Power Gridlock
Unless the government resolves its priorities, the country will be staring at a power crisis – again
By Delma L. Peyra

The Electric Power Industry Reform Act (EPIRA) of 2001 – a landmark law that was six years in the making – aims to establish an open and competitive power sector, where supply and demand of electricity flows efficiently in smooth traffic – from power producers to consumers, and even vice-versa. Alas, this flow of power that was envisioned by EPIRA two years after its passage is getting blocked early on by conflicting priorities: “to lower the price of electricity or ensure the supply of electricity” as posed by the National Transmission Commission (Transco) President Alan Ortiz.

What is the consequence of this policy impasse? A scenario that not many expect could happen again – a country plagued by day-long blackouts, plunging the nation literally and figuratively – in darkness, as what happened in the early 90s.

What’s definitely apparent now is that the country’s electricity needs are running ahead of the country’s power capacity – with the Department of Energy (DOE) estimating electricity demand to grow at 7.4% annually. In the first half of 2003, Napocor’s power sales rose six percent to 16,205,870 megawatthours (MWh) year-on-year – with the Visayas region leading the growth at 11%, followed by Mindanao at ten percent and Luzon at four percent. Meralco, which accounts for at least three-fourths of electricity sales in Luzon, recorded 5.8% growth in the first semester as compared to the same period last year.

As it is, the country’s installed power capacity stands at 14,702MW, 12% of which is unreliable. Based on DOE’s demand forecasts, some 7,000MW or more of additional capacity is needed by the country in the next ten years. It should be easy for the Philippines to lick this problem as it was able to do so under President Fidel Ramos, when independent power producers (IPPs) came in to add to the government’s lack in generating power.

But the imperative to satisfy short-term political needs by setting a low rate regime is sending the wrong signals to investors, the same people the government is trying to entice to put up power plants or add transmission lines to the country’s power grid. While provisions in the EPIRA law towards setting a transparent power pricing regime are pushing through (the unbundling or itemization of rates has been accomplished), the government through the Energy Regulatory Commission has set a policy of low power rates. This is to appease the public which may find the immediate effect of the unbundling — higher power rates — unpalatable.

A case in point: the state-owned National Power Corporation (Napocor) — trying to dig itself from a debt quagmire from years of operating inefficiently — has locked horns with the Energy Regulatory Commission over (ERC) what Napocor calls the setting of generation rates at “inordinately low levels” that doesn’t reflect the true and reasonable costs of electricity. Low Napocor rates was the cause of a crisis that threatened to plunge Cebu in darkness more than three months ago — when the Cebu Private Power Corporation, an IPP, threatened to shut down its 70-megawatt power plant.

With the current Napocor rates, Cebu Private will be selling its power below cost to its distribution company, Visayan Electric Company (VECO) under their 15-year supply contract which pegs Cebu Private’s rate two percent below the rate charged by Napocor. In Luzon, at least two IPPs — Covanta and East Asia Power — have shut down for the same reason. Napocor due to the unbundling ruling has lost P4 billion in the last nine months.

If existing independent power producers find it difficult to operate under the regulatory regime, it’ll be doubly difficult for the country to attract investors to put the needed power capacity (it takes at least three years to build a power plant). The immediate imperative of politics drives the government to shield the public from high power rates, which in fact, are a result of years of Napocor’s inefficient operations. But according to Energy Secretary Vince Perez, “the most expensive electricity is no electricity at all.” In the meantime, the clock is ticking and darkness may engulf the country once again.