Beating the power rates

Obviously, because the power sector is very complex for the ordinary consumer to understand, every increase in electricity rates is met with criticism. The cost should simply be generation expense plus transmission cost plus distribution charge, but there are various taxes imposed by the government on electricity. To complicate matters, there are the so-called universal charge for stranded contract cost (UC-SCC), universal charge for stranded debts (UC-SD) and, in the near future, the feed-in tariff (FIT) rates designed to help developers of renewable energy.

Thus it was a great relief for consumers when the Energy Regulatory Commission (ERC) rejected the petition of the state-run Power Sector Assets and Liabilities Management Corp. (PSALM) to collect another P65 billion worth of so-called stranded debts. Earlier in the week, though, the ERC had ruled that PSALM could collect P53.58 billion of UC-SCC, which is a new component in electricity bills, from all consumers.

Metro Manila residents already bear the highest electricity rates in Asia, according to a 2011 survey of the region by the Japan External Trade Organization, the second survey by an international agency showing the Philippines as having the most expensive electricity in Asia. In 2010, Australian consulting firm International Energy Consultants found that Manila’s residential rates had surpassed those of Tokyo’s. Of the total retail electricity price, Manila Electric Co.’s distribution charges account for 16 percent; generation charges, 65 percent; transmission cost, 9 percent; and the balance of 10 percent, VAT and other taxes.

Not a few businessmen have complained that the high cost of electricity in the country could be one of the major reasons foreign investments have been avoiding the Philippines. In a summit in 2006 to identify factors why the Philippines was not very competitive in attracting investors, the high cost of electricity was cited as one of the biggest hurdles. It was pointed out that while some progress on issues like professionalizing public offices, improving access of SMEs (small and medium  enterprises) to finance, improving quality of human resources and ease of doing business has been achieved during the last five years, there has been no improvement in making the cost of electricity competitive.

At that time, the Management Association of the Philippines and other business groups, through the National Competitiveness Council (NCC) then headed by former Trade Secretary Cesar Bautista, suggested that the cost of power could be reduced by addressing four low-hanging fruits.

First was for open access to be started immediately to achieve a free-market competition environment that will encourage new private companies to participate in generation. (This, to this day, remains delayed.) Second, for the restructuring of the electric cooperatives to achieve good governance and more economic aggregation. (This part of the power industry remains problematic.) Third, for the high cost of fuels not to be further burdened with additional levies, taxes or royalties. (The scrapping of any tax though is hard to implement because of the current state of government finances.)

However, the country can focus straight away on the fourth proposal: a national energy conservation movement to be imposed by the government with the private sector as partner, and with clear metrics (for example, 10-percent savings in 18 months) and a clear system of “incentives” for those who save and “penalties” for those who do not. NCC noted that this was institutionalized by Energy Secretary Geronimo Z. Velasco during the Marcos years. It said Japan employed such a program during the Fukushima nuclear accident, achieving 19-percent savings quickly. The objective was to maximize the use of existing facilities by reducing wasteful consumption. This is the low-hanging fruit that the Aquino administration can address today to ease the burden caused by high electricity prices.

In the meantime, consumers can do a lot of other things to lower their electric bills. They can replace lighting with energy-saving bulbs that consume less energy and last much longer, retire inefficient and old appliances such as air-conditioning units and refrigerators, put skylights in their houses where possible, unplug electric items that are not being used, including laptop and mobile phone chargers.

Reducing wasteful consumption of electricity should begin at home.