RCOA: The ‘promise and peril’ of electricity consumers’ choice (Second of Two Parts)

By Myrna M. Velasco –  

from Manila Bulletin

The legal skirmish hobbling retail competition in the power sector had been a fodder to the industry’s anguish – affecting not only the electricity suppliers but primarily the consumers. And while the turn of events triggered some “genuine moments of drama” in the sector, it also spurred propulsive re-assessment as to which parts in the policy and rule-making processes had actually gone wrong.

When the policy’s mandatory enforcement was restrained by the high court, it set a wavering line for the contestable customers whether or not to pursue that “much-desired shift” on their power supply procurements.

Such “disruption” in the business paradigm had been apparent, with the Philippine Electricity Market Corporation (as RCOA’s central registration body) announcing that close to 200 qualified contestable customers initially opted to defer switching registrations.

But after phases of trivial indecision and a bit of soul-searching, and perhaps much debate, explanation and talking them through the impact and parameters of the judicial order, customers were eventually cleared on their concerns and still settled on giving their “freedom of choice” a final go.

Retail electricity suppliers albeit qualified that switching had just been confined to those in the 1.0-megawatt threshold – still on voluntary basis; while supplier change to those in the 750kW consumption base had been effectively halted.

In Portugal, power retail competition is a “working and beneficial choice” for its consumers despite the dominance of its major power utility Energias de Portugal (EDP), which has over 80 percent control of the market. Power retail competition had been a success, it was explained, because customers were given ease of choice on power supply procurement and service access from more than 21 retail suppliers – plus that convenience of switching from a retail supplier to EDP (franchised power utility) at any time they are dissatisfied with the service of their providers.

Lower electricity rates had been the major outcome of retail competition in Portugal’s power market, and as consumers also learned how to manage their usage in a prudent manner, an unintended consequence had been energy efficiency and conservation, thus, helping the country solve its recurrent woes of power supply tightening.

Wading through hurdles

In the Philippines, retail electricity suppliers (RES) claim that negotiations for power supply agreements with contestable customers had not been fleeting and were never done just on surfeit of empty promises – instead the tangible benefits they could gain from supplier switch as well as their service options were thoroughly discussed with them. And that’s the reason why it became easier to re-convince them when things turned wobbly on the policy domain of things.

Danielle Del Rosario, PHINMA Energy head of marketing and sales, shared in particular that for their customers, “while they were confused at first because of a news entailing uncertainty, many of them held on to their trust in the market. In our discussions, our customers were able to understand that it’s not because it is mandatory, but because there’s an improvement in their electricity cost.”

PHINMA Energy is considerably the largest RES on stand-alone basis with 12% share in the market; but second in rank if the L-RES of Meralco – MPower – would be factored into the equation. On amalgamated basis though, some players may still emerge bigger with mixed portfolio of their RES units, the likes of the Aboitiz Group.

Prior to the original February 26 deadline, Ms Del Rosario qualified they were able to corner RES supply deals for 171MW, but just initially switched 100MW after the court’s ruling. They had to work on the rest gradually as they also needed to address specific concerns of each customer. Despite the odds, the company is still well on its way for a target of 400MW on the RES space.

As the company dealt with many malls, Ms. Del Rosario explained that some customers needed to communicate the implications of the legal tangles to their tenants first before firming up their switching move. “When there’s uncertainty at the top, they (customers) want to make sure that they communicate the right things downward… we told our customers that it is in their best interest – given that our offers are more competitive and with that, they were able to understand the entire process,” she said.

Tangible benefits

Aside from offers of cheaper rates – reported to have been in the range of P2.80 to P3.00 per kWh in the intensely competitive RES market, guarantee of “replacement power” is a “sweetener” that retail suppliers have dangled to prospective off-takers (capacity buyers).

Others also leaned on advancing  “green or clean energy offers” to the environmentally conscious end-users, such as the deal between First Gen Energy Solutions of the Lopez Group and Unilever Philippines; and the Fort Bonifacio Development Corporation with the AC Energy RES unit of the Ayala Group.

