* My column in BusinessWorld, April 6, 2020.
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The enhanced community quarantine (ECQ) which the
government hoisted over the entire Luzon has resulted in large-scale business
and economic losses. The overall impact on the 1st quarter GDP will be known in
about two months from now, but the decline in electricity demand is known
daily.
I got weekly data for March 2020 from the Independent
Electricity Market Operator Philippines (IEMOP), and also the data for March
2019, and I computed the difference between the two periods. There was a big
decline in power demand starting March 15, the day the Metro Manila quarantine
was implemented, followed by ECQ for the entire Luzon on March 17. Big declines
in average demand of 5.5% and peak demand of 8%. The customer effective spot
settlement price (ESSP) at the Wholesale Electricity Spot Market (WESM) was
down by 60% to only P2.08/kWh (see Table 1).
This means big savings for residential customers and the
few commercial and industrial customers that are allowed to continue operation.
It also means big losses for both generation companies (gencos) and
distribution utilities (DUs) like Meralco in terms of decline in revenues. I
assumed a 5% decline in megawatt hours (MWH) for March 2020. My estimated
losses for gencos in the Meralco franchise area alone is about P934 billion and
for Meralco itself, about P33 billion (see Table 2).
Now the Laban Konsyumer Inc. (LKI), headed by my new
friend Vic Dimagiba, sent me its letter to the Philippine Independent Power
Producers Association, Inc. (PIPPA) dated March 26. LKI is asking the private
independent gencos to accept a Force Majeure provision of their Power Supply
Agreements (PSAs) with DUs and electric cooperatives because electricity
consumers in Luzon should be spared from paying fixed charges for generation
capacity that was not consumed, that GenCos will have windfall profits for
“ghost” deliveries.
My understanding of this letter is that LKI wants the
contract price under PSAs, say P4/kWh, to be forced to go down to the WESM
level of P2.08/kWh for March 2020. Otherwise they will demonize and lambast the
gencos as greedy.
This is an irrational demand by LKI on the following
grounds.
One, a PSA contract price is an important incentive for
companies to stay, even expand in the power generation business. Otherwise they
might consider going into hotels, restaurants, hospitals, and other businesses
and leave the country’s power supply situation further in peril.
Two, it is selective as it targets only the power supply
sector for some parochial interests. LKI did not write similar petitions to
water companies, telecom and internet companies, food manufacturers, trucking
and logistics companies, etc. It did not say that they should bring down their
prices in this period, otherwise LKI will demonize and lambast them as greedy.
Three, customers are charged on their actual electricity
consumption, not on electricity produced that was not consumed. The claim of
“windfall profits for ghost deliveries” is an illusion.
Four, as shown in Table 2, the gencos, and even DUs like
Meralco, have already suffered big revenue losses of nearly P1 billion for this
March alone.
Five, I am not a lawyer but I think the Force Majeure
provision mainly applies to “Acts of God” and not Acts of Government. The ECQ
is an economic and business punishment imposed by the government in exchange
for the public health goal of “flattening the curve” of the China virus infection,
a.k.a. COVID-19.
The Department of Energy and the Energy Regulatory
Commission, among the entities cc’d by LKI, should not entertain this
irrational letter from LKI. People should learn to respect business contracts,
wait for voluntary waivers or price reductions but not forced waivers and price
controls.
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