Power Policies That Can Use President Rody’s Maverick Touch

David Celestra Tan, MSK
15 May 2016

Presidential Candidate Rodrigo Duterte’s message of stopping crime, corruption, and drugs captured the imagination of the Filipino people. He resonated with an apparently underestimated latent yearning of the Filipinos for hope for solutions and actions on the many ills of the country that remained unchanged after years of supposedly more intelligent and sophisticated Presidents. Voters loved the maverick in him. His campaign TV ads implied that they did not accept big donations from big business to avoid compromising their principles for public interest.

Now that he has won the mandate of the people, there is hope that President Rody’s solution- oriented no nonsense approach, new vigor, and new focus on good governance that worked magic in Davao City can be implemented on a national scale and on a wider range of challenges facing the country.

One major strategy challenge is the power sector where the consumers and taxpayers have been sacrificed and abused by a succession of out of tune policy and anemic and corrupted implementation. Maybe it will take a provincial city mayor, who may look and sound uncouth in his ways, to take a fresh look at the ills of the power sector and with his fiery and solid patriotic heart really show that he, as he pledged during his speeches,is a Filipino and he loved his people. Filipino electric consumers need a lot of loving from him.

1. Start with a recognition that Filipinos need Lower power rates to generate jobs from manufacturing and to prepare for Asian economic integration.

In addition to crime, corruption, and drugs, high power rates and industrial competitiveness are two lingering and growing maladies that have been besetting our people and country for the last 15 years and punishing them with high power rates. These two will become full blown problems by the 3rd year of President Rody’s administration if not recognized and handled early.

Filipinos don’t feel the urgency now because power rates are comparatively lower due to the lucky drop in world fuel prices. And their monthly electric bills have not been as painful because Filipinos are enjoying higher disposable income from OFW remittances, from call center jobs, from the new wealth created by high real estate values, and from city jobs. But the truth is that Filipinos continue to pay the highest electricity rates in Asia and we are not industrially competitive enough to have a chance when Asian economic integration hit us and most of the protection of import duties is lost to our industries. We will become a service economy and become mainly an importing country. Even your soap and shampoo and basic commodities are mostly imported now.

We need to promote production and manufacturing in the islands to provide employment and livelihood in the countryside because the level of skills of a big part of our population, our spread out island geography, and our insular international business infrastructure do not suit a Singapore-type economy.

These can be addressed only if President Rody’s team recognizes the power cost and industrial competitiveness as problems in the first place.

2. Power Costs are High Simply Because Lower Power rates and industrial competitiveness are NOT declared government policies. You hear these mostly as lip-service and part of public speech rhetoric.

The way the previous governments were pursuing energy mix and development, climate change through renewable energy, privatization and deregulation, assuring competitive rates is not really part of the major goals.

We only need to watch what is happening in President Rody’s home island of Mindanao. The solutions being pursued for the chronic power shortages are both expensive, coal and diesel. The Agus hydro complex, which used to bless Mindanaons with cheap and clean power at P1.90 per kwh, has not been a priority. Instead very influential groups want to have the 900mw facility privatized and turned into an ancillary services plant to be sold at P6 per kwh in the WESM market as they did in Luzon.

If we have lower power rates as a national policy, the Agus power complex would have been rehabilitated long time ago. Similarly in Luzon, the government’s decision on how to privatize the CBK hydro complex should be guided by lower power rates as an objective.

3. “Power Supply is Primary, Rate is Secondary”

One sure sign that our power rates will continue to be high is when our own energy officials say that the DOE’s mandate is “to ensure that there is adequate, continuous, and reliable power”.

They also bought into this line that says “the most expensive power is having no power”.

This mind-set has to change. Ensuring low power rates should equally be both the DOE and ERC’s mandate. Energy officials who continue to think of the 1990’s power crisis, a scenario that the IPP industry likes to scare officials and people with, should at least learn from its true lesson which was the need for advance planning and quick action to assure adequate power supply. We learned fast track power projects are both expensive to consumers and country and costly to the economy. We learn that negotiated contracts would be very expensive and onerous to consumers.

The Philippines is now in a different time and situation. We have time to be proactive and contract for power supply in a properly competitive way that protects the consumers. We have time to steer power projects to the right technologies, locations, and timetables.

Power Development is a three-legged tower. Ample Supply, Competitive Rates, and Environmentally respectful. All three must be balanced. And President Rody’s team of energy thinkers and problem solvers we hope would be as maverick as him to liberate our consumers from these decades of abuse.

We need a coordinated and comprehensive power development plan with a locational strategy that is appropriate for our archipelagic geography.

4. Energy Mix Strategy

`The DOE’s pursuit of a table formula of 30% coal, 30% natural gas, 30% renewable, and 10% other fossil-fuel is a step in the right direction. However we wonder where the allocations came from. Arithmetical balance? These targets need to be refined to factor in the realistic achievable levels and the state of the long term power supply contracts of the two giant distribution utilities that together use 75% of the country’s energy. Both of them are tied to 20 year power supply contracts for coal. While we are saying that we want to reduce coal to 30% we are opening a backdoor for Meralco’s 3,500mw of negotiated contracts most of which are coal. Are we talking about achieving this energy mix balance in 50 years, or ever?

The 30% targeted for renewable energy is a dangerous misnomer and must be corrected by President Rody’s energy team to “30% clean energy”. RE is now synonymous to expensive subsidized power that are too expensive to connect to the grid and to complement with ancillary services to make up for their unpredictability. We have a fair amount of clean energy. Big hydro and big geothermal must be counted in the mix. The big Agus hydro complex in Mindanao must be rehabilitated for most competitive and clean energy for Mindanao. And there are many hydro projects there that need government encouragement. Sample in Luzon.

5. Renewable Energy

RE policy and implementation is one area where we hope President Rody’s more sensible energy advisers can come in to save the country from expensive confusion.

Why is the DOE, NREB, and ERC insisting on doling out arbitrary high Feed-in tariff rates to solar and wind? Now geothermal wants to also be subsidized. With so many people interested in solar why don’t they hold a bidding and let’s see what is the true market rate for solar and set the P7.90 per kwh 3rd round FIT as the maximum price.

We treat the consumers pockets as bottomless pits just willing to pay the cost consequence whenever the government policy makers succumb to the lobbying of the private sector.

6. WESM System and Rules Stuck in 2006.

The WESM rules have not been updated to deal with the sorry market lessons of the past 10 years. The anti-consumer “market settling price” which is the highest price dispatched for the day has been killing consumers. There are many imperfections in the market rules. There is no room for reserve power. The “pricing error” and “must run units” rules are confiscatory in nature, a violation of the constitution. WESM must be a market for “imbalances”. We have to get out of the thinking that power is a commodity that can be traded in a “spot