Simple But Deeper Issues in Power are Part of High Power Cost Problem

David Celestra Tan, MSK
12 January 2017

Energy Writer Myrna Velasco’s two part series on power policy and high power cost that appeared in the Daily Inquirer touched on the usual issues bedeviling the power sector and the country’s search for sustainably reliable and competitive power compared with our Asian neighbors.

There are deeper issues that are actually obvious and simple that we know our government officials including the legislators should know will work to assure power supply at least cost but persuasive lobbying by the vested interests have been getting in the way. Issues are muddled and made more complicated. If only we all will look at the power sector from a patriotic heart, we will see clearly the obvious and simple solutions.

1. Creation of True Competition is the magic wand

It is true that there are many factors contributing to the Philippines high power costs but we have to start with the very basic which is the creation of true competition in the generation sector. Since deregulation and privatization under the EPIRA Law of 2001, we went from the Napocor government monopoly into a private sector oligopoly and Meralco’s monopsony. Now we have an 800lb gorilla in the distribution sector that is on its way to also becoming an 800lb gorilla in the generator sector as its twin. There is no competition in the generation sector. All sorts of evil come out of negotiated contracts. It is just unthinkable that in a country where government officials go to jail for manipulating competitive biddings, we allow the negotiation of power generation contracts that will burden consumers monthly for 20 years. The difference between negotiated and bidded contracts is P0.50 to P1.00 per kwh or 15 to 20%. That’s huge.

Creation of True Competition will also be the solution for assuring the sustainable entry of investments in power generation in an atmosphere of true competition and market access for the fittest.

Competition is likewise the solution for the conundrum in the solar and wind sector. Why is the DOE avoiding the obvious benefit of holding competitive bidding for solar power when there are so many interested investors? A 100mw solar plant in Southern California recently went on commercial operation and their rate is only $0.05865 cents or Pesos 2.93. It’s true they have fiscal incentives but so did our RE law of 2008 that gave tax free incentives for importation and income taxes for 7 years and beyond that only 10%. If P2.93 per kwh is viable in America it should be viable in the Philippines. If we add the cost of storage battery and self-regulating capabilities it can go up to $0.08 per kwh or only P4.00 per kwh and it will not require subsidies. It is still attractive for investors.

2. Reforming ERC Rate Setting methodologies

If only the ERC will find its regulatory soul, it will look at the various anti-consumer rate setting methodologies that can balance the rules between the distribution utility like Meralco and the consumers. Performance Based Rate Setting (PBR) allows Meralco to make money even on investments they have not yet incurred. The Systems Loss computation is anomalous and non-transparent. Meralco is allowed to keep the windfall profits from higher energy sales beyond the table forecast. These were put in by the 2nd and 3rd Chairmen of the ERC that effectively allowed Meralco to have unlimited return on investment when it is supposed to be a regulated distribution utility. ERC hearing processes are too strictly judicial deterring concerned consumers from being heard because they cannot afford lawyers.

3. Strategic Power Generation Capability by the Government

It is time to recognize the obvious reality that the Filipino people, despite power sector privatization, still expects the government to step up and provide solutions whenever there are shortages of power or steep rises in power costs. A new law is obviously required for government to possess strategic power generation capabilities to calibrate supply and prices whenever needed to protect the consumers. Its existing assets can be used for this strategic purpose instead of giving them away to the well-connected private sector oligarchs on the grid.

4. Least Cost Power and Economic Competitiveness as a National Policy

Ironically we only talk about these nice ideals of least cost power and economic competitiveness. But the way we implement privatization and power development is not really guided by a resolute cost competitiveness objective. Our neighbors have competitive rates because they worked for it. If we have low power cost as a national objective, we would utilize the bountiful hydro resources of Mindanao as the anchor power supply for that island at P2.50 per kwh. Now Mindanao will be coal dominated at P5.00 per kwh and the Agus complex will become a peaking and reserve plant selling power at WESM rates that they hoped will be P4.00 to P6.00 kwh just like in Luzon.

We would fast track and encourage the natural gas generation alternative as a leverage against coal. We would look at new, smaller, and safer nuclear technologies but move on from the old BNPP. Lets encourage geothermal development but make sure they charge reasonable rates. Mt. Apo geothermal in Mindanao used to sell its output at P3.80 per kwh. After privatization it became P5.30 per kwh.

We would also be circumspect in imposing taxes on energy, a primary input for economic production. The VAT tax on power services and other taxes being envisioned would be shooting the economic competitiveness of our people and country.

5. NGCP is an Unrecognized Part of the Problem

NGCP’s inadvertent acquisition of the grid and policy making power of the government owned Transco as intended by the Epira law need to be rectified. It created serious conflict of interest. The concession was awarded to the NGCP consortium because they are supposed to have the financial and technical wherewithal to develop the power grid. Now there are reports that NGCP makes the power generators finance the grid connection investments, hence deterring the power grid from keeping pace with generation development. NGCP and its investors are entitled to a security and fair return on the investments they would incur, a presumption when they got the franchise. Operating its transmission system is not the same as being the “System Operator”, a rule and policy making body tasked with insuring development and competitiveness in the grid.

As the Little Prince said, it is only through the heart that one can see clearly. If we have a true patriotic heart with true concern for the Filipino people and country, we can easily be guided in what to do in the power sector that has been made complex and labyrinth by the vested interests and their cohorts.

These maladies in the power sector breed corruption. The high power cost solutions are simple and obvious. We only need to recognize them and find it in our hearts to do something about it.

We also wish Ms. Velasco’s writings for the Manila Bulletin on power can be balanced to also present the view of the consumers and not only those of big business generators and distributors that she invariably quotes in her articles.

Happy new year!

David Celestra Tan
Matuwid na Singil sa Kuryente Consumer Alliance Inc.


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