Zamboanga power woes refuse to die down

By Edwin G. Espejo

ZAMBOANGA City is in the throes of another power crisis, and not because of a lack of supply.

In fact, on the island of plenty, Zamboanga is empty, so to speak. Moreover, hasn’t Mindanao already overcome near-disastrous power crises early in the decade when the power supply was at an all-time low and reserve capacity plummeted to 400 megawatts (MW)?

 Since then, and after the frenetic building of power plants, many of them the cheaper coal-fired power plant varieties, the power situation in Mindanao has not only stabilized, it has flourished. As of April 21, Mindanao’s grid now has a healthy and hefty reserve capacity of 858 MW or nearly triple the capacity of Therma South’s 300-MW power plant, Mindanao’s largest operating plant.

For the grid to be able to able to maintain adequate power supply, it has to maintain a reserve capacity of more than the biggest generating plant within the grid.

Mindanao has a total dependable capacity of 2,716-MW, although its installed capacity could run as much as 3,559-MW. System peak is pegged at 1,290-MW as of April 21(Source: DoE and NGCP).

Zamboanga City has a peak requirement of 120MW—so there should be no problem on the supply side.

But since February 4, the city has been beset with unscheduled power outages of between one to six hours at least once a day. And at these times of rising temperatures, tempers are also nearing explosion.

“Somebody has to wake up,” bewails Tito Espiritusanto, president of Federacion del Barangay Kagawads de Zamboanga (Febarkaza). He said their power woes began when Crown-DESCO took over the management of the Zamboanga City Electric Cooperative (Zamcelco) after years of inefficiency.

The customers, he said, should not be made to suffer and be inconvenienced by the problems and issues between Crown-DESCO and Western Mindanao Power Corporation (WMPC). Espiritusanto is referring to contractual and financial disputes between the new Manila-based management contractors of Zamcelco and WMPC.

The Febarkaza was among the first organizations to file a petition with the local government units and all agencies concerned over the persistent and unscheduled brownouts in the city.

Espiritusanto said they would take more drastic actions if the power supply is not brought to normalcy in the soonest time. He bewailed the situation where the new management, including the new set of board members of the cooperative, is not from the city.  Crown-DESCO, he added, is holding office in Manila. Regardless, however, he said parties to the dispute should honor contracts and obligations arising from their implementation.

For merchandiser Rodolfo Iglesias, who has a mini-grocery and is a distributor of cola products, the unscheduled brownouts are driving his appliances crazy. “It wouldn’t be long before my freezers conk out,” he said. But he cannot afford to run a generator. So he will have to wait and bear the brunt until power supply normalizes. He is not very optimistic it will be soon.

Engineer George Ledesma, however, said it is “about time the President intervene into the power situation in Zamboanga City.” Ledesma is President of the Industrial Group of Zamboanga Inc. (IGZI), an association of large loaders mostly engaged in sardine manufacturing and also the manager of sardine canning firm Z.C. E&L Corporation.

Electricity is a major commodity if Zamboanga wants to maintain its reputation as the Sardine Capital of the Philippines.

Devil and the deep blue sea

For sardine manufacturers, the power supply problem could not have come at the worst of times.

The sardine season has just re-opened last March after the Basilan Strait and the seas off the Zamboanga Peninsula were closed for the annual ban on sardine fishing in December last year. With sardine production hanging precariously, the shortage of power supply has triggered an unwanted and unwelcome chain of reactions.

Less production time means fewer fishing days. Fewer fishing days mean fewer fishing man hours resulting in reduced income. Lower production means fewer jobs for 35,000 workers directly employed by the industry and another 80,000 dependents on sardine manufacturing and its ancillary businesses. Fewer working hours mean reduced incomes. Reduced incomes mean fewer economic activities for the city.

Zamboanga City residents are warning the local economy could recede resulting in huge revenue shortfalls not only for the government but more so for the local business.   

But they have to bite the bullet or else.

