Top 8 energy news of 2017

* This is my article in BusinessWorld last January 2.

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This should have been a “Top 10” list but due to space constraints, I limited it to only eight, divided into four news stories each for global and national.

GLOBAL

1 “Non-news” to many media outlets but good and big news to me: NO major energy catastrophes in 2017. No major oil spill, no gas blowouts, no reactor meltdowns, no major infrastructure destroyed by natural disasters, and energy prices did not rebound to their 2014-2015 levels.

2 In June 2017, the British Petroleum (BP) Statistical Review of World Energy 2017 was released and among the highlights of that report are: (a) China and US remain the planet’s biggest energy consumers, (b) increases in oil, natural gas, nuclear and renewable energies (REs) but decline in coal use, (c) for big Asian economies, coal use remain very high especially in China, India, Japan, South Korea and Indonesia (see chart).

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3 In September 2017, the US Energy Information Administration (EIA) released its “International Energy Outlook 2017” and among its projections are (a) In 2040, fossil fuels (oil, natural gas and coal) and nuclear will supply about 83% of global total energy consumption; 8% from hydro and 9% combined from wind, solar, geothermal, other REs, and (b) coal use is projected to be stable until 2040 and declines in China to be offset by increased use in India.

4 In November 2017, the “America First Energy Conference” was organized by the Heartland Institute in Houston Texas to analyze US President Trump’s pronouncement of US global “energy dominance”. “Energy dominance” is defined on two key goals: (a) meet all US domestic demand and (b) export to markets around the world at a level where they can “influence the market.” The important lessons from the papers presented are that (i) the US can have energy dominance in oil, natural gas and coal, but (ii) US cannot and should not aspire to have dominance in nuclear and REs. It was a very educational conference and I was the only Asian in the conference hall.

NATIONAL

5 Hike in excise tax for oil products and coal under TRAIN but zero excise tax for natural gas even if it is also a fossil fuel. Diesel tax will increase from zero in 2017 to P2.50/liter in 2018, P4.50 in 2019, and P6.00 in 2020. Gasoline tax will increase from P4.35/liter in 2017 to P7 in 2018, P9 in 2019, and P10 in 2020. Coal tax will increase from P10/ton in 2017 to P50 in 2018, P100 in 2019, P150 in 2020. There was successful maneuver by some senators, a known economist and some leftist organizations to spare natural gas from higher taxation, benefitting a big energy gas firm.

6 The feed-in-tariff (FiT) or guaranteed high price for 20 years for wind-solar and other renewables keeps rising, from only 4 centavos/kWh in 2015, became 12.40 centavos in 2016, 18 centavos in mid-2017 and petition for 22 centavos by late 2017 not granted. A pending 29 to 32 centavos/kWh by early 2018 is awaiting approval by the Energy Regulatory Commission (ERC).

7 Continued exemptions from VAT of the energy output of intermittent wind-solar and other renewables but stable fossil fuel sources were still slapped with 12% VAT under TRAIN. Government continues its multiple treatment of energy pricing: High favoritism for wind-solar, medium-favoritism for natgas, and zero favor for oil and coal.

8 Supreme Court issuance of TRO in the implementation of Retail Competition and Open Access (RCOA) provision of the Electric Power Industry Reform Act (EPIRA) of 2001. In particular, the SC TRO covered five ERC Resolutions from June 2015 to November 2016, affecting the voluntary participation of contestable customers (CCs) for 750-999 kW and many Retail Electricity Suppliers (RES) with expiring licenses cannot get new ones yet, reducing potential competition. Data from the Philippine Electricity Market Corporation (PEMC) show that as of Nov. 26, 2017, there were 28 RES, 12 local RES, 862 CCs for 1 MW and higher, and only 78 CCs for 750-999 KW. There should be thousands of CCs in the lower threshold, there should be several dozens of RES nationwide to spur tight competition in electricity supply and distribution.

Overall, EPIRA of 2001 was a good law that introduced competition, broke government monopoly in power generation, broke private geographical monopolies in power distribution. The RE law of 2008, SC TRO 2017 and TRAIN 2017 are partly reversing the gains of EPIRA.

