Competition brings down prices

The Department of Energy (DoE) has completed its strategic plans for the country’s power and energy sectors for 2017. By the way things are shaping, both industry players and consumers stand to gain from these developments. That is, if these get the support of the 17th Congress as well, especially measures that require legislation.

Based on the DoE plan, it looks like “competition” will definitely be the hallmark of the electric power industry.

Competition has been introduced and sped up the procurement and distribution of electricity under existing laws.

Energy Secretary Alfonso Cusi has given us an initial glimpse of the strategic plans the DOE will pursue under the administration of President Rodrigo Duterte. Largely focused on further enhancing energy reforms, the DoE’s strategic plans were crafted during the first six months of the Duterte administration.

Apparently learning from the mistakes of his predecessors at the helm of the energy sector, Cusi made sure the Duterte administration will start from the right track. While still crafting the energy plans, the DoE Secretary coordinated with the leaders and members of the Joint Congressional Power Commission (JCPC) to obviously secure the necessary support from lawmakers.

Senator Sherwin Gatchalian, chairman of the Senate committee on energy, confirmed this to us during our breakfast forum the other day. Cusi and Gatchalian literally led our power-packed discussion during this week’s Kapihan sa Manila Bay at Cafe Adriatico in Malate. From our discussions, Cusi and Gatchalian echoed the sense of urgency to review the country’s existing power supply situation in a bid to bring down electricity prices.

The senator disclosed the JCPC would start deliberating on these proposed reforms early in January 2017 with coordination with the DOE headed by Secretary Cusi. He said he would confer with his counterpart from the House of Representatives led by Marinduque Rep. Lord Allan Jay Velasco who chairs the House committee on energy.

Offhand, Gatchalian disclosed, the JCPC would focus on necessary remedial legislations to plug the loopholes and strengthen existing laws, namely, the Electric Power Industry Reform Act (EPIRA), Renewable Energy (RE) Law and Bio-Fuels Act.

Gatchalian believes the proposed energy reforms would make the Philippines more competitive as an investment destination for power-intensive manufacturing business. But more than that, the JCPC review would check into the “social benefits” of the Filipino consumers from these laws in terms of lower electric prices to both households and industrial users. 

For his part, Cusi assured the public the DOE has undertaken steps to further develop other sources of energy, including the use of nuclear energy now being studied by experts hired by government. Cusi clarified, however, the review is not limited to the mothballed 620-megawatt (MW) Bataan nuclear power plant (BNPP) in Morong.

We share Cusi’s view that competition will further spur growth as it will help bring the prices of electricity down. When the economy grows, the demand for power increases exponentially. What power generators and suppliers give up by way of rates, they gain in terms of volume demand.

Some of the world’s biggest economies apparently share this view. India, for example, is aggressively pushing for competition in retail power supply. The United Kingdom, meanwhile, continues to ensure that its wholesale and retail electricity markets remain competitive despite controversies involving some of its biggest players.

Despite controversies facing the Energy Regulatory Commission (ERC), it appears the power sector remains optimistic that current reforms will continue to gain ground. It looks like the sector will still end 2016 on a high note. The unprecedented good working relationship between the DoE and ERC has helped a lot in the bid to get the industry to support mandated reforms.

Unfortunately for ERC, President Duterte announced last Monday he “fired” all the commissioners, including their chairman Jose Vicente Salazar over corruption allegations based on the suicide of ex-ERC director Francisco Villa Jr.

There was initial resistance among industry players to the idea of a Competitive Supply Procurement (CSP) system when this was first implemented in our country. It will be recalled that under this system, distribution utilities are obliged to solicit bids for their power requirements. The system prevents distributors from favoring power generators who are affiliated to them. These affiliates have been relegated to the category of suppliers of last resort. This way, “sweetheart deals” become next to impossible. This assures consumers that the electricity they buy from distributors was purchased at the least possible cost.

A controversial feature of the Retail Competition and Open Access (RCOA) is the requirement for large distributors to register a retail electricity supplier (RES) affiliate. With the Manila Electric Company (Meralco) throwing its support to this move with the application for license of its RES affiliate a few days ago, it looks like most if not the whole of the industry is now backing the reform.

The RCOA is another policy which was met with resistance initially. The aim is similar to that of the CSP. Here, power generators and distributors vie to supply the requirements of large electricity consumers part of what is called the “contestable market.”

Cusi also wants not just players, but also technologies to compete. He questioned anew the practice of putting a cap on what certain power generating technologies can contribute to the grid. He pointed out this policy does not favor the interest of consumers who want a reliable power supply at the most affordable cost.

This is because some energy technologies like power plants run by RE sources are definitely more expensive than others.

The advent of stronger competition both for business and in the area of generation technology is challenging industry players to bring out their best. Investments are expected to continue to pour into the sector as Cusi announced his stand that competition should also apply to the generation technologies.

The biggest winner remains to be the ordinary Filipino consumers who deserve the assurance that we can continue to afford the price of electricity and that it is reliably supplied to us.