Power industry’s 2013 snafu: When solutions don’t fit
First of Two Parts
Everyone may have thought that the Mindanao power crisis and the deadline-constrained power supply restoration at Yolanda-ravaged areas had been this year’s toughest energy sector hurdles. Wrong!
As 2013 inched to a close, we were suddenly transfixed at the continuing saga of the Manila Electric Company’s (Meralco) rate hike. It was such a badly-written telenovela that the plot’s twists and turns can’t be guessed if it will turn into a tragicomedy, drama, science fiction or horror.
Just one thing is apparent: It will be a tragic end for the power industry – and it will be a “pass-on” long-term burden to consumers — not only to the 5.2 million customers of Meralco but the entire economic well-being of the country.
When investors are spooked, capital flow for new power projects may practically ground to a halt. The consequence will be unwanted brownouts/power interruptions – and bad news that it is happening at this point when the country’s power supply is already teetering on the brink of shortages.
Given long gestation period for power projects, that is no longer a threat but a reality that will soon stare us in the face. And if investors will ever reconsider, it will be at a high cost because of extremely high political risk of injecting capital in a country which cannot instill stability on its policies.
Electricity is a basic commodity that supports economic expansion of a country – failing to ensure reliable power supply will drive away investments and could negate all the economic gains that the Aquino administration has logged in the past years.
Like it or not – but that is the big picture.
The pre-Christmas temporary restraining order (of 60 days) issued by the Supreme Court was welcomed with much applause. As a consumer, I cheered too – because temporarily, it will ease my burden on higher electric bill.
But beyond that ruling, what really is in store for us? And if the law governing the deregulated power industry – the Electric Power Industry Reform Act (EPIRA) will be scrapped, what’s our fallback?
It is clear that for the meantime, we will be paying a cheaper generation charge of P5.67 per kilowatt-hour (kWh) as well as the other bill components because of the freeze on Meralco’s P4.15 per kWh rate hike. Still, this provokes an afterthought: What are the implications?
Successive developments turned more appalling for the already-troubled industry. Fidgety officials of the Department of Energy (DOE), Energy Regulatory Commission (ERC) and Philippine Electricity Market Corporation (PEMC) — who refer to themselves as tripartite committee – brandished in media headlines their supposed “last-minute fixes” on the rate hike dilemma.
Under a seemingly populist precept, the ERC first capped Meralco’s generation charge for January 2014 billing at P7.37 per kWh; then the follow-through step of the tripartite committee had been to reduce the cap of the Wholesale Electricity Spot Market (WESM) to P32 per kWh from P62 per kWh originally. If they had known long before that there were remedies to the situation, how come they have not acted before everything had blown out of proportion?
And while they are trying to present that they resorted to these “to ease the pain for consumers,” the reality is they had just thrown the power sector into a deeper quagmire — because intentionally or not, they distorted market policies without first considering the long-term consequences.
Primordially, attempts at squeezing the power generation companies financially may have been succeeding because of the proposed deferment of a fraction of supply payments due them. Yet from a business standpoint, that is counterproductive because it could affect operational viabilities of power suppliers and the Filipino consumers may eventually pay higher costs on these rates pass-on deferrals – or suffer service disruptions.
Congratulations then to the Aquino administration for ensuring its legacy of committing this country to another round of power crisis! A déjà vu – since that’s already a repeat of what the first Aquino regime had done for us. And have we forgotten how we suffered from 8 to 10 hours of blackouts in the 1990s, how we’ve lost multitude of jobs and economic opportunities; and how the country’s sovereign rating had been decimated to junk bond status?
Prices in the WESM were observed to have been surging in the past two months – particularly during the shutdown of the Malampaya gas production facility and exacerbated by the reported forced outages of some power plants. But beyond those circumstances, let’s also countercheck data that electricity spot market prices have fallen in some months. Have we complained on those instances? No.
We shouldn’t be missing some points or taking sides here. It must be profoundly understood that such is how free market works, not only in the Philippines but globally – prices could go up and down depending on supply-demand balance.
