* 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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See also:
BWorld 281, Trump and Bolsonaro vs Xi and Duterte, January 18, 2019
BWorld 282, CHR on ‘carbon majors’ and fossil fuels, January 20, 2019
BWorld 283, Public debt, budget deficit and sin tax hikes, January 21, 2019
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