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EPIRA is 16 years old and it is working

Reposting this nice article today by a friend, Orly Oxales.

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It was 16 years ago when Congress enacted Republic Act No. 9136, or the Electricity Power Industry Reform Act. The law was envisioned to make the local power supply reliable and affordable by fostering competition in the industry. Broadly speaking, anyone who is old enough to remember the blackout-laden years of the 1990s would perhaps agree that Epira achieved its minimum goal of at least bringing some semblance of stability into an otherwise volatile industry.

By a stroke of coincidence, this June saw a record decrease in electricity rates, perhaps a testament to Epira’s general effectiveness. After a P0.29-per-kWh reduction in May, distribution utility firm Manila Electric Co. announced an additional P1.43 of decrease for June, effectively bringing down the rate to P8.17 per kWh, the lowest in nearly eight years, since December of 2009. For a typical residential household consuming 200 kWh, this translates to a P285 decrease in electricity bill.

The June rate also reflects the refund of Meralco’s over-recovery on pass-through charges amounting to P6.9 billion from 2014 to 2016. Meralco successfully petitioned the implementation of the refund with the Energy Regulatory Commission, which granted the request on May 11.

To many, that current retail rates are the same eight years ago, combined with evidently improved distribution efficiency (systems loss at an all-time low), record low outages, and increased innovation, demonstrate that Epira was achieving its intended vision for the power sector. It has let the market work as it should, foremost of which was successfully allowing private sector investments to drive strong load growth.

Indeed, many stakeholders believe that it is private sector involvement—the much-needed lifeline to the then ailing, notoriously corrupt state-controlled energy bureaucracy—that has proven to be Epira’s most vital legacy. After all, the series of big-ticket investments in the power sector could not have been possible without the landmark law.

“Epira came in June 2001. Maybe, from the start, it was going slow. But from my personal observation, there’s a lot of power projects that came on stream for the last three or four years, [and] a lot of capacity still coming on stream. Not bad at all, because it takes years to put to bed a power project,” Emmanuel de Dios, GE Philippines CEO and formerly Department of Energy undersecretary, told Business Mirror.

Among others, this requirement for long-term big-ticket investments is the wisdom behind Epira’s market-driven stance. It had the foresight to anticipate burgeoning domestic demand for energy, which some estimates say will triple by 2040. It thus recognizes the pivotal role that a stable energy supply plays in economic development, an area where a vibrant, competitive investment market is non-negotiable.

Another of Epira’s innovations, the Wholesale Electricity Spot Market (WESM), has, as envisioned, become a venue for market competition, resulting in fair and competitive power prices. In fact, overall generation charge has decreased this June by P1.0253 per kWh, from P4.88 in May to P3.86 this month. A crucial factor here is the P1.25-decrease in power sourced from WESM. It is important to note that this became possible despite the expected higher power demand in Luzon in the summer months, in addition to fewer plant outages.

In the last two summers, we thankfully did not see a repeat of the power price hikes of 2013. Brown-outs were minimal. This is encouraging but one or two breakdowns from base load power plants will quickly cause debilitating outages. To sustain economic momentum, we need to encourage more investments in power plants that use the newest technologies and operate with the highest efficiency. These power plants will ensure reliable supply at the most affordable prices while at the same time being compliant with environmental regulations.

Environmentally friendly renewable energy, about which there is much hype, is still an expensive and unstable source that threatens to further burden all consumers with another move to increase rates. It is a policy that needs serious re-thinking and merits a congressional investigation on how much and where all the Feed In Tariff—which by now might be in the billions­—was spent.

At the end of the day, it is the consumers—from individual households to multi-billion-peso industries—that ultimately benefit from an energized power sector. Stable prices lead to savings. Increased operational efficiency of generation companies lessen blackouts. No one is exempt. Now on its 16th year, the Epira is by no means a perfect piece of legislation—domestic power rates remain one of the most expensive in the region—but it has successfully laid the groundwork for a buoyant energy sector.

