HB 3962 Relief or ‘Power Grab’?

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House Bill 3962 proposes to grant a Negros-wide power distribution franchise to Gamboa Hermanos Farmworkers Multi-Purpose Cooperative, which ostensibly seeks to lower prices and put an end to “unreasonable recurrence of blackouts due to poor infrastructure, outdated systems and operation(al) inefficiencies”.

Authors of Refiled Bill

HB 3962 is “An Act Granting Gamboa Hermanos Farmworkers Multi-Purpose Cooperative a Franchise to Construct, Install, Establish, Operate, Own, Manage and Maintain Distribution Systems for the Conveyance of Electric Power to the End-Users in the Island of Negros, and for Other Purposes”.

Authored by three Negros congressmen (Gerardo Valmayor of the 1st District and Genaro Alvarez Jr. of the 6th District, both of Negros Occidental, and Manuel Sagarbarria of the 2nd District of Negros Oriental), the measure addresses a valid concern, namely the cost of electricity and perceived unreliability of existing electric cooperatives (EC’s) in the island.

Promises…

The applicant claims it will deliver more affordable (and presumably more reliable) power if granted the franchise. That sounds like good news to consumers who claim that recurring brownouts and fluctuating voltages have sent expensive appliances to repair shops, if not the grave.

Pros and Cons

A citizens’ coalition has strongly opposed the House Bill, which failed to make it through the previous Congress and has been refiled by the three Congressmen. Some people will ask why anyone would oppose such a seemingly well-intentioned initiative. One annoyed consumer, known for his rants against CENECO’s brownouts, has said “anything is better than what we have now”.

The affected electric coops, on the other hand, are alarmed by this attempt to take over their existing franchise areas.

There is more to this than meets the eye. Let’s put aside (for the meantime) allegations that the proponents are actually backed by investors who plan to put up a coal-fired power plant in the 1st District. For now, there are other arguments to consider.

Position Paper Against HB 3962

A position paper prepared by PHILRECA (Philippine Rural Electric Cooperatives Association) presents cold facts mostly unknown to us ordinary citizens. While the PHILRECA position can be called “self-serving”, we will leave that question to the reader’s judgment and focus instead on the arguments they raise.

Four Main Issues

First, the Bill’s assumptions about the energy industry and the performance of the five Negros electric coops are incorrect and incomplete.

Second, the granting of a new franchise in areas where existing distribution utilities exist is an outright violation of the EPIRA Law (Electric Power industry Reform Act of 2001). The franchises expire between 2026 and 2033.

Third, the proponent cannot offer cheaper and more affordable electricity and power costs (the franchise sought is for power distribution) and is more likely to charge consumers a higher rate.

Fourth, the proponent does not have any track record in electric distribution, while the existing cooperatives have shown compliance with established financial and technical parameters.

Interesting details…

On the first argument, PHILRECA presents data to show the performance of the five electric coops on the basis of SAIFI and SAIDI criteria, meaning Frequency of interruptions and Duration of outages.

All five coops have performed way better than the national average in terms of the reliability index. That means we are better off than most. Additionally, systems losses for all five ECs are below the 12 percent caps set by the Energy Regulatory Commission. They are in fact classified as GREEN Cooperatives.

It is also useful to remember that the power sector is more than just distributors. As PHILRECA explains, there are four sectors involved, namely: power generation, transmission, distribution and supply. Electric coops have no control over the three other sectors, but are usually blamed for power disruptions or outages caused by other factors.

On the second issue, the EPIRA is very clear about the exclusivity of franchises. The “natural monopoly” character of electric franchises, properly regulated, is in fact deemed advantageous to consumers.

If Congress wants to follow the law, they would have to first amend the EPIRA (given  current priorities and circumstances, that doesn’t seem likely in the future).

The third argument is premised on the nature of the proponent as a business entity that operates for profit. While the service-oriented electric coops charge a little over P1.00 per kilowatt hour for its distribution service, private companies charge P3.00/kwh or more and are allowed to factor in a 12 percent return on investment.

The fourth issue goes to the heart of the proponent’s nature, experience and technical capability. The cooperative’s main business and area of competence is farming, and it has no track record in the energy business.

Questions about the Coop

There’s an interesting story behind the unique GHFMPC model. Is it a business model that should be replicated? Here are some other questions Congress should ask before deciding on HB 3962: If this is a bold move to venture into a new line of business, does the Coop have the financial capacity for such an ambitious undertaking?

On the other hand, if the Coop is being used as a vehicle by new investors, how it will affect the membership structure? And why would they use the coop instead of just putting up a new firm? The bottom line, in any case, is whether a new franchise should be granted at all.

If HB 3962 Isn’t the Answer, What is?

If Congress rejects HB 3962, consumers will still be interested to know how power can be made more affordable and the distribution system more reliable. One answer lies in the mandate of the National Electrification Administration. RA 10531 empowers the agency to, among others: a) supervise the management and operation of all EC’s, and b) provide institutional, financial and technical assistance to EC’s upon request.

NEA would do well to find ways of making power distributors more efficient and reliable, and the power industry more competitive, by helping to upgrade existing infrastructure and improving “outdated systems”.

Sen. Sherwin Gatchalian, Energy Committe chairman, has also taken steps to address the problems of the power sector, but that’s another story for another day.

And the Congressmen?

Our congressmen may want to consider, perhaps as part of a national stimulus package to revive the economy, appropriating a Power Sector Modernization fund to respond to the issues raised by HB 3962. They might also inquire how we can better benefit from all the renewable power being generated in Negros. We are, after all, the renewable energy capital of the Philippines.*