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Lower power rates still an elusive dream

High power rates, the bane of local and foreign investors in the Philippines, remain a deterrent to a more robust economic growth. They clearly raise production cost and ultimately force potential investors to go somewhere else where rates are much cheaper.

Energy regulators in the Philippines are trying to address the issue, which has long been the complaint of foreign investors. But the Energy Department and the Energy Regulatory Commission appeared to have started on the wrong foot when they issued the first draft of the implementing guidelines on the controversial competitive selection process, or CSP.

The CSP is essentially a method where electric cooperatives and distribution utilities secure their power supply agreements through a bidding process among participating generation companies, or gencos.

It is different from bilateral contracts where the ECs and DUs are allowed to look for and negotiate directly with gencos of their choice to get the most optimal deal they could from potential electricity suppliers.

The government’s version of the CSP, however, will ironically lead to higher rates for consumers. Consumer and advocacy group CitizenWatch noted that while gencos might offer the least bid, it did not necessarily mean it was the lowest cost possible.

The process actually favors gencos that will still offer relatively higher electricity rates. Such was result of the bidding for the demand/load of the Central Luzon Electric Cooperative Association-First Luzon Aggregation Group. The winning bid in the CSP was apparently not the least cost. The losing bidders, informed that the contract between CLECA-FLAG and the winning party has yet to be filed before the ERC, went back to negotiate and offer lower power rates.

The CSP’s design, as drawn up by the the ERC and the Energy Department, limits the ability of cooperatives and distribution utilities to choose their power supplier. They are left with just one mode of securing their power requirements as negotiated contracts will no longer be allowed.

Moreover, they will not be able to further negotiate submitted or winning bids and have no influence over the rates offered by the gencos.

No real competition

The CSP actually kills competition that normally leads to lower electricity rates. ECs and DUs are all mandated to follow the CSP policy but gencos are not. With gencos not obliged to join the process, competition is decreased.

The few participating gencos, meanwhile, can dictate the contract provisions and collectively set the floor price for bidding prices.

“There is a possibility of collusion among gencos to tighten supply and raise power prices,”  CitizenWatch said. The consumer watchdog has asked regulators to suspend CSP following a failure in a previous bidding process.

“The DoE circular is barking at the wrong tree,” CitizenWatch secretary general Wilford Wong quoted policy expert Nonoy Oplas as saying.

“By making the competitive bidding mandatory rather than voluntary, it will invite or create more problems than what it intends to solve. The DoE and other government agencies should instead address other factors that make electricity expensive, including prohibitive taxation and several layers of permits that leave room for corruption and extortion,” he said.

CitizenWatch also questioned circular’s endorsement of an Energy-approved independent arbiter to administer the bidding process.

“Electricity is considered a basic need of every person and passing the duty of our regulators—which have evaluated supply contracts for years now—to someone who is not competent enough to determine what is best or not for the consumers, is dangerous and will be subject to abuse,” Wong said.

CitizenWatch said it would push for the suspension of the circular, which it described as “ambiguous.” “It is not indicative that a winning bidder to supply power to DUs is indeed the lowest bid as what happened in CLECA.  DoE’s plan to implement CSP might be prejudicial to consumers,” the group added. 

ERC chairman Jose Vicente Salazar has promised to conduct consultations with stakeholders by the middle to the third week of October. The official said the ERC wants to have a decision by that time.

“So either we go on with the CSP or set that aside. We have to consider the position of all concerned parties,” he said.


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