The high cost of power

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“Electric cooperatives are non-stock, non-profit entities and as such, do not generate the kind of surpluses that would allow adequate and timely repairs, maintenance and upgrading.” – Lito Coscolluela

​The cost of electricity in the Philippines is the highest in the ASEAN region, higher than even Singapore, according to a Policy Brief on Energy prepared by the Office of Sen. Sherwin Gatchalian. This not only adversely effects the economy; the Philippines also has lower “consumption intensity per household” (usage) compared to Indonesia and Vietnam.

Lower electricity prices would provide a quick shot in the arm for the economy and contribute to significant improvement of the public welfare. The policy paper identified two (of many possible) ways to reduce the cost of electricity, namely “a) expanding the supply and b) minimizing or eliminating unfair pass-on charges”.

Measures to reduce cost of electricity

​The most recent measure, authored by Sen. Ralph Recto and championed by Sen. Gatchalian as Senate Energy Committee chair, is the Murang Kuryente Act, which aims to relieve consumers of the Universal Charges for Stranded Contract Costs and Stranded Debts.

Look at your electric bill for UCSCC and UCSD. With the passage of the Implementing Rules and Regulations (IRR), it is hoped that those charges will disappear from our monthly bills. IF the government finds enough money to fund it, as prodded by Sen. Win in a recent budget hearing.

Sen. Gatchalian also passed three Senate bills to address these concerns. The “Competitive Selection Process” (CSP) Bill tasks power distribution companies (electric cooperatives) to contract power producers on a purely competitive basis through an auction process, eliminating other considerations that “distort” (my term) electricity prices or favor favored suppliers. The theory is that power producers will be forced to compete and, therefore, bring prices down.

Successful cases of power procurement through auction are reported in Mindanao as early as 2010, Central Luzon in 2012 and Eastern Visayas in 2014.

In our case, CENECO reports that it is now using the CSP process in procuring power.

At any rate, the benefits of a CSP will depend on the existence of producers able to provide cheaper power with improved power plants that replace old, inefficient or “dirty” ones.

New projects, however, can take four to five years on average, according to the paper. The substantial cost of red tape prompted the formulation of a second bill – the “Energy One Stop Shop” Bill — that seeks to streamline the process and reduce the requirements for new power projects, thereby drastically reducing the time, effort and expense in processing a new power project. It also reduces the so-called “inefficiency tariff” (cost of delays) incurred by producers.

A third bill addresses “systems losses”. I paid P0.8934/kwh in September for CENECO’s systems loss, meaning I paid for power I didn’t use. That amount actually goes to the power producer, not the distributor. An inefficient distributor would just pass on its losses to the consumer, meaning they can make the consumer pay for their inefficiency.

The “System Loss Cap” Bill proposes to limit allowable losses charged to consumers. The distributor would have to absorb losses above the limit, thereby encouraging them to invest in better infrastructure.

The current limit is 12 percent, and in fairness, all Negros electric coops report losses below that (around 11% average). Also, these losses are far lower than those of other electric cooperatives elsewhere, ranging from 16 percent (Biliran, Quirino), 19 percent (Davao Norte, Quezon) and as much as 38 percent (Sulu).

Sadly, however, our average systems losses (World Bank, 2013) is 10.28 percent, much higher than in Singapore (0.49 percent), Japan (4.58 percent) and Thailand (6.24 percent).

Clearly, if distribution systems were more efficient, the losses could be reduced, resulting in lower costs to consumers and significant “welfare gains” for society as a whole.

The problem with electric cooperatives…

They are non-stock, non-profit entities and as such, do not generate the kind of surpluses that would allow adequate and timely repairs, maintenance and upgrading. For example, out of P7.25 billion in Net Operating Revenue in 2019, CENECO reported a Net Margin of P102 Million. Their 2019 CapEx budget funded by the RFSC (Reinvestment Fund for Sustainable Capital Expenditure) which is part of our monthly bill, was P127 million. That is a measly amount for continuing system improvements.

Just the same, CENECO has a long list of system improvements (uprating) in a position paper submitted to the Lower House Committee on Franchises. It might be a good idea for the coop to regularly publish these accomplishments. Most of us don’t bother with our coop’s affairs (I plead guilty), and we leave it up to our representatives in the Board to exercise due diligence. But all we do is hound them when brownouts occur, right? (I plead guilty again.) Perhaps we should be more inquisitive?

So what are we paying for?

My CENECO bill reflects a total charge equivalent to P10.1025/kwh. The coop says their average systems rate is P10.40/kwh. Out of that, only about P1.04 goes to CENECO. The rest goes to Generation (5.7763), Transmission (0.7317), , Lifeline subsidy (0.0733), VAT on Generation, Transmission, Systems Losses, Distribution and  Other Charges (0.7569), Universal Charges (0.2484) and other Adjustments, which includes charges for stranded loans of NPC (0.43). The RFSC (0.1518) is plowed back into system improvements.

Back to HB 3962

As we wrote in our previous column, HB 3962 seeks to grant a new franchise to Gamboa Hermanos Farmworkers Multi-Purpose Cooperative to distribute power in the existing franchise areas of all five Negros island Cooperatives (all rated AAA by the National Electrification Administration). Is relief truly coming our way?

The first questions (among many others) that beg to be asked are: How will the Cooperative deliver on its promise of “more reliable and affordable power” compared to the existing coops it proposes to replace? And what happens to us, the existing Member-Consumer-Owners (MCO’s) and the officers and personnel of the existing Cooperatives? This column invites the proponent to tell us. NWI

If you have comments, please email me at [email protected]