1 week Ago By Den Somera
window.rapplerAds.displayAd( "middle-1" );window.
rapplerAds.displayAd( "mobile-middle-1" );The Electric Power Industry Reform Act of 2001 or EPIRA is the restructuring law of the power sector. Its main goal was “to ensure a more reliable, affordable, sustainable and transparent electricity supply in the country.
” Yet, almost 24 years to this day, the consuming public continues to face an uncertain fate with the National Grid Corporation of the Philippines (NGCP) on more rate increases and power supply instability. Again, this ugly face of the power sector’s privatization reared itself last week after the Energy Regulatory Commission (ERC) announced that NGCP has been allowed to collect P28.29 billion in additional transmission charges.
The decision came after the completion of the ERC’s deliberations on the 4th Regulatory Period Rate Reset of the NGCP covering the years 2016 to 2022, which included the latter’s petition to collect “claimed under-recoveries” during the period. The decision was also reached after three of the five commissioners of the ERC, namely Alexis Lumbatan, Floresinda Baldo-Digal and Marko Romeo Fuentes, okayed the maximum allowable revenue (MAR) of P335.78 billion for NGCP from 2016 to 2022 using the “As Spent” approach and adopting a weighted average cost of capital of 11.
33%. ERC Chairperson and CEO Monalisa Dimalanta and Commissioner Catherine Maceda dissented from the majority’s decision.On average, the decision will translate into an additional P0.
1013 per kilowatt-hour (kWh) per month in transmission charges that will be collected for 84 months from issuance of the decision. The breakdown of the P0.1013 per kilowatt-hour transmission charges is composed of the P0.
0629/kwh average increase in transmission charge and an additional P0.0384/kwh corresponding to the under-recovered portion of the increased NGCP’s MAR.As a rule, the term “Regulatory Period” refers to the periodic review and adjustment of the transmission rates that NGCP is allowed to charge for operating the power grid.
This is conducted by the ERC. MAR is the maximum amount of revenue that NGCP is allowed to collect annually from transmission charges, while “Rate Reset” is about the comprehensive review of NGCP’s past performance, its operational and capital expenditures, and its projected investments for the upcoming regulatory period.Must Read [ANALYSIS] Maharlika invests in Synergy Grid.
Is this good for small investors, too? Deregulation challenges While deregulation of power transmission operation has been generally regarded as a “sound strategy to increase efficiency, attract investment, and improve services,” I have yet to see these things to actually happen. From my experience, the performance of the NGCP continues to disappoint. It has actually brought results that are far from the claimed benefits envisioned by the EPIRA.
window.rapplerAds.displayAd( "middle-2" );window.
rapplerAds.displayAd( "mobile-middle-2" );Come to think of it, the fault may not even lie in NGCP or if at all, it is because of the fact that NGCP had more excuses than results to show in actually responding to the consuming public’s continuing complaints against power outages and low power supply. Moreover, there are observed inherent fallacies and persistent criticisms attributed to hound the privatization school of thought like the Washington consensus promoted in developing countries during the 1980s and 1990s.
For instance, private operators have sometimes prioritized profit over public interest potentially leading to higher tariffs and deteriorating infrastructure that, in turn, have resulted in widespread blackouts and price spikes. Likewise, the temptation from private operators to minimize costs over necessary investments in maintenance and upgrades have also led to underinvestment in grid modernization, expansion to underserved areas, and resilience against extreme weather events. If unchecked, these temptations can compromise the long-term reliability and adequacy of the grid, as in what seems to be happening in the country today.
This profit-driven motivations have led to the further neglect of rural or low-income areas where returns on investment are lower, exacerbating energy inequality. Invariably, there have been a rise in financial instability to some private operators that affected their efficiency against the backdrop of rising energy prices. This situation has also led to grid vulnerabilities leading to multiple power outages.