On the retail competition and open access (RCOA) and EPIRA

* This is my article in BusinessWorld on April 19, 2017.

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Electricity distribution, unlike generation, is defined as a “public utility” and hence, is granted as a monopoly right via congressional franchise. There are more than 120 distribution utilities (DUs) such as Meralco and electric cooperatives.

To dilute this monopoly, the Electric Power Industry Reform Act (EPIRA) which was passed in 2001 came with Section 31, Retail Competition and Open Access (RCOA) that “shall be implemented not later than three (3) years upon the effectivity of this Act,” and Section 29, Supply Sector, “The supply of electricity to the contestable market …” These are useful, anti-monopoly provisions, thanks to EPIRA.

The RCOA was finally implemented 12 years after, on June 26, 2013. The Department of Energy (DoE) and the Energy Regulatory Commission (ERC) issued orders to implement this beautiful provision.

But somewhere along the way, what should be a competitive scheme has become a “mandatory” order.

Some electricity consumers are unhappy because their choice to stay with their DUs — especially if these provide them good service and prices — has been done away with. This is why they went to the Supreme Court (SC) and asked for a Temporary Restraining Order (TRO) against the RCOA.

Below is a summary of these orders (one from DoE, four from ERC, and one from the SC).

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The SC TRO has mixed signals. It is good because (a) it stopped the “mandatory migration” to RES by contestable customers (CCs) and thus, they have the option to stay with their DUs or not, and (b) local RES will be allowed again. But it can also be bad because (a) it stopped the voluntary participation of CCs for 750kW (lowered threshold), and (b) some ERC Resolutions suspending earlier prohibitions to Retail Electricity Suppliers (RES) are also removed.

Government prohibitions should be kept to the minimum as much as possible.

These prohibitions would give people — especially those with very low technical and financial capacities — the right to become RES which might invite abuse of CCs.

2017041893842Such prohibitions should not include more RES players, the right of CCs to stay with their DUs or not, and voluntary participation of customers at 750kW.

EPIRA has provided for more customer choices, strengthened consumer empowerment, and demonopolization of electricity generation and distribution. Let this spirit stay in the succeeding orders of the DoE and the ERC.

 

FIT-All, renewables and election 2016

* This is my article in BusinessWorld yesterday.

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The increase in feed in tariff-allowance (FIT-All) has been approved by the Energy Regulatory Commission (ERC) recently. As a result, Meralco and all other distribution utilities nationwide will be collecting 12.40 centavos per kWh of electricity consumption starting this month. The amount is higher than higher than 4.06 centavos/kWh that was collected in 2015.

Even consumers from Mindanao — an island not connected to the Visayas and Luzon grids — will pay this FIT. If Mindanao consumers are spared of this additional charge, the FIT-All will be much larger in Luzon and the Visayas, which host an increasing number of wind and solar farms. Another FIT hike will be expected next year.

Unlike the previous electricity price hikes that met a big public backlash, such as the price hikes of P4+/kWh in November-December 2013 which should go back to old rates after two or three months, FIT additional collections are not short term but long term and can last 20 to 30 years or more.

The Philippines has the highest electricity prices in the ASEAN and has the second-highest in Asia, next to Japan. This is not good especially if we are serious in attracting more investments that can give more jobs to more Filipinos (see graph).

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There are many factors why this is so, among which are the various taxes, fees, and royalties imposed by the Philippine government on energy sources (like the natural gas royalty from Malampaya gas field in Palawan) and on companies themselves.

In the coming general elections next month, all presidential candidates support more renewables. Sen. Grace Poe even proposed that power distributors should be “compelled” to use renewable energy. Davao Mayor Rodrigo Duterte is explicit in supporting more coal power plants, and administration candidate Mar Roxas supports the use cleaner fossil fuel like natural gas, along with renewables.

Among Senatoriables, it is weird that former DoE Secretary Jericho Petilla would even blame some provisions of the EPIRA law of 2001 for the high cost of electricity in the country, saying that the law prevents the government from putting up new power plants that can help rival private generation companies.

