23 June 2006
We see no reason for residential customers to be happy about the initial operation of the Wholesale Electricity Spot Market (WESM) which begins today. While the Department of Energy and WESM operator pin their hope on the spot market to lower electricity rates, we are not optimistic about this as there exist flaws in the Electric Power Industry Reform Act (EPIRA) that will hamper such objective.
First of all, only bulk users such as industrial and commercial consumers and distribution utilities will benefit from this initial operation as the minimum energy demand requirement to be able to directly buy power from WESM is 1MW. The average consumption of residential consumers is 200kWh to 300 kWh.
Aside from this, one flaw in EPIRA that will put stumbling block in achieving lower electricity rates is that a distribution utility is allowed to source up to 90 percent of its total demand from bilateral power supply contracts. This will now leave only 10 percent of the distribution utility’s energy demand that can be sourced from WESM. The lower power rates for such 10 percent energy from WESM will make no dent in the high power rates that we residential customers are paying for.
Another is that EPIRA allows a distribution utility to source up to 50 percent of its energy demand from its sister companies. In the case of Meralco, it is already getting about 50 percent of its energy requirement from its sister companies which sell more expensive power than Napocor. Meralco computes the generation charge to the consumers by averaging the power rates of its sources. Thus, higher generation rate is usually reflected in the consumers’ electric bills.
The continuous payment for the unused but contracted power from the independent power producers (IPPs) which EPIRA recognizes will continue to burden electricity consumers. This and the continuous imposition of value-added tax (VAT) on power will continue to make power rates in the Philippines high.
If the government is really sincere in bringing about lower electricity rates, it can easily do so beginning with the lifting of VAT on power. Next, cancel the onerous IPP contracts. Then, overhaul EPIRA.