Gaming the grid

Recently the Department of Energy (DOE), alarmed at what seems to be creeping up slowly at a time when the regulatory hierarchy may at be its most vulnerable, its newly appointed officials experiencing honeymoon period pangs, implored its strongest regulatory arm to investigate possible market abuse and cartelized criminality.

The energy committees at the legislature are also looking at the possibility of collusion among generators that led to a spike in power prices. Unfortunately, in a far worse situation than the DOE, the heads of the congressional committees are a shade greener than those at the DOE and have far less experience or on-hand expertise needed to understand electricity gaming.

The apparent regulatory-oversight situation is unfortunate. There is reason to believe that the yellow alert sounded during the last week of July would be raised again. Reserves have fallen to below critical statutory levels caused in no small way, allegedly, by unscheduled maintenance shutdowns among the few base-load power producers.

The electricity tariff gamers may be at it again. As they did a couple of years ago, reprising an anomaly that electricity-grid gamers had begun at the very onset of the electricity spot market as the ink on the law creating the system was freshly drawn from ink wells, still moist and all-too vulnerable to smudging.

Within the closing days of last month to the first couple of days this August, the DOE, alarmed, appeared to have scored its own regulators as the latter might have let slip gross violations of their own grid code. The Grid Code, established by the Energy Regulatory Commission (ERC), was created to protect electricity consumers from sudden spikes in tariffs as well as to ensure a balanced and continuous supply of electricity.

For the next couple of weeks, stable tariffs and dependable power supply may not come about. Here is what the National Grid Corporation of the Philippines (NGCP) had caught on its monitors within a five-day period between July and August.

There was a notable supply loss totaling 2,946 Megawatts (MW) caused by the outage of the 647-MW Sual plant unit. This curiously coincided with the combined shortages from the Calaca coal-fired plant, the Malaya Thermal Power Plant, the GN coal-fired plant, the Pagbilao coal-fired plant, and Kalayaan units 3 and 4. Even more curious was the sudden and unscheduled maintenance of the 245-MW South Luzon Therma Energy Corp. – a power plant typically used during peak demand periods.  Of the plants that operate all throughout from low to high demand hours, only the 180-MW Kalayaan and the 250-MW Santa Rita natural-gas power plant were on planned maintenance shutdown. Thus, only 430 MW of losses were planned. All others suddenly had to be maintained.

Under the current marginal pricing model at the Whole Sale Electricity Spot Market (WESM) collusion, market abuse and effective cartelization to deliberately bloat tariffs is not difficult. It’s happened before, with the most blatant case remaining unresolved and the complicit scot-free. Legislators investigating a historic spike in prices when the Malampaya facility was on a scheduled shutdown claim that since there were no cross ownerships among those who coincidentally had shut their own plants, then there can be no collusion.

That’s stupid. And wrong. Collusion is not a function of cross-ownership alone. Cartelization can create market abuse. In a market where there are a few players the deliberate shutting down of two base-load plants given the existence of extremely thin reserves drives tariffs up, thus benefitting even those who do not submit tender bids at the WESM.

Cross-ownership simply makes gaming the grid more brazen and blatant. In the case under scrutiny, two plants that had recently gone offline were operated by the same entity. Given that we might as well spell “grid” as G-R-E-E-D.