ExciseTax on Coal Not As Damaging to Consumers as Apathetic Implementation of True CSP Policy

David Celestra Tan, MSK
10 December 2017

Our comrades in the Pro Consumer Advocacy movement have asked why MSK is not among the protesters against the proposed tax on coal.  Well, the reason is in our view it would be Looking Up the Wrong Alley, Barking Up the Wrong Tree.

We must all prioritize our battles.  The largest damaging to consumers first.

An energy writer quoted power industry players saying that higher coal excise taxes will hurt Philippine competitiveness. The writer went on and said that these “missteps and myopic view on policymaking may just prove more damaging for the entire country”. (heavy words!) Quoted in various papers lining up against  tax on coal are DMCI’s Semirara and Meralco.

This quote from Meralco is a gem. “consumers in its franchise area have enjoyed some of the largest tariff reductions worldwide due to substantial reductions in the generation charge, as well as distribution charge and system loss charge, thus raising the excise tax on coal may take away gains from the country’s increased competitiveness”.  Very glib!

Just for the record, the drop in Meralco’s generation rates were results of the opportune drop in world fuel prices in the last three years for coal and LNG. It was not a result of any Meralco do-good programs. The reduction in systems loss is largely a result of the drop in these generation rates. The reduction in Meralco’s distribution charge was a result of the expiration of its authority to charge extra to recover in the 3rd regulatory reset period an underrecovery in the 2nd regulatory period. It is not accurate for Meralco to claim credit for these “gains” that will be taken away if an excise tax is imposed on coal.

The Department of Energy estimated that the overall increase in the electricity rate to the consumers of the proposed tax on coal that fuel many of our power plants, and 100% of the negotiated power plants between Meralco and Meralco PowerGen, will be from 0.05 to 0.09 per kwh.  Given that the consumers in the Meralco area are already overcharged by as much as 1.50 per kwh, any addition can be viewed as unbearable.  And we guess you can say it is worth going to war over.

That potential increase in rate of coal generated power however is only 3% to 6% of the estimated damage to consumers of the apathetic implementation of the Competitive Selection Process (CSP) and the anomalous PBR rate setting methodology.  If the generation market is opened to true competitive bidding the generation rate could be lower by 0.30 to 0.70 per kwh than what Meralco negotiated. The so called performance based rate setting methodology is also adding about 0.50 to 0.65 per kwh to Meralcos distribution charges.  Compared to the total of P1.15 per kwh of these two, the P0.09 per kwh tax on coal will not be as damaging.

The tax on coal will go to the national coffers and used for public services. It is part of the governments Tax Reform for Acceleration and Inclusion (TRAIN) intended to raise revenue for the government. The overcharges on Meralco rates on the otherhand would go to the pockets of its stockholders, part of how they make an unconscionable 25% return on equity AFTER tax.

The tax on coal will also partially penalize the dirty polluters of the planet, a kind of reparation for damaging the environment.

We can understand the Consunji’s of DMCI campaigning against the measure because it will reduce the gargantuan profits they will make on their Semirara coal. Meralco also needs to protect against increased costs of using coal because they just signed 4,000mw of coal projects with various generating companies controlled by its sister company Meralco PowerGen.  The excise tax will increase generation rates using coal by only P0.09 per kwh.

The same companies who grouped together to effectively form a Meralco cartel in power generation are not waving the flag for consumers when they negotiated among themselves these 4,000mw of power supply without benefit of true competition that would have reduced the price to consumers by P0.30 to P0.75 per kwh.

We hope that the Congress will pass this tax on coal into law with a rider that the Department of Energy and the ERC immediately implement resolutely the Competitive Selection Process policy as a way to mitigate the impact of the tax on the consumers.

The tax on coal will not be as damaging to consumers as the ERC’s apathy towards implementing the CSP. That’s P 0.09 vs P1.15!  Is there a need to say more?

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

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