Government-owned National Power Corporation (NPC) used to be the sole power plant owner and operator nationwide. Instead of bringing down the cost of electricity while raising power capacity, NPC has largely succeeded in piling up huge amount of debts, mountains of debts hundreds of billions of pesos, that it could not pay and hence, were ultimately passed on to taxpayers.

Renewable sources such as solar, wind, geothermal, and hydroelectric have the following characteristics that are dissimilar to conventional sources like coal and natural gas. Among these are: (1) zero or near-zero variable operations and maintenance (O&M) cost, but (2) low capacity factor or actual electricity production relative to its rated capacity, except geothermal, (3) high levelized cost of electricity (LCOE) and, (4) generally higher electricity prices if subsidies are not given.

LCOE is a good summary measure of the overall competitiveness of different power generation technologies representing the per kWh cost of building and operating a power plant over an assumed financial life and duty cycle.

Here is the LCOE in the US four years from today. The capacity factor is generally higher compared to those in developing countries like the Philippines (see table).

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When the Renewable Energy (RE) Act of 2008 (RA 9513) was created, a lot of subsidies were put in the law that effectively pampered developers of renewables like solar, wind, and biomass. Among these are the: (1) feed in tariff-allowance (FIT-All), (2) priority and mandatory dispatch into the grid, (3) renewable portfolio standards (RPS) or the minimum share of renewables in power generation, and (4) various fiscal incentives.

The list of those various subsidies and incentives, FIT rates in Germany and the Philippines, are also discussed in my earlier article, “Feed in tariff means more expensive electricity” published by the Albert del Rosario Institute (ADRi) blog, Spark.

A FIT that increases every year — which has already taken place in Germany, UK and other European economies, and now in the Philippines — means rising electricity prices even if generation, transmission, distribution, supply, and various other fees and tax rates remain the same.

So far, it seems that not a single candidate for a national position has openly criticized this setup of ever-rising electricity prices in the country. On the contrary, some candidates even justify expensive electricity so that we can help “save the planet.”

Expensive electricity means more dark streets at night as LGUs, villages, and households save on their monthly electricity bills. When many streets and roads are dark at night, there are more road accidents, more destruction of public and private properties, more crimes, more rapes, injuries, and deaths.

Worse, when some households’ electricity connection is temporarily cut off due to non-payment, people have to use candles for a few hours or days, and candles are among the major causes of fires. These social costs are often avoided or not recognized by the campaigners of expensive, unstable renewables.

Expensive electricity also means less businesses and jobs that can potentially be created here. Energy-intensive companies and manufacturing plants will try to avoid investing in the Philippines — where electricity prices are expensive — since they will put up their factories and big offices in ASEAN countries with lower energy costs, then export to the Philippines at zero tariff. They only rent smaller offices here to facilitate business transactions.

As a developing and emerging economy, we should have cheaper electricity, bigger power capacity and reserves to ensure 24/7 availability of power, even in periods of huge spikes in electricity demand or damaged power facilities due to strong storms or earthquakes.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Fellow of SEANET and Albert del Rosario Institute.minimalgovernment@gmail.com

Comparative electricity exchange market in Asia-Pacific

* This is my article in BusinessWorld last December 09, 2015.

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Voluntary market exchange, the people’s freedom to sell and supply and freedom to buy and purchase, is among the cornerstones of a free and dynamic society. When they are not forced to sell to only one or two buyers or not forced to buy from only one or two sellers, then there is more competition. As a result, prices are reasonable and affordable and the consumers benefit from this kind of economic freedom.

In the electricity market, the presence of many power generation companies, many power plants from various energy sources, many distribution utilities and organized consumers, is one precondition for having a competitive and affordable electricity prices. Especially if governments do not impose lots of taxes, fees, charges and royalties that push electricity prices upwards.

Many modern economies have their own electricity exchange markets, similar to their respective stock markets. These are generally independent organizations or corporations, independent from government.

Here are Asia and Pacific economies which have their own platform for electricity spot markets. (See table)

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The Philippines’ Wholesale Electricity Spot Market (WESM), created under Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA), became operational in June 2006.

