The easiest answer would be to attribute the apparent contradiction to the law of supply and demand which everyone, save for former agriculture officials, understands.
Applied to the polemic dichotomy of high power rates in the Philippines despite the absence of power supplied, the law simplistically states how a fall in supply invariably leads to increased demand and that inverse relationship jacks up prices. To our misfortune, amid the enveloping darkness they inflict, we pay through the roof for intermittent flickers.
But let us take a deeper dive than simply citing a theoretical law. This is important. Those impacted run the gamut from victimized households to foreign investors who consider our power costs as a serious detrimental factor against better options offered elsewhere in the region.
The latter that results in low levels of foreign direct investments (FDI) has panicked even our most stoic economic managers now accustomed to citing pledges and promises as productive “pasalubong” (souvenir) from presidential trips and a constant campaign to legitimize a presidency in the eyes of those who remember its dictatorial DNA.
To understand the ironies and evoke compelling passions, we typically analyze and view our perennial curse of a high-priced electricity rate regime through the eyes of the consumer set against the high-income power players. These range from the generators to the transmission and distribution utilities – all under undeniably failed policy-making and regulatory officialdom.
Let us broaden our horizons. This time allow us to include macroeconomic concerns recently raised by the Bangko Sentral ng Pilipinas (BSP) in a Monetary Board Report on capital financing for much-needed expanded power supply from FDI.
These concerns are important in the broader context of attracting external equity capital to develop and expand power generating supply; alleviate the pressures of unemployment recently bloated by the adverse impact of the El Niño phenomenon; and the continuing fall of the peso amid high inflation, myopic importation policies that bloat the demand for dollars and other macroeconomic concerns.
Both energy policy makers and regulators together with the congressional energy committees do not seem to factor these in just as the common electricity consumer, too concerned with the next meal, remains alienated from anything larger than their light bill.
To be specific, the BSP expects power rates to increase significantly because of an order by the Energy Regulatory Commission (ERC) authorizing the collection of a whopping albeit staggered P15.77 billion worth of generating costs payable to the unregulated electricity generation sector.
Senator Risa Hontiveros blames the generators for the high power rates. In this case, she should be blaming the ERC.
In 2013, the shutdown of the Malampaya gas fields forced distribution utilities to purchase the resulting shortfall from the Whole Electricity Spot Market (WESM) where the laws of supply and demand and its unique margin-pricing protocols invariably compel higher power rates in times of shortages. The following year, the ERC imposed a cap on WESM pricing as a desperate stop-gap measure. The issue was taken to court and in 2022, the Supreme Court nullified the ERC’s imposition of the WESM price cap.
Just as a price cap cannot be imposed on rice prices as that distort supply and demand and will eventually reap the whirlwind when reality sets in, the same is true for an electricity spot market operating under a regime of severe undersupply. In the case of WESM, the market was either cursed with low baseload supply or overwhelmed with non-operating major baseload plants under scheduled, emergency or maintenance downtime.
Downtime scheduling and management requires not simply reporting and monitoring as the ERC does but requires doing requisite number crunching that triggers effective responses.
Would it be so hard to ask our energy officials to compute for their baselines and ascertain dependable (and not rated) capacities and against that, further compute for Loss-of-Load-Expectations (LOLE) for both ancillary and market reserves? These computations are normal protocols in other energy jurisdictions except the Philippines.
Given that other economies have provided the “best practices” mathematical models, for our energy officials, there seems to be this inability among the political appointees to learn the most basic rudiments of grid management.
In addition to the P15.77 billion charged to consumers, our continuing dependence on imported fuels to run our power plants, the risk of worsening oil prices due to geopolitical conflicts, the South China Sea tinder box that prevents us from exploiting indigenous fuels, and the simultaneous fall of the peso all contribute to a bloating of our electricity bills.
We need energy technocrats and economists for the analytical deep dive. What we do not need are conflicted lawyers, politicians or political appointees either reassigned from the offices of regulated corporations or dispatched from their boardrooms. For sure, in the energy policy-making bureaucracy, we do not need entertainers, talk-show hosts and school dropouts.
Note that most of the foregoing are about our dependence on fuel imports. The 52-week range of the benchmark Dubai Crude Oil Platts stretches from a low of $72.41 per barrel to a high of $93.64 per barrel. Unfortunately, BSP’s risk assessments of conflict-driven factors indicate that an average price of $94.00 per barrel will prevail until December 2024. Do the math and add these to the adverse domestic factors that resulted from regulatory failures to understand the negative impact of WESM pricing during a constant regime of supply shortages.
Note that last January, after serial dereliction, regulators finally settled a three-year P21.76 billion electricity price adjustment that resulted directly from one agency’s failure to periodically recalibrate forward-looking power rates. Not only will this impact negatively on prospective capital expenditure investments but this dampens current maintenance and up-keep programs.
Beyond the question of supply and demand, this is a matter of electing competent and knowledgeable lawmakers to our congressional committees, as well as appointing energy policymakers and regulators who are not confined to simply monitoring and gatekeeping but have the testosterone to vigorously analyze, understand, and develop viable solutions to alleviate high power prices. – 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.