Generator set sales are up again and so are the decibel levels of the city. Moreover, running these generators means an increase in production costs.

An upscale hotel near the airport is obliged to run its generators for one to six hours a day, depending on the duration of the brownouts, consuming up to 150 liters of diesel per hour.

One sardine group of companies consumes 3,600 liters a day resulting to additional monthly overhead costs of up to PHP4 million.

For sardine manufacturers, it's a Catch 22.  Damned if you do and damned if you don’t. Manufacturers said they will stand to lose 30 percent of their production capacity if the power supply crisis is not resolved soon. As Ledesma said, it is hard for local sardines to lose presence in the local market.

The sardine industry alone needs up to 50-MW of power supply, according to industry sources. There are, to date, 11 sardine canning plants in and around Zamboanga City.

Supply is there but…

Zamboanga City’s power woes are less of a supply problem. In fact, the diesel-powered plant of WMPC could already cover more than 60 percent of ZAMCELCO’s supply requirement. But accusations and counter allegations have led to the cutting off of power supply from WMPC, which is crucial to stabilizing the voltage flow in Zamboanga City.

It all began in September last year when Zamcelco, upon prodding by WMPC finally submitted for bidding an investment management contract to help the cooperative straighten and streamline its operation. The bidding was faulty to say the least as it was hounded by several controversies that included the suspension of the entire board of directors of Zamcelco after it arrogated itself as also the bid and award committee in violation of NEA Bulletin No. 35 which prohibits any member of the board from sitting as member of its bids and awards committee (BAC).

But the Zamcelco board, acting as its own bids and awards committee, nevertheless awarded the contract to Crown-Desco which led the National Electrification Administration (NEA) into “deactivating” it due to irregularities in the awarding of the contact to the Manila-based management group.

Crown-Desco took over the management of Zamcelco January of this year, and served notice that it will review the contract entered between WMPC and the cooperative.

Live contract

In 2015, the debt-ridden Zamcelco entered into a supply contract for 50MW with WMPC at about the same time the latter ended its supply contract with the National Power Corporation, thus becoming a merchant power plant.

Although the cooperative varies its power nomination for WMPC on a daily basis depending on the available power supply from its base load providers, the 50-MW power supply from the Alcantara-owned bunker-fired power plant has been dedicated to the Zamcelco.

WMPC plays a very crucial role in stabilizing power supply to Zamcelco especially during peaking hours when power going through the National Grid and Power Corporation transmission lines fluctuates due to limited voltage power compounded by the increased load.

Zamcelco happens to be at the end of the transmission lines of NGCP and, aside from WMPC which is within its franchise area, the nearest generating plant that is supplying electricity to the cooperative is more than 400 kilometers away – the Agus River Power Plants.

WMPC was providing the reactive power supply needed to compensate for the voltage power lost along the transmission highway due to the distance between Zamcelco and its other suppliers such as National Power Corporation through PSALM.

From 2015 until February 4 of 2019, power distributed by Zamcelco has been adequate, steady and stable even though their PSA provided for the assignment of an investment management contractor before WMPC will supply power to the cooperative. Zamcelco, in turn, was paying WMPC albeit with some delay ensuring a steady, reliable, and dependable power supply.

Zamcelco, however, began missing payments in October 2018, a month after Crown-DESCO was awarded the management contract. Still, WMPC continued supplying power to Zamcelco in the absence of advice for it to stop.

When Crown-DESCO finally took over management of the cooperative, WMPC sent a letter reminding Zamcelco of its obligations. Two more letters were sent reiterating a demand for payment. But the new Zamcelco management did not even bother to send a reply to these letters,

This prompted WMPC to issue a warning that it will soon run out of fuel and may have to suspend service.

On February 4, WMPC shut down its power plant to with its fuel inventory down to 10 hours of operation. By then the unpaid accounts of Zamcelco had already grown to P429,020,864.17 of which P347,686,590.79 representing power delivered from October to December of 2018 was already past due.

