OVER the past couple of weeks there has been growing irritation with increasing electricity bills, with some lawmakers, ever ready to ride whatever wave of public attention is washing past them, chiming in to suggest various interventions, or at least conduct hearings on the issue. Not much has been accomplished yet, and if I was a betting man, I’d put my money on little to nothing being accomplished at all in the near term. The ongoing energy crisis has made it painfully clear that the existing legal and regulatory framework makes meaningful solutions impossible, and needs to be comprehensively overhauled.
Back on April 27, the Manila Bulletin’s resident energy nerd Myrna Velasco wrote an enlightening column — as most of hers are — highlighting the troubling topic of renewable energy subsidies. Obviously, I am not going to rehash her work entirely here, but she made two essential points with respect to the subsidies that are worth discussing in more detail. First, she pointed out that there is no legal basis for the fairly recent (implemented beginning in January of this year) green energy auction allowance, or GEA-All tariff on our electric bills. The other renewable energy tariff, the feed-in tariff allowance, or FIT-All, is legally authorized, by the Renewable Energy Act of 2008 (RA 9513). The GEA-All was simply created by an order of the Department of Energy, which is extremely questionable since it imposes a cost on all electricity consumers.
The second, and stickier point Myrna made in her column was that there is very little transparency or accounting of either of these tariffs. They supposedly exist to support the development of renewable energy, but to what specific extent they have is a mystery. That is something that should greatly bother Philippine rate-payers, and those in Congress who allegedly represent them.
Unavoidable complexity
Electricity consumers are at a significant disadvantage because the electricity industry is extremely complicated. That is its nature anywhere, but it is especially so here because of the weird hybrid monster created by the Electric Power Industry Reform Act (Epira) of 2001. Under our system, generation is essentially unregulated, meaning that the government cannot dictate to generation companies how much they are able to earn. I say “essentially” because there are some guardrails in particular circumstances. For example, if a generation company seeks to recover additional costs from higher-than-expected fuel prices not anticipated by a power supply agreement (PSA), that requires government approval. Another example is the “modified administered price” (MAP) framework currently being applied in the Wholesale Electricity Spot Market (WESM) due to the “energy emergency,” which imposes some limits on what price generators can sell electricity for through the market. But on the whole, under normal circumstances, generation is deregulated.
Transmission and distribution, on the other hand, are both highly regulated, and to make things even more confusing, they are regulated in fundamentally different ways. Transmission — through the National Grid Corp. of the Philippines (NGCP) in most of the country, save those islands not connected to the national grid — is revenue-regulated, meaning that government sets a limit on how much NGCP can earn; that calculation is based on what rates it has to charge to operate smoothly, as well as to fund grid expansion and upgrades and a reasonable allowance for profit. Distribution, through distribution utilities (DUs) like Meralco or through electric cooperatives (ECs), is rate-regulated, meaning that the government through the Energy Regulatory Commission (ERC) limits what rates they can charge to their customers. This calculation is based on basically the same factors as for transmission, but in practice is a bit more complicated.
The unholy marriage of unregulated generation and regulated transmission and distribution is probably the biggest factor in constraining development and expansion of both the grid and distribution networks; a more efficient system would be one in which all three were regulated, or all three were not, although energy wonks will argue endlessly about which would be better. At the time the Epira was being crafted, the main concern was to build up generation capacity, so in order to ensure that kept up with growing demand, it was deregulated to attract investment. The same kind of thinking goes into the imposition of the FIT-All and GEA-All, since renewable energy is perceived as riskier than conventional generation. That perception, however, is rapidly becoming less justifiable as the costs of RE continue to decline — although some kinds, such as wind, are still expensive — and it becomes more integrated into the energy mix.
Double-dipping
The basic framework of our electricity sector and its regulation will continue to make our rates higher than they have to be until it is remodeled into something more efficient, but in the meantime, the government, if it cares at all about reasonably priced public services and actual economic competitiveness, can at least move to eliminate the unnecessary double-dipping penalty imposed on consumers by the large number of subsidies on our electric bills. If you are a Meralco customer, taxes and subsidies account for 14.1 percent of your bill; if you include the system loss charge, it is about 19 percent. Realistically, not all of that can be removed, but most of it can, and it logically should be.
First, the outright subsidies — which, as an additional insult, are also subject to value-added tax (VAT) — should be removed. Everyone pays taxes already, so let the government foot the bill for lifeline subsidies for indigent consumers, subsidies for senior citizens, missionary electrification in isolated areas, and old debts of the pre-Epira National Power Corp. That would immediately reduce everyone’s electric bill by about 5 percent.
Likewise, if the government feels the need to subsidize RE development — and as I already said, this is becoming increasingly debatable — it should pay for that as well. That takes about another 1.6 percent from everyone’s bill.
System loss is a sensitive topic when it is raised with Meralco or any other DU or EC, but it is something that should be borne by the distributor. Although there are regulatory limits on how much system loss a DU or EC can charge to customers, the existence of that charge disincentivizes efficiency, preventing electricity theft, and keeping distribution networks in good working order. Some system loss is unavoidable due to physics, which may not be the fault of the distributor, but it is nonetheless electricity that we customers do not receive, and should not have to pay for. Removing that charge from our bills, along with the corresponding VAT charged to it, saves another 5 percent.
Of the remaining VAT, it should be limited to the generation charge, as that is the actual product being received by consumers. That would eliminate about another 1.4 percent of one’s bill, by my calculation (results may vary by customer and distributor), bringing the approximate savings to roughly 13 percent from the current level. And it would do so without touching the core revenue represented by the generation, transmission, and distribution charges.
ben.kritz@manilatimes.net
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