Why are power generation rates in Mindanao going up? What can consumer groups do to bring down the rates?

By David A. Tauli, Mindanao Coalition of Power Consumers

06 October 2016

The rates for bulk power generation in Mindanao from incoming coal plants will go up to 5.40 pesos per kilowatt-hour starting in 2017.

In order to bring down the rates of these coal plants to around 4.00 pesos per kWh, power consumer groups should: (a) carry out massive and persistent lobbying of the government of President Rodrigo Duterte, (b) advocate reforms in the Energy Regulatory Commission, and (c) file legal suits against the electric power generating companies and distribution utility companies in Mindanao who have conspired to generate the high rates.

This note sets out briefly the why and the what.

There are two main reasons why the rates for bulk power generation from coal plants in Mindanao are high:

1. Distribution utility companies have entered into power supply contracts without carrying out least-cost acquisition of their supply of electricity, in violation of the laws that govern the electric power industry, particularly the EPIRA, and contrary to generally accepted practice in the governance and management of distribution utility companies.

2. The Energy Regulatory Commission has been captured by the electric power corporations that it is supposed to regulate, and consequently has adopted uncritically the procedures and data of the generating companies in the determination of the rates for bulk power generation.

Power consumer groups should lobby the Duterte government to carry out the following:

1. Direct the distribution utility companies to strictly carry out least-cost acquisition procedures for the power supply of their consumers, and boot out the officers, or revoke the franchises, of the distribution utility companies who do not comply. Non-implementation of least-cost acquisition should provide adequate legal grounds for such penalties.

2. Allocate to the residential consumers the generation of the hydroelectric power plants in the Agus and Pulangui rivers. This will ensure that households will enjoy low rates (a reduction of more than one peso per kWh) for electric consumption despite the machinations of the gencos and the distcos.

3. Direct the National Grid Corporation of the Philippines to carry out economic dispatch of all generating plants in the Mindanao Grid, disregarding the power contracts between distribution utility companies and the power generating corporations (many of which were fraudulently entered into anyway).

A study of the petitions for approval of electric power supply agreements that were submitted to the ERC by electric power companies in Mindanao will show that the ERC has been uncritically following the procedures of the gencos and adopting the data provided by the gencos (with superficial revisions to show that it is being critical in using the data) in the determination of the true costs of generation. While the ERC has been following the letter of the law in the proceedings for these petitions, it is evident from the records of the proceedings that the ERC has entirely lost the spirit of fairness, reasonableness and transparency in the determination of rates for bulk power generation. This may be true also in the case of applications for rate increases in distribution and transmission, but a study of those applications still need to be carried out.

This problem is matter of the personalities in the ERC rather than the rules and procedures, so its correction could be done only through the reformation of the ERC organization.

The filing of legal suits against the gencos, distcos, and the regulators and government agencies is a last resort, mainly because of the fundamental problems (to say the least) in jurisprudence in the Philippines. And because consumer groups do not have the money to pursue legal suits all the way to the Supreme Court. Before going the way of the courts, consumer groups should work with friends in the House of Representatives and in the Senate to carry out investigations of government agencies and regulatory bodies involved in the electric power industry in Mindanao.

Money being stolen from power consumers in Mindanao as a consequence of corruption and venality in the electric power industry goes into the hundreds of billions of pesos, greater than the profits of those involved in the illegal drug industry and in gambling. Which leads to the idea that maybe we should get the Duterte government to carry out tokhang in the electric power industry in Mindanao. God forbid.

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