POSTSCRIPT / January 14, 2014 / Tuesday


Opinion Columnist

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Gov’t most to blame for rising power rates

GOV’T FAILURE: Why power rates will continue to rise was the central question of a PhilSTAR special report yesterday.

Our own explanation for the continued price upsurge is that the government has failed (1) to build more power plants to keep supply a safe distance ahead of the growing demand, (2) to develop cheaper alternative sources, and (3) to curb the appetite of the power moguls.

Since at least five years ago we have been raising the red flag of an impending power crisis marked by rotating blackouts and rising rates, but the Department of Energy has failed to act decisively to stave off the oncoming emergency.

The next question is: Why the failure? Either government officials are incompetent and/or lack concern, or they are impotent against the power moguls ruling the industry.

The followup question is: What can consumers do now? Apparently nothing. Consumers by themselves (since the government does not seem to care) appear to be helpless – probably until their pent-up anger finds violent release.

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GROWTH NEEDS POWER: The Aquino administration keeps regaling the masses with stories of foreign investors rushing in to put up businesses, thereby opening jobs, banishing hunger and chalking up a magical seven-percent growth rate.

One reason why we still do not see those reluctant foreign investors is that their businesses require electricity, which in this benighted country is in short supply, very expensive and unpredictable.

In many assembly lines, a mere power flicker, much more a brownout, means quality control going haywire, costs going up and delivery commitments being missed. That is how crucial cheap and stable electricity is to many investors.

The yearly increment in power demand is around five percent, but when the government targets an economic growth rate of seven percent, there should be a corresponding increase in the power supply to move commerce and industry.

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DIMINISHING MARGIN: Going by industry statistics, the total energy demand nationwide is around 14,000 megawatts, lumping together household and commercial requirements.

The total installed capacity is 17,000 mw, leaving a theoretical buffer supply of 3,000 mw. This 20-percent allowance is comfortable enough under normal conditions. In most developing countries, an ideal reserve margin is 20 to 30 percent, which we still have in theory.

But what actually flows through the lines is much less than the plants’ combined rated capacity. It is foolhardy to operate a generator at full capacity and risk wrecking it. And then, no plant, especially an old one, is 100-percent efficient.

Years ago, there were so-called Independent Power Producers, who were being paid for their full rated capacity even if they generated less. When their plants faltered, why would they bother to repair them when they got full payment anyway – charged to captive consumers?

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COLLUSION: And then, all plants have to periodically suspend operations for preventive maintenance. Other plants, however, have the bad habit of just bogging down without prior notice.

The three plants in Batangas running on natural gas — the 1,200-mw Ilijan combined cycle plant owned by Kepco Philippines Corp. and the 1,000-mw Sta. Rita and 500-mw San Lorenzo facilities owned by First Gen Corp. of the Lopez group – shifted to expensive liquid fuel last December when their Malampaya sources of natural gas was shut down for maintenance.

Five other plants also stopped operating, coincidentally?, with the Batangas gas-fueled plants. The rogue plants were never identified despite accusations that they deliberately joined the stoppage for some sinister motive related to rates.

If past investigations are any indication, the inquiry into the possible collusion among the plant operators who stopped generating electricity coincident to the Malampaya fuel supply stoppage will end up being forgotten like bad debts.

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LATE AGAIN: Energy Secretary Carlos Jericho Petilla has said that one solution to demand catching up on supply and to rates continually rising is to have more power capacity installed by 2017.

Too late saying that now. The Aquino administration should have started talking and pursuing that formula as soon as it took over in 2010. It normally takes at least three years to build and start operating a regular coal-fired power plant.

The going rate, according to industry sources, is $1.5 million for every megawatt of rated capacity designed into the plant. With that kind of money needed, power operators demand so many concessions from government – including sky-high electricity rates.

Back to the Department of Energy. What has it done to develop cheaper alternative sources? In the bad old Marcos regime, the Ministry of Energy had it all planned out that the country’s dependence on imported fossil fuel was continually decreasing each year.

But when then President Cory Aquino took over after the 1986 Edsa Revolt, she promptly mothballed the Bataan nuclear plant because it was initiated by her predecessor – without her bothering to replace the foregone capacity.

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TOP THREE CHARGES: About the rate increases applied for by the Manila Electric Co. (Meralco), there is a misimpression that the hikes sought are for itself.

The adjustments applied for with the Energy Regulatory Commission are mostly for generation charges. Meralco will just collect them for the generators from whom it buys electricity through the Wholesale Electricity Spot Market, the trading floor for electricity.

But while generation accounts for 52 percent of the total Meralco bill, its own distribution charge is 24 percent of the total. Government bites off the third biggest charge with its nine percent in taxes.

It appears that the total charges can be stabilized, if not reduced, by cutting down on these three big items of generation, distribution and taxes.

It is deplorable that the government has fallen on its job of managing the energy program, if any, of this power-starved developing country. Paging Secretary Petilla, sir!

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(First published in the Philippine STAR of January 14, 2014)

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