Wednesday, January 29, 2014

Understanding the power sector

Larry Basmayor
Larry Basmayor

by Larry D. Basmayor
Former President
Camarines Sur II Electric Cooperative, Inc. (Casureco)
Del Rosario, Naga City

I am making this statement to provide the public the opportunity to understand the interplay in the production and utilization of electricity in the Philippines.

Perhaps with this short explanation, we will become more informed of the hard facts about the prevailing dilemma that confronts us.

Breakdown of your power bill

For emphasis, eighty-six percent of what electricity consumers pay does not go to distribution utilities like Casureco II.

Eighty-two percent of the amount stated in your bill goes to (1) independent power producers (IPPs), (2) NGCP, and (3) the government.

If you look at your power bill, you will see that the following are reflected: generation cost, transmission cost, systems loss, and value-added tax on generation.

This is what we call power cost.

Meanwhile, four percent of the amount you pay still goes to the government.

This covers the universal charge and value-added tax on distribution.

Taken together, the power cost plus the government charges constitute 86% of what your pay in your power bill.

On the other hand, a measly 14% goes to the distribution utility.

In the case of Casureco II, the cost, as reflected in your power bill, is only P1.62 per kilowatt-hour.

Since 2010, this rate that is being imposed by the cooperative, has never increased.

In other words, since 2010 until now, Casureco II has only been collecting P1.62 per kilowatt-hour.

Even if you check your power bill from 2010 to the present, you will see no amount greater than P1.62 per kilowatt hour that is being charged by Casureco II as distribution cost.

Other electric cooperatives in the country, including private distribution utilities, are similarly situated.

Casureco II only serves as collectors

I would like to emphasize that electric cooperatives like Casureco II are MERE COLLECTORS of the POWER COST and GOVERNMENT TAXES.

The amount that CASURECO II collects is immediately remitted to the power suppliers, the NGCP, and the government at the end of the month.

Electric cooperatives are not authorized to impose any charge based on their whims and caprice.
All charges that are imposed by electric cooperatives are approved by the Energy Regulatory
Commission (ERC) after a public hearing.

The public hearing ensures that (1) the rate is not excessive (2) the electric cooperative will survive with the rate imposed.

With this mechanism, the ERC protects both the consumers and the electric cooperative.

Unfortunately, every time there is a hike in the prices of electricity because of the increased generation cost, the electric cooperative gets all the blame.

This is despite the fact that electric cooperatives do not have any control whatsoever over the pricing of power generation, transmission, and the imposition of the Value-Added Tax (VAT).
The power suppliers get to enjoy the profits while the electric cooperatives absorb all the blame.

The flaws of EPIRA

Why is this happening? This situation is because of the EPIRA.

If you read the EPIRA, you will see that it is very good in principle. Its intention was to protect the consumers, and to ensure reasonable and reliable energy supply.

However, since its approval up to the present, you will see clearly that the law has failed to achieve its goals.

Prior to the enactment of the EPIRA, the generation of electricity as well as transmission was owned by the government. What did our government do? They sold the generation and transmission facilities to the private sector, and deregulated its operation. Meanwhile, the distribution aspect was highly regulated.

The current situation

The sudden price spike during the months of October, November, and December was influenced by the shutdown of Malampaya, a major source of natural gas, a fuel for many power plants.

This prompted power producers to source Diesel or Bunker fuel from abroad. Diesel or Bunker fuel has a much higher cost as compared to natural gas.

This situation was aggravated by the shutdown of other power suppliers.

Power supply agreements usually contain 30 days preventive maintenance every year. But, the timing of the shutdown was subject to speculations that there was collusion on the part of the power suppliers to manipulate the prices of electricity.

To summarize, the power spike was prompted by a hike in the generation, transmission and government taxes, NEVER in the distribution. This problem of sudden price spike will keep coming back if the government will not regulate the generation and transmission.

Recommendations

It will be for our government and Congress to reconsider the EPIRA and mull over my recommendations:

1. Regulate generation and transmission to avoid excessive pricing.

2. Review the imposition of VAT to energy consumers, since they are repeatedly taxed.

3. The government must retain 50% of the projected energy supply, and only 50% be given to the private generators. This will ensure the reliability of our power supply. Government energy generators must be retained particularly during peak hours to mitigate the impact of power rate fluctuations.

4. Allow cooperatives to partner with private independent power producers (IPP) to lessen the burden of being dependent upon power generators. This will, in essence, eliminate expenses on transmission, which is an additional burden upon the consumers. If electric cooperatives are given the opportunity to produce at least 50 Megawatts of power, the price of electricity would tremendously be reduced.

5. Study carefully the operations of the Wholesale Electricity Spot Market (WESM) to ensure that it is not operated like a fixed casino.

The electric cooperatives are helpless at present. For as long as the rules are not changed, they will always get the blame, while the IPPs enjoy the profit.

Recent events have been both bad and good. They have been bad because they burdened the already-overburdened consumers with too much taxes and generation and transmission rates.

It is good, however, because it has awakened the consumer to desire to understand the intricacies of the recurring problem on electricity.

Let us hope that the government initiates moves to protect the consumers, and not just the investors.

We agree that the investors must earn profit. Why not? But, they must not forget goose that lays the golden egg.

Consumers are now furious. But, let us not forget that the outcome of any conflict is decided not in the battlefield, BUT IN THE NEGOTIATING TABLE.
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