Tuesday, January 22, 2019

BWorld 284, ‘WALANG’ forever: Universal charge in electricity and PSALM

* This is my article in BusinessWorld last January 15, 2019.

We have the 2nd or 3rd most expensive electricity in Asia (after Japan and Hong Kong or Singapore) mainly because there are many charges that are imposed on our monthly electricity bill. The biggest item is the generation charge (goes to power generation plants) plus eight other items: transmission charge, distribution charge, supply charge, metering charge, system loss charge, universal charge, feed-in-tariff allowance (FIT-All), VAT and other taxes.

This column has discussed many times the FIT-All or guaranteed high price for renewables for 20 years, also competition in power generation that are reflected in WESM prices, the transmission charge, system loss charge, others.

I get intrigued by the universal charge (UC) because it contains four items (UC-ME, UC-EC, UC-SCC, UC-SD) that seem forever. UC is provided in the EPIRA law of 2001, Section 34, to be paid by all electricity consumers nationwide.

The UC fund administrator collected by the distribution utilities, electric cooperatives and other electricity suppliers is the Power Sector Assets and Liabilities Management Corp. (PSALM). It has three functions under the EPIRA law: (a) privatize NPC generation and Transco transmission assets, (b) manage liabilities of NPC debts, obligations of electric coops to NEA and other agencies, and (c) administer the collection and disbursement of UC funds.

Below are the current UC rates, UC remittances received by PSALM until September 2018, and its petition to avail huge funds.

What are these four components?

1. SCC — excess of the contracted cost of electricity by the National Power Corp. (NPC) over the actual selling price of the contracted energy output.

2. SD — financial obligations of NPC which have not been liquidated by the proceeds from the sales and privatization of NPC assets.

3. ME – subsidy for steady supply of electricity in small island provinces and far-flung areas.

4. EC — for watershed rehabilitation and management.

So PSALM is sitting on and administering a huge pile of cash from us electricity consumers. Some problems and issues that I see here.

Universal Charge (UC) Rates, Remittances, and PSALM Availment

One, those old SCCs and now SDs, these were contracted since the early 90s during the power crisis and consumers have been paying for them. After about 27 years they are still there? The UC rates do not even decline through time and we have to keep paying for them forever? Wow, very lousy.

Two, the ME subsidy for small island provinces and far away areas, they are forever too? Why can’t they have their own baseload, 24/7 power plants (coal, hydro, geothermal, etc.) and just augment with big gensets running on diesel during peak hours, so that the ME subsidy can be eliminated?

There is a moral hazards problem by NPC-SPUG (small power utility group) here. The agency might dislike that those areas will have their own baseload plants because that will ultimately eliminate their agency, their jobs and perks. Even then, those existing NPC gensets are not enough so those islands suffer regular brownouts, which adversely affect their tourism, commercial and industrial businesses.

Three, PSALM is a generation player, it manages and operates NPC plants that are not yet privatized and joins the competition for power supply. It can “sell low” at a loss, then raid the UC funds to recover its losses and appear to be financially healthy.
This creates a moral hazards problem too. PSALM will have little incentives to hasten the privatization of the remaining NPC plants. It can become a forever bureaucracy funded by forever UC subsidies. PSALM becomes another anti-competition factor in the Philippine electricity market.

To have cheaper electricity, we should do away with all subsidies as much as possible. Power plants that sell expensive electricity, whether conventional or renewable, base load or peak load, let them sink. Remove UC, remove FIT-All, over the long-term. Consumers interest of cheaper, stable electricity should be paramount over all other business, bureaucracy and taxation interests.

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