Consumer choice in electricity supply and prices

* This is my column in BusinessWorld on April 30, 2018.

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In several statistics comparing electricity prices in Asia, the Philippines often ranks as the third most expensive in Asia next to Japan, Singapore, or Hong Kong.

Here are numbers from three different sources: (1) The Lantau Group (TLG), “Global Benchmark Study of Residential Electricity Tariffs,” May 2013. The study prepared for the Energy Market Authority (EMA), Singapore; (2) Enerdata, cited by Chris Herrera, “Optimization of Supply” presented at EPDP lecture, UPSE, October 26, 2017; and (3) International Energy Consultants (IEC), “Regional/Global Comparison of Retail Electricity Tariffs: Executive Summary,” May, 2016.

Electricity_042018

In the IEC study, subsidized markets are Indonesia, Malaysia, Thailand, South Korea, Sri Lanka, Taiwan. Unsubsidized and deregulated markets are Japan, Philippines, and Singapore. Hong Kong is unsubsidized but it is unsure if it’s deregulated.

The Electric Power Industry Reform Act (EPIRA) of 2001 has several provisions to help reduce Philippines’ electricity prices. The deregulation of power generation encouraged many private power producers to compete with each other. The Wholesale Electricity Spot Market (WESM) average prices for instance have been declining, in Pesos/kWh: 6.43 in 2010, 3.80 in 2011, 4.87 in 2012, 3.85 in 2013, 4.40 in 2014, 3.47 in 2015, and 2.84 in 2016.

The retail competition and open access (RCOA) under EPIRA is also an excellent provision. RCOA allows the “contestable consumers” or those with average electricity consumption of 1,000 KW (or 1 MW), a level which will later be reduced to 750 KW a day, to choose their own Retail Electricity Suppliers (RES) and leave their existing private distribution utility (DU) or electric cooperative (EC).

With RCOA, electricity consumers can set their own conditions from their RES.

Some can demand that they be supplied 100% only from renewables even if the price is higher, others can demand that they be supplied only from cheap and stable sources. Small customers can also aggregate their demand or allow an aggregator to pool their combined demand to become contestable customers.

There are two recent reports in BusinessWorld related to this.

(1) SC asked to lift TRO on retail power suppliers (April 24)

(2). DoE may step in as licensing body for retail power suppliers (April 12).

Report #1 is about Bayan Muna (BM) petition at the Supreme Court (SC) that it should lift its indefinite temporary restraining order (TRO) it issued in February 2017 barring the Department of Energy (DoE) and the Energy Regulatory Commission (ERC) from further implementing RCOA and allow the contestable customers to choose their own RES.

I was surprised that the pro-state intervention and pro-big government Bayan Muna suddenly turned around and campaigned for pro-market, pro-consumer choice — that consumers be given more freedom to choose an RES from the 23 short-listed by the ERC. Turns out that Bayan Muna is only doing this to further fight Meralco as a monopoly in electricity distribution in Metro Manila and some surrounding provinces. However, the group is silent about the Constitutional provision granting monopoly power to all other DUs and ECs in the country.

Report #2 is about the DoE studying the legality of being the issuer of licenses for RES. There are no updates about this yet.

The indefinite TRO has a very adverse result, reducing consumer choice, especially the contestable customers.

Those who consume 750-999 KW a day and are willing to move voluntarily to RES cannot do so because they will be disallowed by the ERC and PEMC. And even those who consume 1MW or more per day that are already qualified for RCOA are hesitant to have power contracts with RES because of the continuing uncertainty.

The ERC also does not and cannot issue new RES licenses or renew expiring ones, resulting in reduced RES competition.

Even some DUs also face uncertainties whether to get additional generation contracts or not for contestable customers because these customers can leave them anytime once the TRO is lifted.

Government prohibitions should be kept to the minimum. The EPIRA law has already succeeded in reducing electricity prices and expanded the country’s power supply capacity so why suspend more customer choice and empowerment?

The SC indeed should lift its indefinite TRO because it is anti-consumers and anti-business. Existing DUs have the freedom to put up their own RES so that contestable customers who have left the DU franchise system can still be their customers. Or the SC can strike down certain ERC resolutions so that it can issue new resolutions and regulations to implement RCOA and further expand consumer choice.

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