Policing the power sector

By BusinessMirror Editorial - March 20, 2017

http://www.businessmirror.com.ph/policing-the-power-sector/

The Philippines has one of the most expensive electricity rates in the world. The government owes taxpayers safe, reliable and affordable electricity, but its attempt to lower prices by restructuring the power sector through the Electric Power Industry Reform Act (Epira) of 2001 has not been without obstacles.

Deregulation, competition and open access­—the promises of Epira—should have resulted in competitive, efficient and lower-priced energy delivery.

Epira started the deregulation of the power industry and the privatization of state-owned generation and transmission assets. The power plants and independent power-producer contracts under the National Power Corp. and the transmission assets under the National Transmission Corp. were transferred to the Power Sector Assets and Liabilities Management Corp. The Wholesale Electricity Spot Market (WESM) was also established to achieve greater transparency in the production and retail selling of electricity.

But 16 years after Epira was enacted, and today 90 percent of the country’s power supply is still sourced from bilateral contracts between generating companies (gencos) and distribution utilities (DUs), with only 10 percent of the supply coming from the WESM.

We still have a power sector where regulatory oversight is weak, and where generation charges and transmission costs are collected from us with minimum scrutiny or intervention. We are automatically slapped various charges and taxes in our electric bills, without us having any say about it. We practically guarantee the windfall profits of power generators and distributors, because we pay for all their expenses and losses.

The House of Representatives is currently investigating the alleged “midnight deals” between the Energy Regulatory Commission (ERC) and gencos affiliated with the Manila Electric Co. (Meralco), based on House Resolution 566, filed by Party-list Rep. Carlos Isagani T. Zarate of Bayan Muna.

Zarate said the resulting damage to consumers from these alleged midnight deals would easily translate to P12.44 billion a year.

In a joint hearing conducted by the House committees on Good Government, Public Accountability and Energy on March 13, congressmen assailed the ERC’s decision to postpone the competitive selection process (CSP) mandated by Department of Energy Circular DC 2015-06-008, from December 2015 to April 2016, which allegedly allowed Meralco to lock consumers into self-dealing contracts with its affiliated gencos for up to 25 years.

Party-list Rep. Bernadette Herrera-Dy of Bagong Henerasyon said the CSP requirement was designed to lower power rates by subjecting power-supply agreements (PSAs) to competitive bidding. But during the ERC’s five-month postponement of the CSP, Meralco was able to corner 3,551 megawatts (MW) out of the 4,500 MW in aggregate power supply through just seven agreements it negotiated with its own companies and affiliates.

Third District of Cebu Rep. Gwendolyn F. Garcia, the Deputy House Speaker for the Visayas and a member of President Duterte’s PDP-Laban party, also alleged the Meralco contracts were “sweetheart” deals.

This is why the Epira should not have allowed cross-ownership between DUs and gencos, and also why the ERC’s honesty and integrity should be beyond reproach. Precisely, because it is so easy to make deals that result in disadvantageous power rates to the detriment of poor consumers.

While the country needs more power plants, contracts must be more transparent. In this country, as it so often happens, a big DU with a market monopoly can easily negotiate with a genco not only for the price of electricity, but also to demand equity or even controlling interest from it in exchange for a PSA. And unsuspecting consumers have no choice but to pay their prenegotiated prices.

What good is Epira if it cannot be properly implemented? What good is the ERC if it cannot stop the monopolistic schemes of power players and big business groups that lead to self-dealing contracts?

Duterte and Congress should make sure the ERC is capable of fully exercising its mandate as a regulatory body. In Sen. Ralph G. Recto’s words, the ERC needs to be the ombudsman and anticartel police of the power industry. That’s why we must ensure that ERC officials are independent, nonpoliticized, honest and competent.