Instead of paying their financial obligations, Crown-DESCO, which had already taken over the Zamcelco management, responded in a letter dated February 1 but received by WMPC on February 4 stating that it was looking into the “possibility” of overcharging on the part of the power generator. Aside from what it stated, Crown DESCO cited no other reason why it refuses to pay its past due accounts. As of noon on February 4, Zamcelco also stopped nominating WMPC.  As a result, WMPC stopped operations. A day before, WMPC published an open letter for Zamcelco consumers citing the reasons why it will be forced to stop operations and supplying power to the cooperative.

Impasse

Local government officials have exerted efforts to resolve the impasse between WMPC and the Crown-DESCO led the management of Zamcelco.

On February 8, at the behest of Rep. Celso Lobregat, NEA Administrator Edgar Masongsong met with representatives of WMPC and Crown-DESCO to resolve the issue.

During the conciliatory conference, Crown-DESCO agreed to pay WMPC P150 million for the latter to be able to purchase fuel and operate for at least one month while they resolve other issues. The agreement was supported by Zamboanga Mayor Maria Isabelle Climaco-Salazar.

On February 20, WMPC wrote Crown-DESCO signifying its intention to accept the P150M partial payment on the condition Zamcelco management promise to unequivocally accept and honor the PSA signed between the cooperative and the power firm.

Crown DESCO however, ignored the letter and has not acknowledged receipt thereof. As the impasse continued, Department of Energy Undersecretary Felix Fuentebella presided over a conference attended by Crown-DESCO, WMPC and NEA on March 1. Thereafter, WMPC provided Crown-DESCO with a letter detailing the chronology of events leading to the execution of the PSA between the power firm and the cooperative on December 2015, way before the new management took over the management of the distribution cooperative.

A month after, on April 3, 2019, upon the request of NEA Administrator Edgar Masongsong, representatives from WMPC, Crown-DESCO, ZAMCELCO and NEA met again to settle the dispute over past due accounts.  Masongsong, however, was absent and sent a representative instead.

In all those meetings and conferences, curiously, not one member of the board of directors of Zamcelco was present. Crown-DESCO has effectively cut off the Zamcelco board of directors from the cooperative’s decision process.

Rep. Lobregat also wrote and called the attention of the Department of Energy who will be sent an audit team on April 22-26. On April 9, Mayor Salazar also wrote Zamcelco-Crown to immediately settle its past due accounts to WMPC.

Prior to the April 3 meeting, Crown-DESCO sent a “Final Demand for Refund” letter to WMPC accusing the power firm of “overcharging” Zamcelco to the tune of P441,152,972.16 and further arguing that the PSA between the cooperative and the power firm was not in effect until after it entered into the picture.

Crown-DESCO, in effect, is unilaterally discarding the ERC-approved PSA with its decision to stop paying and stop nominating power from WMPC.

In a hearing on April 25 at the Energy Regulatory Commission in Pasig City, WMPC and Crown-Desco have temporarily reached a compromise agreement upon the prodding of hearing officer Gregorio Ofalsa.

In the compromise agreement, Crown-DESCO agreed to pay WMPC P220 million representing the billing months of October and November last year. The parties also agreed to resolve within 60 days, beginning April 29, to explore resolution on the remaining P247 million unpaid accounts of Crown-Desco representing the billing months of December last year and January 2019.

The parties were required to submit in writing to the ERC the compromise agreement on April 29 when thereafter the regulatory commission will issue a status quo ante for 60 days while the parties resolve the issue of paying the remaining accounts.

The agreement further stipulated that upon receipt of the payment on April 29, Crown-DESCO will resume nominating power from WMPC and the latter also resuming power supply to Zamcelco.

The compromise agreement however is without prejudice to the petitions both parties have submitted to ERC but the P220 million April 29 payment will no longer be contestable. Further, the resumption of power supply will be under the terms and provisions of the power sales agreement granted provisional authority by ERC.

Two days before the ERC hearing, however, Crown-DESCO held a press conference again accusing WMPC of overbilling and claimed the PSA contract between Zamzelco and WMPC is ineffective during the period that the latter was billing the cooperative.

