system or the entire gamut of transmission operation, including performance, including cyber attacks. All of these should be looked at holistically. I think in the first quarter of the year, we'll have that final report.

Q: Okay, Senator since NGCP is a monopoly, would it be wise to separate the system operator role. Some have said that perhaps the government should have oversight? Government shouldn't be involved in its operation somehow?

SEN. WIN: In my opinion, yes. Looking at our past experiences and looking at other models, in fact, in this, when we deregulated our power sector, we followed the English model and the English model basically separated it into different components. We have generation and you have transmission and distribution, you have retail. In the English model, the transmission lines were privatized, but eventually they learned to separate it. Initially they also have one system operator and one transmission network owner. But eventually they separated it because they found out that check and balance is very important in terms of system operator because system operator, you command so much power, you can dispatch, you have the power to dispatch which plant. You have the power to choose which plant to go into the grid. You have the power to, you are like the traffic Enforcer. The dispatch of plants, so you not only have a lot of market power, but you can also create scenarios where you can favor other entities so they separated that and in the system operation remain with the government because of national security concerns also. That's also one facet that we need to address.

Q: So what is needed, I mean, clearly you support it? What is needed now for a government to have an oversight capacity or to involve it in its operations? Considering NGCP is private. How would you need an enabling law? Or would the DOE just come in, how would that work?

SEN. WIN: We need an enabling law. And we also need to study very carefully the contract within NGCP and government because the contract contemplated a unified model, meaning you have the system operator and the transmission network operator in one and that is a contract and that's what we are paying NGCP. But definitely now, if we separate them that's in effect, touching the contract and we have to study that angle, but in concept, in concept, I support that transmission owners, transmission expansion should be with the private sector, because government should not put in the money to expand that but in terms of system operator meanings, operating that system, because of market power because of national security, it's important that government has to say whether 100% or 60%, but it's important that government has a say in that operation.

Q: Okay. I'm curious since this happened last April and now again in January at this point, can the DOE assign, let's say personnel to be in NGCP to actually be involved in its operations or to have oversight? I mean, day to day, you have members of the DOE there, they are experts. Is that possible?

SEN. WIN: That's a very good point. Unfortunately, that's also the cause of a lot of agitation within the government and NGCP. I Remember, during the last administration, they tried that but NGCP's opinion is the regulator is the only entity that can regulate them that can go into their premises and check the system and no other entity can do that. So it goes without saying that they will bar other personalities from coming into their operation, more so staying in their operation on a daily basis. So that's something that we're also studying. And that's why what's important here is, again, this is a monopoly. And it controls so much aspects of our lives because it transmits the country's economy, the country's economy, our lives as consumers. And my view here is that government should have some presence in terms of how this system is being operated. So we need to distinguish between where the private sector can invest and where the government should maintain its role to protect public interest.

Q: Yeah, I think that would be a very concrete solution. I mean, if it's not yet the review of the franchise, in an interim level that would make such a difference, even in terms of protocol practice, from then on. You'd need an enabling law. You believe in an enabling law. The President just ordered it.

SEN. WIN: We need two things. We need to review the contract so that there's no violation of the contract. And then number two, we need an enabling law, meaning the franchise because a franchise contemplates again a single entity, a unified entity, so we might need a franchise to separate those two entities.

Q: Okay. My last question, is it still possible to separate the transmission business and open it up to other parties with a way NGCP is set up? Is the Philippines still open for something like that with the way we are built?

SEN. WIN: The philosophy of monopolies is because you gain economies of scale. The bigger you are, in theory, the bigger you are, the lower down the costs because you capitalize your economies of scale. But the downside of that is, you create a monster, you create the one big entity that controls so much of our lives, and that's where the regulator comes in to temper the attitude or to temper the operations of that monopoly. So there are pros and cons. That's a very technical question that we need to ask because by separating it, we don't want that scenario where transmission costs will go up because they cannot leverage their economies of scale.

Q: My last question is this. It was brought up with a report yesterday that there was a two hour window that NGCP could have acted, and apparently they didn't. But what could they have done in that two hour window? And did they really miss that two hour window?

SEN. WIN: For my observation, the most commonly used method is manual load dropping, we always hear that here in Luzon. If you notice, every summer there'll be parts of Luzon that will be brown out because the theory is if one plant goes down, you isolate one area to reduce demand so that the other areas that will still have electricity. So that's what manual load dropping needs, you isolate one area, but in this particular case, they didn't isolate any areas, so the entire system went down. That's the most common action that system operators do or utilities undergo in order to maintain the balance in the grid.

Q: So with the information you have, is it fair to say you would consider NGCP as negligent?

SEN. WIN: There are grounds, there are definitely concrete grounds to say that they are negligent. But I will reserve my confirmation on that because ERC is still undergoing their investigation and they're the primary agency is to investigate all matters relating to power. But based on the hearing yesterday, based on the questioning of our senators and the information that we saw, there's concrete grounds that negligence happened and that we need to go deeper into those who are negligent in NGCP and what really happened. Are they undertrained? Are they understaffed? Do their people stop going to work because it's January 2? Those are the things that we need to look at.

ON CHARTER CHANGE

Q: Senator, charter change is going to be big this year. As of now, you're already hearing that there is an effort all over to get signatures, right to get 3% of support in each and every district for a people's initiative and there's an advertisement that's out on television, and it's going into the tone of EDSA Pwera, supporting for charter change, but the need to change the 1987 constitution. I want to ask your thoughts first. What do you think of the ad?

SEN. WIN: Karen, for me the ad is quite political. Because it's going back, the clincher there is EDSA Pwera, which is referring to the 1987 revolution. And I think what's important here is to focus on the items, what we need to revise or to amend in the Constitution rather than spin it politically. I think what's important here is focusing on the items that we need to amend, for example, the economic provisions. If the economic provisions are the ones being pinpointed as hindrance to our development then let's just focus on that. On a larger scale, I've been monitoring this through the news, through the media outlets and it seems to me that there's a lot of doubt and also corruption happening with the gathering of the signatures. I saw an interview by Congressman Lagman and also Senator Imee Marcos that monies are being given out, P100, millions of pesos are being given out to gather signatures, and that's not the essence of people's initiative. Ang nangyari ngayon, ang PI hindi na People's Initiative, Peso Initiative na, which is contrary to the essence of people's initiative, meaning people putting forward their amendments and all of us voting to agree on that amendment. But if you put in money, that means that certain people are pushing for their agenda. And that's not good. That will tilt the very essence of amending our Constitution and people's initiative.

Q: Okay, but are you open to any changes in the 1987 constitution?

SEN. WIN: I filed a resolution to amend the Economic provisions of our Constitution. So that means I'm open to amending economic provisions, we've already laid it out in the past, we have already enacted several laws to open up our economy, the Retail trade liberalization Act, the PSA was there.

Q: But would you agree that the laws that were actually enabled during the time of former President Duterte, although good intention is not enough, there are two I think, cases right now, petitions before the Supreme Court asking if those laws were legal.

SEN. WIN: That's a whole new different discussion on whether those are constitutional. for example, the PSA, whether that's constitutional or not, but in my opinion, it's constitutional and basically it actually separates the definition of public services and public utilities, because that created a lot of confusion and that law alone will open up a huge sector for foreign investors to own 100%. And investors, especially major investors, will not come to the country if they are a minority. They would like full control or 100% ownership and that law alone, the public services act can open up different industries for foreigners for investors to own 100%.