In A Socially Distanced Economy, Financially Distanced Consumers Need Even More Protection. (Part 2)

David Celestra Tan, MSK
18 May 2020

Part 2

Need for more consumer vigilance

The challenge to consumer groups to rise up and become even more vigilant, fervent, and pervasive at exposing and fighting abuses would have to be a critical part of our nation rebuilding.

1. Power generation should be made truly open and competitive and not effectively negotiated by the big guys. The law is there and the distribution utility sector should no longer be allowed to overcharge the consumers. To perpetuate mumbo-jumbo rate making that enables them to make double what they are fairly and legally allowed to make as a public service franchise holder. We just can’t afford it post-pandemic.

There was an accumulated overcharge of P29 billion on distribution charges from 2014 to 2018 resulting from windfall revenues due to outdated rates that is yet to be taken cognizance by the ERC.  Meanwhile, the newly unemployed and the marginalized business sector continue to pay abusive rates. We need lower rates and not “spread the pain” type installment payments.

Truly competitive and anti-monopoly policies have been put in place. But how is the Meralco Group able to stand up to clear policy for true competition and continue brazenly sandbagging the DOE and ERC in holding truly competitive selection process for their power requirements? 

Coal prices are down but we hardly feel it. Not to mention that they are totally ignoring the devastating effects of coal caused global warming. Meralco was allowed to become the 800-lb-gorilla in the distribution sector and we are seeing the cringing impact of monopoly and market domination to the consumers. Now they are being allowed to grow another 800-lb-gorilla in the power generation sector! This is supposed to be against the law. Cross-ownership and self-dealing is just a betrayal of public interest.  Why are we just standing by helplessly and watch this happen?

Power generation has a sister charge called “systems loss”. An overcharge in the generation charge is a corresponding overcharge in the systems loss charge which is computed in the first place in a regulatory methodology that is deficient in transparency.

2. The transmission sector seems a haunted house that everyone is too afraid to enter. It is not so much the rates but the service that is not being delivered despite those charges. This sector was privatized “supposedly” because the country was unable to build the transmission lines needed to bring power to where our growing economy and population needs them. We wonder if that is happening.
Maybe we can start by adhering to the provisions of the EPIRA law where the “systems operations” functions are to remain with the government owned Transco since it is a rule making function that cannot be privatized.  The Chinese investors in NGCP deserve a fair return on their investments but do they really have to make the rules?

3. Renewable Energy and Missionary Subsidies
In these wonderfully intended programs, we proved once again the truth in the adage that the Filipinos are good in writing laws and programs but terrible in implementing them.

Missionary Subsidies

The concept of CSP or competitive selection process as a DOE policy dates back to 2004 for the missionary areas. It was intended to promote power development and privatization and lower the costs of providing power to the off-grid missionary areas. While officially the average cost of power generation had come down from NPC’s P21 per kwh to under P15 per kwh, the absolute amount of missionary subsidy had actually been increasing by multi-billions a year since 2017. And it’s not because of increased demand which grew only 4% a year as opposed to subsidies that increased 50 to 90% from 2016 to 2018.

The rules and objectives are clear enough but there evidently has been shades of grey in the implementation. Ten years ago, electric coops got away with manipulating bids by swiss challenge type biddings with the approval of the DOE’s EPIMB. Not the manipulation but the swiss challenge. When the current DOE Secretary wisely banned swiss challenge type CSP and unsolicited proposals, a new technique of manipulation emerged in the last 3 years. An ingenious bid evaluation method called “rubric scoring” system emerged seemingly in concert in three large islands. Bantayan, Palawan, and Marinduque. Some eagle eyed volunteers at your consumer group, Matuwid na Singil sa Kuryente Consumer Alliance (MSK) smelled the rats and raised issues in Marinduque and Palawan. “Rubric scoring” was officially removed but some of its favoring mechanics remained specially Palawan.   It was too late for Bantayan where the winner was given an edge in scoring for having a” ready site for the project”.

Missionary subsidies for these larger islands have increased in billions a year and those are passed on to us the consumers in the form of a UC-ME charge which is now P0.1561 per kwh.  We can’t afford it post-pandemic.

The RE Law Implemented in Vain

The feed-in-tariff program for renewable energy was another program that is nobly intended but implemented (or exploited) to favor a few. Not much for mini-hydro, wind, and biomass. It is in solar that consumers got hammered with a FIT subsidy of easily P3.00 per kwh. This supposed 50mw nationwide program suddenly ballooned more than 600mw and now costing consumers P8 billion a year in FIT subsidies and that would be for 20 years!  Grid connected solar has been under $0.05 (P2.50 per kwh) for the last 5 years and yet we continue paying P8.60 per kwh for it. They are not even grid compatible with their own frequency regulating capability so it is costing the consumers more in ancillary services. NGCP had to buy 100mw of 24/7 reserve power to assure it has instant reserve when clouds pass over in the Visayas and solar dips 75% in output.