Energy Secretary Carlos Jericho L. Petilla admitted that the proposal on Meralco’s deferred payment remains a difficult battle because the power generators are not exactly amenable to it, especially those with foreign owners who are not necessarily used to the “politically tricky” investment environment in the Philippines.
If that dilemma can’t be fixed, Mr. Petilla enthused that “we may have a potential problem where services will be disrupted. Hence, I asked them to negotiate collectively on WESM accounts and individually on bilateral accounts where everybody shares in the financial gap, at least on the actual fuel cost.”
Listening Beyond The Noise
Some politicians are being pictured as the “heroes” purportedly picking up the pieces on this mess and defending the foothold for consumers.
That should have been very noble and exciting development. But lest we forget: Aren’t these the same politicians who screwed up the Filipino people on the misuse of the Priority Development Assistance Fund (PDAF)? Yes, we want our electric bills to go down, but we also want our stolen money back.
If these public funds weren’t misused or misallocated, these could have gone to infrastructure projects including those much-needed generation facilities in the power sector so we won’t be at the mercy of the private sector – or as they claim, the oligarchs they all love to hate. First things first, can these politicians account to the nation where they have spent their PDAFs – money which came from the Filipino people’s sweat, blood and tears.
Fundamentally and against the backdrop of these recent developments, we need an energy leadership who would be willing to listen beyond the political noise, take actions beyond the din of street protests and think of the real solutions that could save the industry from getting pummeled into the dumps.
Deplorably, it’s still not something that we see now – not with the stance being taken by Malacañang on the Meralco rate hike, and not even with the knee-jerk policy crafting reactions and assertions of the DOE, ERC and the operator of the WESM.
A question that must confront energy officials: Do you honestly believe that with your “let’s be oblivious even if we destroy the power industry mantra” will help attract capital for new power projects?
What we demand from energy leaders and regulators would be plethora of competence, skills and high level of knowledge that can convincingly present data and evidence to the public if they are being fooled by their servicing power utilities or if abuses are committed in the market. Energy leaders who would not just bask in adulation over allegations of power players’ collusion or market abuse just for the sake of media mileage – instead, they must show credible proof and validated data.
This is one cautionary tale. A European politician once used rising energy prices as his election platform by projecting that “expensive power rates are such a bad thing,” therefore, he proposed to cap rates purportedly “to put a stop to a bad thing.” If there’s one lesson the United Kingdom constituents had learned, that the illusory promise of artificially reducing electricity rates exhibited political maturity which is just within the level of a 10-year old. Fortunately for the British people, he lost.
Dangerous ‘Pass Through’
Distribution utilities, like Meralco, are the frontline to consumers. So when we receive our electric bills, we crucify them if the rates are high; but let’s admit that we also stealthily appreciate them when our bills are on downtrend.
Meralco claimed that it shouldn’t be blamed for its rate hike because the costs of power supply it has been delivering to customers are all pass-through, meaning it reflects the actual cost of supply it sources from power generators into the bills of its customers.
Yet, in the name of prudence and as what the EPIRA prescribes, the DUs must also strive for supply procurement in “a least cost manner.”
Guided by that edict and in the best interest of its customers, Meralco then should have exercised best judgment on its supply contracting, especially on the pass-on cost of its replacement power when contracted capacities are not available.
The full “pass-through” recourse must not be an absolute privilege for distribution utilities – it can be very dangerous if they are just allowed to pass on any cost – including those replacement power sourced at expensive rates in a spot market, especially if the premise had been its contracted plants were not able to deliver. In a “causer pays scenario,” it should be the plant on shutdown or the DU itself would have shouldered the “beyond contract cost” of that replacement power without extra pass-on to consumers.
Those apparently are flaws in the existing supply contracts – and matters acknowledged both by the DOE and ERC to become the next focus of contractual policy refinements for Meralco and other distribution utilities.
ERC Commissioner Josefina Patricia M. Asirit said “we will study and determine the factors contributing to contracting challenges and see how these may be addressed so that there will be no similar situations in the future.”
Meralco president Oscar S. Reyes told reporters that they will agree to these “contractual fixes,” but it must be done with the consent of the power generators in the negotiating table. (To be continued)