The US and Europe have their own respective electricity market platform too. Examples are the Electric Reliability Council of Texas, USA, and the European Power Exchange SE owned by the APX Group, covering Germany, France, Austria, Switzerland and Luxembourg.

In the above table, it is notable that the Philippines seems to be the odd-man-out because PEMC, supposed to be an independent organization and corporations, remains to be under the leadership and control of the Department of Energy (DoE).

Take the case of the Energy Market Co. Pte. Ltd. (EMC) of Singapore. The Board is composed of seven prominent individuals, none of whom is from the government, and seems none is from any energy players (covering generation, transmission, distribution). The Chairman, Wong Meng Meng, is a topnotch lawyer known more for litigation and arbitration, not in energy economics or engineering. So it is a clear example of independence from government and from stakeholders.

During the Senate public hearing last Oct. 8, chaired by Senator Sergio R. Osmeña III, Chairman of the Committee on Finance (Subcommittee B), the issue of PEMC governance and WESM administration was tackled. The eloquent Senator pointed out the following points, among others:

(1) Under EPIRA, PEMC is supposed to last for only one year and would transition to an independent market operator (IMO).

(2) PEMC has existed for so long (12 years now), they are now saying, “Now we have experience in operating the grid because we already practiced for 10 years.”

(3) The Energy Regulatory Commission (ERC) regulates and has oversight function over PEMC. PEMC does not consider itself a government-owned and controlled corporation, supposedly independent, but the Chairperson is the DoE Secretary.

(4) PEMC was created in 2003, and the DoE Secretary is an over-staying Chairman for 12 years already.

(5) PEMC being a private corporation is not subject to audits by the Commission on Audit.

(6) PEMC says it is private, independent of government, then must go to the Chairperson (DoE Secretary) to change rules.

There are several important issues that PEMC and the DOE seem to violate EPIRA, supposedly the mother of all electricity reforms including the creation of ERC, Power Sector Assets and Liabilities Management (PSALM), WESM and IMO.

One, PEMC should have been nonexistent several years ago, only one year after the creation of WESM (June 2006); meaning PEMC should have become IMO by June 2007.

Two, the DoE Secretary should be out of PEMC or IMO as its Chairman. It cannot be really independent of government if the Chair is the DoE Secretary, which issues a Department Circular, which becomes part of the rules of PEMC and WESM.

Three, the PSALM, a government corporation with big presence in power generation in Luzon-Visayas, may have justified presence in the PEMC and soon IMO board; but the National Power Corp. with minimal presence in power generation, its presence in the Board looks questionable. There are huge players in the generation sector that are affected by PEMC and WESM rules that are not in the board.

Four, if PEMC is dissolved and IMO is created, there are two issues to settle. (1) IMO is independent of both government and stakeholders, like Singapore’s EMC, or (2) IMO is independent only of government but will be composed of stakeholders, like the Philippine Stock Exchange model.

This writer is not a stakeholder, not a consultant of any of the stakeholders or the government but writes only from a consumer’s perspective.

Hence, he wishes to repeat and help continue the advocacy in the sector: (1) reduce or abolish certain energy taxes, fees, permits, royalties that contribute to expensive electricity, (2) establish fiercer competition among players and stakeholders, and (3) have the government lay down and enforce fair rules that apply to all without exception, not add more layers of costly bureaucracies and regulations.

  • • •

Minor erratum in a previous column entitled: “WESM, PEMC and the search for competitive electricity prices” last Nov. 4. On the PEMC Board, it said:

“One from the Market Operator, one from the National Transmission Corp. (now known as the National Grid Corporation of the Philippines), four from DUs; one from WESM customers including but not limited to suppliers…”

The National Grid Corporation of the Philippines (NGCP) wrote saying that: “NGCP is an entity separate from the National Transmission Corporation (TransCo)… NGCP as System Operator, holds a seat at the PEMC… holds the concession and franchise to manage and operate the country’s power transmission assets.”

