As we rush to close a year of high headline inflation indices and pray that 2025 offers better prospects for the economy, we focus on an ever-recurring curse and a refraining mantra of resolutions that our officials have never gotten around to doing.
High food prices, specifically the price of a kilo of rice, tempered only by importations where the government absorbs the losses, and the cost of energy, the price of imported fuels we depend on and the price of electricity — these have been constant curses for nearly a quarter of a century.
The impetus has always been the price of energy. For electricity prices are now over P11.96 per kilowatt/hour (kWh) in the Manila Electric Company (Meralco) franchise area while it can be as high as 200% to 250% of that elsewhere.
Last June 2024, it was only P9.45 per kWh. In December 2023, Meralco billed its customers P11.25 per kWh. While in 2001, when reforms were being drafted to respond to blackouts despite high electricity costs, it was in the P2.50 to P3.00 per kWh range.
To appreciate these numbers, simply array these against the development of real wages, the depletion of disposable incomes, the gradual disappearance of the middle class and the quality of, or the increasing deterioration of policy-making and regulatory competence within relevant energy bureaucracies.
Like a constantly recurring Groundhog Day from when it was first written and implemented under Gloria Arroyo and her energy officials then tasked, and who, like a bad penny, are ironically the very same who task us today, the Electric Power Industry Reform Act of 2001 (EPIRA) has remained an aberrant anathema — a temple to one of the most notorious failures lawmakers always promise to amend but never do.
Given these inconvenient realities, allow us to briefly glance at ten 2024 energy milestones that perpetuate the low supply, high-cost prices EPIRA failed to address, and which maledictions are likely to remain until truly productive steps are taken by the authorities already deeply complicit in creating these.
For three years now up until the end of the third quarter 2024, there was a regulatory conflict between the Energy Regulatory Commission (ERC) and two regulated entities linked by a Power Supply Agreement (PSA). One is a Distribution Utility (DU). The other, an affiliated (common equity holders) generating provider.
The case festered forcing the DU to source higher priced electricity from the Wholesale Electricity Spot Market (WESM) and its hourly marginal peak-load pricing arithmetic. The final ruling at the Supreme Court was in favor of the private entities.
Unfortunately, in the interregnum, the public suffered what should have been avoidable high prices. To fully appreciate the criticality of this issue, simply affix the names and faces of those who head these corporate entities with those who wield regulatory authority.
For at least six months in 2024, the Office of the Ombudsman that determines prima facie cases of graft and corruption had suspended the industry’s top regulator, forcing an inexperienced acting head to take over. The basis was an accusation of neglect by a consumer group. Never mind that the ERC is a collegial body, and its decisions, responsibilities and accountabilities are shared.
In 2020, the administration of Rodrigo Duterte imposed a moratorium on new coal-fired power plants as a significant step towards transitioning to Renewable Energy (RE). Last year, despite the moratorium, the Department of Energy (DOE) allowed the expansion of a Visayas-based coal-fired plant.
At the center of the apparent turn-around was a DOE list of indicative and committed power projects from 2014 to 2024. The new coal units do not appear to fit the criteria for exemption from the moratorium.
In 2024, the beneficial equity holders of Luzon’s largest DU and the franchise’s significant least-cost power source contracted through a PSA banded together to establish a formidable liquefied natural gas (LNG) cartel despite questions of multilayer cross-ownership, anti-trust, anti-competition, and LNG being a high-cost, imported, foreign reserve depleting non-RE fossil-based fuel.
Anent to the creation of a LNG cartel bridging the distribution and generation sectors, within the energy community there was profound pushback since the latter’s proponents argued that LNG was simply a “transition” fossil-fuel despite the likelihood that LNG infrastructure’s payback, return on investment (ROI) and return on capital (ROA) periods would likely extend thus ensuring an expanded dependence on imported fossils, including an active campaign to expand the coal plant portfolio and rely on imported toxic fuels rather than catalyzing an abbreviated transition to RE.
Again, for these two foregoing 2024 issues, to appreciate the impact of cartelization, simply trace the dotted line relationships among the private sector equity shareholders and those in the policy-making bureaucracy.
The failure to reset transmission and distribution rates in a timely and periodic fashion has led to overcharging and unreasonable if not illegal revenues electricity subscribers are forced to shoulder. For Meralco alone, this has been computed as P16 billion as of October 2024.
The overcharging refund represents the difference between the actual weighted average price and the maximum average price chargeable to consumers. Reflecting rate resetting delays over the previous year, the overcharging refund was then computed at P40 billion. Technically, those are payments the electricity consumer should not have paid for but did anyway.
There is uncertainty from the extension of the Meralco franchise which is set to expire by 2028. While the renewal of Meralco’s franchise passed the Lower House last November 2024, and indeed has the endorsement of influential business groups, it still has to hurdle Senate approval where guardrail amendments centered on the compliance with laws against market power abuse, cross-ownership and anti-competitive behavior are being considered.
The indictments re the Malampaya sell out of 45% of its Service Contract to a controversial successor initiated in 2019 and completed in 2020 are pending at the Sandiganbayan, the graft court. Another 45% subsequently transferred under the Marcos administration are at risk should the eventual ruling adversely affect as much as 90%. Overall, as the economy struggles with systemic inadequacy, its impact on attracting capital intensive foreign investments in power may be affected.
From as early as the start of 2024, the Visayan blackouts that started in Panay due to the failure to balance the grid employing timely load shedding had affected power supply as far away as Cebu.
It is ironic that despite the pomp and pageantry that attended the inauguration of a long-delayed submarine interconnection cable between surplus power sources in Mindanao and unserved demand in the Visayas, the latter markets still required serious supply expansion.
The continuing failure to understand rate setting by both energy policy makers and regulators continue to plague the sector. Specifically there are unsettled controversies involving the very basic questions on the computation of the weighted average cost of capital (WACC) in Performance-Based Rate (PBR) setting for the transmission monopoly and the DUs, the definition and use of Ancillary Reserves (AR) by the National Grid Corporation of the Philippines (NGCP) and even the absence of Loss of Load Probability (LOLP) analysis by the regulators themselves — an unforgivable governance weakness that is ironically a basic requisite in successful energy governance, a critical lynchpin in about every other economy.
Now scour through each of the ten issues that characterized the energy sector in 2024. Also recall the technical definition of “regulatory capture” and see how it permeates through most of these ten issues.
Between greed in 2004 and the end of 2024, greed then measured in millions is now denominated in billions of pesos.
For 2024, while large corporations typically enjoy market power under a free enterprise system, 2024 saw a peaking of the phenomena as separate corporations combined to form cartels, thus abusing the concept of competition as a safety valve in a free market economy. Absent market pricing, energy prices can only rise further as greed is catalyzed and synergized among less than a chosen handful.
Unfortunately, the negative Aristotelian synergy enabled under energy policymakers and regulators under this Marcos administration in 2024 had resurrected the crony capitalism long thought buried and rotted. – Rappler.com
Dean de la Paz is a former investment banker and managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance, and Mathematics professor. He collects Godzilla figures and antique tin robots.