For Antonio R. Moraza, president of Aboitiz Power, he professed that the RES sector remains in the “learning process for both suppliers and consumers. With increased sophistication on both sides will come better prices and product offerings.” The Aboitiz group is aiming to expand its capacity further on the RES segment – currently gunning for a capacity target of 800 megawatts.

Market competition in this wing, according to the industry players, is as intense as if like getting lurched on to a “tightrope walk,” that only those with “best offers” could win customers’ approval.

According to Eric Francia, president of AC Energy Holdings of the Ayala Group, “vast majority of contestable customers are getting significantly better rates than their local DU (captive) rates,” albeit he emphasized that “some customers outside Greater Manila are slower to switch to being contestable since they are more cautious,” fundamentally wanting assurance that “the service levels of their distribution utility will not deteriorate.”

Still, he indicated “these customers will likely realize over time that switching should have no impact on service level, and that there is significant savings to be made being contestable.”

Mr.  Moraza also opined that policies and market dynamics should be able to propel competition to the 500kW level and even to lower thresholds, so the consumers could truly become “king” and be at the head of the table in choosing and exercising patronage of preferred services and power providers.

On Mr.  Francia’s take, “the faster RCOA reaches the household level, the better it would be for consumers so they can also enjoy the attractive rates,” asserting further that “while this won’t happen overnight, it would be great for the regulators and authorities to expedite RCOA implementation as set out in the EPIRA. Hopefully, the tangible benefits we are seeing with 1.0MW customers will be incentive enough to expedite the process.”

Fear of default

On the whole though, the entire RES sector is still in turmoil – particularly as to what the future really holds for them. Lowering the threshold to 750kW and down next to the aggregation level (or at the 500kW threshold) are the most obvious ones – and farther even, would be bringing the benefits of competition to the household level.

For now, even the company-members of the Retail Electricity Suppliers Association Inc. (RESA) feel that this appears to be “easier-to-wish-for than done” – given that the recent policy complexities may be pushing them even into dangers of default.

With pending cases in the courts, they have been noting some degree of ambivalence on the part of the ERC to process some RES licensing applications – including those that are up for renewal.

They now fear that with this uncertainty, they could be “in default” with their contractual obligations and this could knock down any market credibility that the RES competitive regime had already established. Worse, on the part of some customers, they could be forced to revert to the “captive regime” that may not necessarily be favorable to them cost-wise.

In their motion for intervention and clarification lodged with the SC, the RESA members primarily asked the high court “to direct government or bureaucratic inaction with regard to applications for the issuance of licenses.”

The power retail suppliers further stipulated that “its members and contestable customers have been placed in limbo by the ERC’s inaction on the RES license applications.” Other relevant clarifications batted for had been on the parameters of the SC TRO – primarily on the issues raised by the L-RES players (primarily that of Meralco’s case) and the bid on capacity threshold lowering to 750kW.

Mr.  Francia noted that “several customers with 750kW demand are eager to switch to contestability but are barred from doing so because of the current TRO.”

He stressed that “full implementation of RCOA won’t be easy – there are forces, interests and TROs that will stand in the way,” but what matters most, he said, would be having that “strong political will and ability to anticipate critical risks and pick battles accordingly.”

Beyond these concerns, RES players have also been tugging their way into resolving “tax treatment issues” under the mandate of the Bureau of Internal Revenue (BIR), that if left unaddressed could have “rate hike effect” on the bills of contestable customers.

They cited that some line items are not subject to value-added tax (VAT) when these same set of customers were being serviced by the DUs, and this is a consistent treatment or application that they want cleared into the competitive retail regime of the power industry. Discussions have already been carried out with the BIR and the ERC on the matter, but decisions are still hanging.

While at this challenging transition, industry players note that they are focusing on the “known problems” that have to be resolved to benefit consumers – while on the other hand, wishing that the next developments would not come as another crushing round and hopefully will not end up a burial ground on the customers’ hope and aspiration of exercising their real “freedom of choice!”

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