Perhaps, the DOE can make it right for the consumers by appropriately accelerating the “degression” rate on these solar subsidies and reduce the UC-RE charge to consumers.  It is a great time to do it. If not at least require them to be  “grid compatible” just like the rest of the power generators on the grid.

4. Other things we need

a. Higher speed, reliable, and reasonable Wifi rates

Rebuilding businesses into better oiled machines will need modern technology and a lot of them is based on the power of the internet.  Business processes, apps, communications, connectivity, web commerce.  We cannot do it unless we fix our internet speed that is one of the slowest in the world at 4mbps when neighboring Vietnam is 32mbps. It is painfully slow at 1-2 mbps in many islands. Let us hope the government will make it their priority as a fundamental infrastructure for economic rehabilitation to bring in faster and cost effective technologies. Bring in third and 4th players in the telco sector if that is what it takes.

b. Cost effective inter-island shipping

If we are to decongest our economy from the city centers, we cannot do if it costs more to ship between Palawan and Manila, Mindanao to Manila than Singapore or Shanghai to Manila. We need to fix this if we are to open for business our high potential islands. Maybe we need to strengthen more the cabotage law.

c. Food security

We realize that our population had grown to more than 105 million and we would most likely have a baby boom after the lockdown period. Our food supply and agricultural productivity in rice, fruits, vegetables, and livestock have not kept up and falling behind further. We have many undeveloped islands with so much agricultural potential that are just waiting to be developed. Why has corporate farming and agribusiness not become a favorite of the highflying conglomerates?

d. Balancing our Economy

The country had served the business of these conglomerates where they have been allowed to make very attractive prices in power, real estate, condo building, water, telecoms, and road building.  Consequently their collective market caps had grown 10 times in the last 20 years since privatization and the passing of the Epira Law. The working class had been driven out of the city and now forced to commute 2 to 3 hours a day just to go to work.

In the post-pandemic reconstruction, we need not only to recover but to be better prepared for the next one.  We need to make these conglomerates serve the interest of the country and the people for a change. Just an idea, why not force them to be in synch with our national goals? Why not ask them to balance their revenue generation? Why not require minimums of 10% from agribusiness, 5% from tourism and shipping, 10% from manufacturing, and 10% from affordable housing. The rest they can make in their own preferred sectors.

Towards rebuilding our economy, we need to curve abusive utility rates in power, water, telecoms, roads, and internet. Consumer groups need to be even more vigilant. Let the depth and precision of our truth resonate above the media noise of those hoodwinking forces. It has gone on too long. But let us not tire.

Let us not only survive but thrive.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

In A Socially Distanced Economy, Financially Distanced Consumers Need Even More Protection. (Part 1)

David Celestra Tan, MSK
18 May 2020

Part 1

In our not too distant past,social distancing implied some kind of psychological imbalance. If you are an average person you are called “praning”, “mahiyain”, or “anti-social.” If you can afford a psychiatrist, your fear of crowds gets fancier names. Avoidant Personality Disorder (APD), Obsessive Compulsive Disorder (OCD), and a whole range of “phobias” like claustrophobia.

Yet, with the new reality of the risks of Covid-19,social distancing will define our lives, our work, our humanity, and the whole socio-economic system of our world. The new normal. Life as we knew it is being turned upside down. The millennials born into a life of a free and mobile society and just learning how to live it, will have to take a pause, relearn, and accept the constraints and restraints of a socially distanced and disciplined world. For at least three years until they find a vaccine or a clear treatment protocol. Beyond that if we have learned our lesson.

Amidst the ashes of the coronavirus conflagration, business will have to rebuild itself. On them also depends the rebuilding of the working class. It will not be easy. For it is not a question of just opening your doors and restarting your business the way it was.  The customer base that you used to count on will not be there in the quantity and frequency that your business economics depended on.

The new business normal

The business model of most industries have been obliterated, made invalid just like that. Retail rental rates assume a level of traffic that will not be there for a while. Our metrics of revenue per square meter of retail space, sales per customer, number of customers, and gross profit per sale suddenly are no longer true.  Business volume upon which our profits depend will need to be downgraded significantly. Your costs will be higher on less volume. And that is just to survive. Assuming you have deep reserves from those boom years, or get a government or bank bailout loan, how do we make money now?