As such, profit-driven models are like double blade swords. They have incentivized cost-cutting measures or led to financial instability to private operators that in the end compromised grid resilience. Electricity transmission also inherently functions as a natural monopoly.
It is economically inefficient to build multiple parallel transmission networks. This leads to the absence of competition, rendering the private operator to possess significant market power. This brings about additional issues.
As a result, private operators could actually throw a monkey wrench to regulatory processes. Our experience with NGCP is replete with instances of this kind of situations in the past.Owing also to the large investment risks at stake, private operators are prone to exert undue influence especially to regulators whose positions are determined through political considerations rather than by a career of clean and proven track records.
The organizational composition of the regulatory body is also a matter of concern. If it is composed of a few staff with relatively little expertise, armed with scarce resources to regulate, and managed by a decision-making body that possibly has only one or two professionally trained expert in the effective regulation of a private monopoly in electricity transmission such as the NGCP, there is trouble. So, the practice of this public policy comes with it problems that have led to weaker enforcement of public interest obligations, like what critics of NGCP swear is happening and continue to claim is happening since the deregulation of our power sector.
Must Read [Vantage Point] Maharlika in NGCP: Potential risks and uncertainties window.rapplerAds.displayAd( "middle-3" );window.
rapplerAds.displayAd( "mobile-middle-3" );Urgent issues to be addressed The privatization of grid operations has offered potential benefits, too. But as you can see, it is not a universally applicable solution.
It carries significant risks. The fallacy lies in the assumption that private ownership inherently leads to better outcomes without considering the unique characteristics of this essential infrastructure and the critical role of effective regulation in safeguarding the public interest. Not just that, the power grid is a critical national infrastructure.
Its private ownership or even its operation only could raise concerns that impact on questions about national security, potential foreign influence, and the responsiveness of the grid operator during emergencies. Early this year, lawmakers were alarmed to find out potential threats on national security posed by NGCP’s heavy reliance on Chinese technology in the operation of the grid and equally alarmed with the limited oversight powers the Philippine government over the facilities. They were especially alarmed over NGCP’s use of the SCADA (Supervisory Control and Data Acquisition) system supplied by the NARI Group Corporation, a Chinese IT infrastructure provider (the manual and signages of which, according to news reports, are written in Chinese characters and noticeably without English translation).
What make it worse is that the SCADA system had been accessed remotely on two occasions by the IT infrastructure provider, so that the legitimacy over the dominant role and ownership presence of the Chinese government in NGCP is not just a figment of the mind but of real concern, not to mention our present predicament at the West Philippine Sea. More imminently alarming are the stipulations wherein the ERC and related government entities are confined to exercise their oversight regulatory powers over the operation of NGCP. The National Transmission Commission or TransCo is the owner of the grid infrastructure while NGCP is only the appointed operator.
Yet, the TransCo is barred from inspecting NGCP’s operations. “This is only found in the Philippines!” as “Jologs” would describe the situation.Next is the use of the “as spent” approach in calculating NGCP’s maximum annual revenue (MAR).
NGCP is allowed to recover capex expenses once incurred, regardless of whether the projects are commissioned or operational. This practice has particularly contributed to rising transmission rates and compromised grid performance. NGCP was reported last January to have completed only 29% of its planned projects.
This covered 75 projects that has been completed wherein only 10 percent of its submitted CAPEX has been actually spent. Through the “as spent” approach, all of NGCP’s capital expenditures (CAPEX) for its planned 258 projects were included in the calculation. There should be a more judicious rate-setting practice to be used.
One that will only include completed and efficient projects.These are but a few of the existing criticisms that continue to challenge the present arrangements of the government with NGCP, all because of the absence of a more equitable and progressive regulatory framework that will offer financial viability to the private operator while ensuring affordable and reliable electricity for the consuming public. – Rappler.
com(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the writer at densomera@yahoo.
com) Must Read [In This Economy] Scrutinizing Maharlika’s maiden investments in power transmission, mining.