Thanks for the correction.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers Inc., and a Fellow of South East Asia Network for Development (SEANET). minimalgovernment@gmail.com

WESM, PEMC and electricity market in Asia

* This is my column in BusinessWorld yesterday.

1The search for affordable and competitive electricity prices in the Philippines and elsewhere remains a continuing adventure for consumers and many industry players.

In a previous column entitled “DoE’s new circular will raise, not lower, electricity prices” (Oct. 21), it was argued that the Department of Energy (DoE) order mandating competitive selection process (CSP) by distribution utilities (DUs) would have the potential of increasing, not lowering, electricity prices.

There is an existing platform for CSP by electricity producers and distributors in the country via the Wholesale Electricity Spot Market (WESM), created under Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA). Managed by the Philippine Electricity Market Corp. (PEMC), the spot market became operational in June 2006 and it allowed the Philippines to join three other Asian developed economies — Japan, South Korea, and Singapore — to have a power exchange market. (See table 1)

2Outside Asia, perhaps all the developed economies in Europe and North America have their own power exchange markets: New York, Los Angeles; Munich, Frankfurt; Amsterdam, Rotterdam; London, Rome, Madrid, Stockholm, Brussels, Zurich, etc. Australia also has its own power market.

RECENT WESM PRICES

During the WESM Market Participants Update sponsored by the PEMC last Thursday, Oct. 28 at Intercon Hotel in Makati, the corporation reported uptick in WESM prices from April to June 2015, then significant decline from July to September 2015. The main reason is the increase in power demand in May-June due to warm weather, then decrease in power demand in the wet and cool weather of July to September. There is also bigger capacity by the hydro power plants. (See table 2)

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The September price is really good news for the consumers, be they residential, commercial, or industrial. Also during the period April to September 2015, total market transactions at WESM was 33,101 gigawatt hours (GWh), of which 91.4% are done via bilateral, medium- and long-term contracts and 8.6% via spot market contracts.

GOVERNANCE ISSUES IN PEMC

From the WESM Web site, the PEMC Board is composed of 15 representatives/directors from various sectors of the electric power industry, plus independent members:

One from the Market Operator, one from the National Transmission Corp. (now known as the National Grid Corp. of the Philippines), four from DUs; one from WESM customers including but not limited to suppliers; four from generation companies (gencos); and four independent of the Philippine electric power industry and are nominated by WESM members.

With that said, there should be NONE from the government. In reality though, there are at least three from the government: DoE Secretary as Chairperson, the head of Power Sector Assets and Liabilities Management Corp., and the head of National Power Corp.

The presence of the DoE Secretary as Chairman of the PEMC Board should be temporary and not extended with no clear timetable. Under Section 30 of RA 9136 it says that:

“…Not later than one (1) year after the implementation of the wholesale electricity spot market, an independent entity shall be formed and the functions, assets and liabilities of the market operator shall be transferred to such entity with the joint endorsement of the DoE and the electric power industry participants.”

WESM was created in June 2006. This means that an independent market operator should have been in place by June 2007, but more than eight years after, this did not take place. What happened?

There are many government agencies regulating the power sector already: DoE (overall), Energy Regulatory Commission (tariff rates), Securities and Exchange Commission (corporate matters), Department of Environment and Natural Resources (environmental permits), Bureau of Internal Revenue (national taxes), local government units (local taxes and permits) and so on. Having government as key player within PEMC is unnecessary and a violation of EPIRA.

The key to having affordable and competitive electricity prices is via competition among market players, especially among generation companies — harsh and fierce competition as much as possible. More government regulations, permits, and taxes do the opposite and result in market distortion, expensive electricity and unstable supply in certain periods of the year.

PEMC should be allowed to operate as truly independent of government. Let the various players, gencos and distribution utilities, and consumers, and independent directors, debate and settle among themselves various issues with the end-view of having low and competitive electricity prices for the consumers.

Bienvenido S. Oplas, Jr. is the head of Manila-based Minimal Government Thinkers, Inc., and a Fellow of Kuala Lumpur-based South East Asia Network for Development (SEANET).

