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The electricity situation in a nutshell

/ 03:10 AM March 12, 2014

The good news is that electricity rates will go down soon. The bad news is that the Manila Electric Co., an important utility company, is no longer controlled by the Filipino Lopez family but by a foreigner, 65-year-old Indonesian magnate Anthoni Salim.

Increasing electricity rates always drive Filipinos into a frenzy. The latest incident is the recent shutdown of the Malampaya gas field, which caused electricity rates to rise to astonishingly high price levels. Irate consumers went to the Supreme Court to stop the implementation of the increased rates. The Supreme Court issued a temporary restraining order. Many arguments were raised during the hearings at the high court.

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Another lesser known side, however, presents itself when one looks at the price-hike situation as a whole.

To better understand this, let us look at the players in the nation’s power industry as defined under Republic Act No. 9136, or the Electric Power Industry Reform Act (Epira). There are three pivotal roles, each assigned to a different sector, in the transfer of electricity: generation, transmission, and distribution.

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Generation involves the production of electricity in power plants, and is given to generation companies. Transmission involves a power grid, a large network of cables that bring electricity from the power plants to the distributors, with the transmission company ensuring that the grid is secure and reliable at all times. The distributor distributes the electricity to homes and factories. It is also the entity that buys the electricity from the producers and passes on the cost to consumers.

The Epira allows for limited cross ownership in both generation and distribution, which means that a distribution company can own shares at a generation firm and vice versa, while transmission is off-limits to those with financial interest in either of the two other roles. In this situation, one company can control both the supply and the retail and distribution of electricity.

Forward to the present situation. The Malampaya gas project in Palawan supplied fuel to gas-fired power plants in Luzon, namely the Lopez-owned Sta. Rita and San Lorenzo power plants and Ilijan Power Plant. In turn, around 45 percent of Metro Manila’s power requirement is sourced from the Lopez plants Sta. Rita and San Lorenzo. Their shutdown meant that distributors would have to temporarily source their power from elsewhere. That elsewhere was the WESM, or the Wholesale Electricity Spot Market, where electricity is being traded on an hourly basis. The WESM came up with prices based on bids from registered generation companies, supposedly to foster competition and keep energy prices low.

The generation costs are the result of the WESM collecting bids and available power and arranging bids—from the most to the least viable—in a priority list called the Real-Time Dispatch (RTD). Distributors submit power demands and buy electricity from the market, supposedly without any idea of how much it would cost, because they have no access to the RTD.

The rate increase was apparently due to the Therma Mobile (TMO) plant being allowed to operate under the bid it submitted, which was P62 per kilowatt hour (kWh), the highest allowable bid price in the market.

It is intriguing to note that this bid was done under Meralco’s decision, due to a contract which gave Meralco the power to make price and volume offers for the said amount to the WESM.

Also, this bid was made in the face of a supply agreement between the TMO and Meralco in which the former supplied electricity directly to the latter at the rate of P8.65/kWh. This meant that somehow, no other plants were able to make more viable bids at that time, meaning the TMO was the only available option for the WESM to place on the RTD when the need for the list arose.

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Whatever the circumstances, it is clear that there is something to be said of the process which led to this situation, which, it must be noted, was approved by both the chair of the Philippine Electricity Market Corp.—which governs the WESM—and the Energy Regulation Commission, which has to approve the WESM’s lists before prices are handed out to distributors.

Somewhere, somehow, somebody made a bundle off this unusual sequence of events. The question is, was it providential? Was it an unbelievable stroke of luck? Or was it the result of a carefully laid out plan?

* * *

The irony in the proposal to lower the maximum individual income tax rate from the present 32 percent to only 25 percent is that the principal beneficiaries would be the rich. Although the rates in the lower brackets would also be adjusted, they would not be in the same proportion as the bracket for the super-rich.

How much are the super-rich paying in individual income taxes? How much are the Filipino tycoons in Forbes’ list of the world’s richest paying? How much are the 10 richest senators and the 10 richest congressmen (a list that is released by Congress every year) paying? Are the amounts proportional to their wealth? It would be interesting for the taxpayers in the lower brackets to find out.

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TAGS: Anthoni Salim, distribution, Electric Power Industry Reform Act, Electricity, Epira, Filipino Lopez family, generation, Malampaya gas field, Manila Electric Co., Republic Act No. 9136, Supreme Court, the Electric Power Industry Reform Act, transmission
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