Making shoppers feel safe

Bringing back customers as a minimum will require making them feel safe and clean in your establishment. Temperature detection would be perceptible both at the entrance and continuing in the inside. Anti-germ UVC and surface sanitation will have to be ubiquitous. Your aircon air needs to be sterilized and your staff made virus-free.

Surely Shopping Malls will try to bring back the good old days and do everything to draw shoppers back in. It is a matter of survival for them. They start with limiting the number of people within safe numbers. They offer you deep discounts. They will probably waive months of store rentals to store tenants so they don’t close for no stores no shoppers. Then they will start letting more people in.  Until Covic-19 cases comes back and they are shut down again.

Will there be a rise in strip malls and street shopping and restaurant rows like Morato, Capitol, and etc where customers can go to specific shops without becoming part of a whole mall crowd?

It will be a new world. But humanity and business eventually will find a way to adjust, to survive and to later flourish.

A need to banish abusive utility rates

To get there however we have to rebuild and realign ourselves, our community, our government, our business, and our society. Things will be tougher if we fail to jettison the unnecessary costs and burden of the recent past on our consumers and business. Abusive electricity, water, telecoms, and road rates.

We just cannot afford them anymore if we are to reduce our operating costs, attract manufacturing, retain our knowledge based sectors of call centers, enable our hard pressed working class to survive, and create better purchasing power for the hard earned income of our overseas workers. The BPO industry had complained about the 25% higher cost of energy, which they consume a lot in their 24/7 operations, than India. But they hang around the Philippines because of the talent of Filipino BPO workers for international communications and their adaptability in customer service.  Let us strengthen that sector by reducing the one bad handicap which is power costs. BPO is great, why saddle them with high rental rates? Do we really need POGO’s in our midst?

MatuwidnaSingilsaKuryente Consumer Alliance

Viewpoint: Meralco asks DOE to delay bidding for 1,800-MW supply

By Lenie Lectura -April 28, 2020
from Business Mirror

THE Manila Electric Company (Meralco) is asking the Department of Energy (DOE) to delay the conduct of a competitive auction for 1,800 megawatts (MW) of power capacity requirement.

Meralco President Ray Espinosa said the DOE has approved the terms of reference (TOR) for the 1,800MW power supply agreement (PSA).  The company wants to schedule the bidding at a still undetermined date amid the Enhanced Community Quarantine (ECQ).

He explained that Meralco’s  biggest concern is the volatility of fuel prices and uncertainty of prices going forward.

“While the DOE has cleared our terms of reference for the 1,800 MW CSP, we are in dialogue with DOE to discuss with them a possible push to a later date of this CSP given the volatile fuel prices in the market today.

The volatility is so high that it would be difficult for us to have a proper valuation, which is a distinguishing criteria to determine who will win in the CSP,” said Espinosa.

He meant that if the bids are evaluated now using artificially low fuel prices, this could be disadvantageous for consumers because when the PSA is implemented in 2025, fuel prices go back up to normal levels. Also, bidders may raise concerns about submitting binding bids given prevailing uncertainty.

“The other problem with CSP today is the ECQ, which actually prevents us from holding face to face meetings with the bidders for conducting and receiving voluminous documents that will accompany each bid,” added Espinosa.

The DOE has yet to act on Meralco’s request. “We are addressing the details with the DOE and we will just inform everyone on the decision of the DOE once we get it,” he said.

The 1,800MW PSA consists of the 1,200MW PSA that was supposed to undergo a second round of CSP  combined with “portions from 1,000MW and 500MW baseload CSPs that were supposed to be conducted this year.”

According to Meralco utility economics head Lawrence Fernandez, the company  was supposed to conduct three CSPs this year. These are 1,000MW baseload for 2025, 500MW baseload for 2027 and 600MW mid-merit for 2023.

Last year, Meralco conducted three CSPs. These are the 1,200-MW baseload capacity starting 2020, 500MW mid-merit starting 2020 and the 1,200-MW baseload starting 2024.

The first two CSPs were successful but the last one resulted in a failed bid. Meralco had pushed for the conduct of a second round of CSP for the 1,200-MW baseload starting 2024 but later on decided to discontinue this.

“On top of the 1,200MW last year, we were supposed to have two more baseload CSPs this year. We just combined the 1,200MW and portions (600MW) from the two other baseload CSPs this year to make it to one new CSP of 1,800MW,” he explained.

He added Meralco will review the line up after the 1,800MW is bidded out to consider the effect on present and future power demand of the current situation.