Electricity prices in Asia and the DOE circular on CSP

* This is my article in BusinessWorld last October 21, 2015.

1IN MANY STATISTICS comparing electricity prices in Asia, Manila/Philippines often rank no. 2, next to Tokyo/Japan. Here is one such data. Of the 11 major cities in North and Southeast Asia, Manila has the 2nd most expensive electricity prices for residential tariff, 3rd in generation cost, 1st in grid charges, and 2nd in tax rates. (See table)

With such a cost structure, it would be a mystery why some groups and government officials would think of new ways and schemes that would further raise electricity prices in the Philippines.

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Like the feed-in tariff in the Republic Act (RA) No. 9513 or the Renewable Energy Act of 2008 and more recently, the Department of Energy (DoE) Circular No. DC2015-06-008, “Mandating all Distribution Utilities (DUs) to undergo Competitive Selection Process (CSP) in securing Power Supply Agreements (PSA)” through a Third Party.

There are two normal and two abnormal concepts in this Circular. The normal ones are CSP and PSA, they have been there since many decades ago, DUs and electric cooperatives doing CSP on their own with power generating companies (gencos) in getting their PSAs.

The abnormal ones are the (a) mandatory, obligatory CSP, and (b) introduction of a Third Party. The latter is a private entity or organization that suddenly has the power to say “Yes” or “No” to a PSA entered between a DU and a genco. Let us call them “Abnormality A” and “Abnormality B,” respectively.

Abnormality A is suspicious because it imposes a new degree of coercion and arm-twisting for the DUs.

In areas or cases where power supply (by gencos) is lower than the demand (by DUs), there is little or no leeway to do CSP. The key to have cheaper electricity is to have lots of gencos competing with each other in supplying electricity to DUs and other institutional consumers via lower prices.

Abnormality B is even more suspicious because of three reasons. One, this Third Party is not free, it will impose new cost to the monthly electricity bill of the consumers with a monthly fee to be paid to those “foreign and national experts.”

Two, the Energy Regulatory Commission (ERC), a government agency created by Congress under the RA 9136 or the Electric Power Industry Reform Act (EPIRA) as the real and institutional Third Party between gencos and DUs, is now relegated as a mere Fourth Party because there is a new Third Party — with zero congressional legal basis or justification — that was inserted in the process. The draft implementing rules and regulations made by the DoE gives lots of powers and leeway for this Third Party.

During the DoE public consultation about the Circular last Oct. 6 at Intercon Hotel in Makati, it was obvious that some NGOs and “consumer groups” were lobbying hard and positioning themselves to be the accredited Third Party. Not only for the potential big money involved from the fees to be collected, but also for that new bureaucratic power to approve or disapprove a PSA between legitimate DUs and gencos.

And three, Abnormality B imposes mandatory aggregation of DUs for their PSAs. Each DU has its own cost structure, own requirements, own set of consumers (residential, commercial and industrial) that often are different from those of other DUs. Imposing a one-size-fits-all order removes the flexibility of DUs to get their own PSAs.

This circular is very successful in creating more questions than it could answer. It introduces new cost that will raise electricity prices, thus cancelling or negating its stated goal of lowering electricity prices.

The DoE seems to be in a hurry to have this circular become operational within the next few weeks. In the event that it is ultimately to be implemented, there are at least two remedial measures for the DUs, gencos and the public.

One, there should be independent audits of that Third Party to evaluate compliance with rules and regulations set by the ERC and EPIRA.

And two, the IRR should have a sunset provision or clause, ordering the DoE and ERC to conduct a study or commission a study on the Cost-Benefit analysis after one year of implementation, to see if the circular has indeed brought down the cost of electricity in the country or even contributed to higher electricity prices. If the benefits are smaller than the costs, the circular should become void and withdrawn, or be significantly amended to remove Abnormalities A and B.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers, Inc., a free market think tank in Manila, and a Fellow of the South East Asia Network for Development (SEANET), a regional center based in Kuala Lumpur advocating free trade and free mobility of people in the region.