The month before, in March, WMPC has sought relief from the ERC for the payment of past due accounts of Zamcelco.

The ERC has yet to issue a ruling on the petitions of the contending parties.

Voltage drop

WMPC had already offered its existing available capacity as ancillary power that will help stabilize supply in the city, but Napocor through PSALM has yet to act on the offer given an unresolved issue regarding past due accounts between the power firm and Zamcelco-Crown DESECO.

At the moment, Zamcelco is nominating additional power supply from the Malita, Davao Occidental-based Davao San Miguel Power, a subsidiary of SMC Global Power.  Without WMPC, the cooperative can no longer nominate additional power supply from the nearest power plant. Even if it can, the said power plant cannot guarantee steady voltage power due to the distance electricity has to travel.

In addition, Zamcelco has set up generating sets totaling up to 40 megawatts to compensate for the deficit in supply. These generating sets however are directly connected to the feeder stations and cannot regulate voltage coming from the transmission lines of NGCP.

These measures adopted by Crown-DESCO have not solved the problems of supply and voltage loss even though more than half of its power supply now is coming from Davao San Miguel Power which is more than 800 kilometers away from Zamboanga City. As a result, Zamcelco has to regularly shut down some generators and cut supply to its feeders in order to maintain voltage flow resulting in unannounced brownouts.

Another issue with the use of generating sets is costs will eventually be passed on to customers. Generating sets deployed by Zamcelco run on automotive diesel. They are more expensive than the bunker fuel used by WMPC—almost 40 percent more expensive.

Absentee management

Crown-DESCO is a Manila-based company, which has no prior experience in power distribution.

When Crown-DESCO won the management contract of Zamcelco, it committed to infusing P2.5 billion in new investments that will largely go to payment of its outstanding obligations, purchase of new equipment including transformers and improving services.

Crown Investments Holdings Inc. current president is lawyer Jomar Castillo lawyer, a partner at PJS Law with office address listed at 8 Rockwell in Makati, Metro Manila.

While DESCO is a service corporation which background in electricity includes “electro-mechanical equipment installation” and “generator rewinding services,” with no stated experience in power utility operations.

Both do not have offices in Zamboanga City.

Moreover, Zamcelco employees and officers have been prohibited from talking to the media on the contract dispute between the cooperative and WMPC.

Debt-ridden cooperative

Just how mismanaged was Zamcelco prior to the management takeover of Crown-DESCO?

Aside from its outstanding debts and other financial obligations, Zamcelco was incurring a system loss of 23 percent, which is way beyond the allowable industry cap of 12 percent. When it entered into a Power Sales Agreement (PSA) with WMPC, among the conditions set for the supply of 50 megawatts is for the cooperative to attain an A-rating.

To get the A credit rating, Zamcelco acceded to allow an investment manager to take over the management in order to strengthen its management system and become a credit-worthy distribution cooperative. In addition, according to NEA, the cooperative had repeatedly failed to implement an operational improvement plan.  Thus, it was stuck with a C-rating.

But since power coming from power plants near Zamboanga was reduced by 105-MW following the expiration of the supply contract between WMPC and PSALM/National Power Corporation, a shortfall of power supply occurred in the said section of the grid.

At that time, only WMPC had the readily available capacity to meet the additional power requirement of Zamcelco aside from the reactive power the latter is providing to stabilize power supply in the Zamcelco franchise area.

Both parties–Zamcelco under its old board of directors and WMPC–agreed to nominate and supply power supply respectively in order to meet the power supply requirements of the cooperative under a power supply agreement which was granted provisional authority in 2015.

The PSA contract itself was approved by the ERC in 2014. The supply arrangement–meaning even without Zamcelco attaining A-credit rating–went on smoothly until Crown-DESCO came into the picture.

Issues on hand

Did WMPC overbill/overcharge ZAMCELCO? 

Under existing laws and provisions of the PSA between the cooperative and WMPC, no one party can terminate the power sales agreement without the consent and approval of their principals and more importantly without the order of the Energy Regulatory Commission where relief from obligations are to be sought.

It took more than two months for Crown-DESCO to file a petition for relief and refund before ERC after suspending the payment of services and goods already delivered after it took over management of the cooperative in January this year. Crown-DESCO’s claim of refund is without basis and capricious if not fraudulent and ridiculous.

If anything, Zamcelco is at the least stopped from claiming a refund by its three-year history of religiously paying for the power WMPC supplied to the cooperative prior to the unilateral decision to stop payment of its past due accounts as of February 2019.

Granting there is basis for its claim, the least Crown-DESCO could have done–if it had the welfare of consumers in mind–is to pay its past due accounts even under protest and without prejudice to questioning the billing method of WMPC to the proper authorities. In this case, the proper forum to resolve contractual disputes is with the ERC, which approved the PSA contract.

Adamant refusal to pay energy for which they have already collected payment from its consumers will unjustly enrich Zamcelco under the management of Crown DESCO at the expense of WMPC.

Failure of Crown-DESCO to submit major decisions and policy deviations for general membership approval could be detrimental to the interest and welfare of consumers and members of Zamcelco.

Clearly, Crown-DESCO, as developments would unfold, does not have the technical and managerial capabilities of running a utility firm or cooperative for its refusal to submit major decisions to its principal, Zamcelco.

The stop-gap measures it also has undertaken–renting generating sets and nominating more power from San Miguel without providing reactive power–have not alleviated the supply and voltage problem in the franchise area of the cooperative. On the contrary, these pose even greater problems and more losses in the long run. Eventually, it will have to pass the costs of running these generators on to consumers.

On the side, it failed to submit the measures for the approval of the Zamcelco board and general assembly in addition to complying with existing rules and regulation in deploying generating sets, including failure to secure necessary permits and clearances from government regulatory bodies such as DENR and EMB.

During the April 25 hearing at the ERC, Ofalsa confirmed it has not received any petition to deploy modular generating sets and authority to Crown-DESCO to collect additional generation charges.

Earlier in 2014, the Energy Regulatory Commission had already approved a PSA application between Zamcelco and San Ramon Power Inc. for the purchase and supply of 85MW baseload capacity. But early this month, on April 11, Crown-DESCO sought the cancellation of the PSA contract between the cooperative and San Ramon Power Inc (SRPI) on the grounds of failure to deliver electricity to Zamcelco.

Like WMPC, is a member of the Davao-City based Alson Power Group. SRPI is a 105-MW coal-fired power plant project. In seeking the PSA cancellation, Crown-DESCO cited “non-occurrence of conditions precedent” and “lapse of sunset date”, meaning SRPI was not able to deliver power 36 months after the PSA which the ERC approved in 2014. Again, Crown-DESCO acted unilaterally and bypassing the power and functions of Zamcelco board.

Zamcelco, is one of the biggest power consumers in Mindanao. Its peak load capacity of 120-MW is 4th in the island, next only to the cities of Davao, Cagayan de Oro, and General Santos.

With the improving security situation in Mindanao following the signing of the peace agreement with the Moro Islamic Liberation Front (MILF), and the passage and ratification of the Bangsamoro Organic Law, development opportunities are bound to significantly improve in the region.

Improved power generation in Zamboanga City could be extended eventually to the island provinces of Basilan, Sulu, and Tawi-Tawi.

It is not remotely possible that Crown-DESCO will itself venture into power generation, if not partner with existing power firms to capture a very significant consumer base in Region 9 of the Zamboanga-Basilan-Sulu-Tawi-Tawi corridor.

At the moment, only the Alsons Power Group is clearly planted and has existing capabilities and resources to address the current and future power needs and requirements of both the city and the region.

Could it be that Crown-DESCO is trying to cut the WMPC and SRPI out of the power business equation in order to corner power supply in Zamboanga City and eventually the region?