How Much Reduction in Power Cost do we need?

By David Celestra Tan

12 August 2014

Everyone agrees that the power cost in the country is so high. We know it is painful in the pocket every month. We know it takes away hard earned pesos that otherwise could be spent on food, medicine, education. We also know that the Philippines has the highest power costs in Asia and that we are not industrially competitive because of it.

There is a national clamor for reducing power costs. Yes, but by how much? Would P1 per kwh reduction be enough? Would a P2 per kwh reduction good enough to make us industrially competitive against our Asian neighbors?

At the Department of Energy’s Multi-Sectoral Task Force to Find Ways to Reduce Prices of Electricity, the Philippine Independent Power Producers Assn (PIPPA) presented their own views on how much it should be reduced to be competitive against other Asian countries. They said it is about 20% or P1.75 per kwh. The macro-analysis was done by Engr Chrys F. Herrera one of the best Filipino utility economists and a high official of American IPP, AES Corp. that owns the 460mw Masinloc Coal Power Plant. Chrys at a young age was a vice-president for Finance of Napocor. Chrys and I worked together in the small IPP, Edison Global Electric in the early 1990’s after he left Napocor. Chrys is one of the Filipino pioneers in the IPP industry, having been tasked with finalizing the first BOT project of Napocor with Hopewell. I got my first education on BOT power generation from him. I have not talked to Chrys for a long time since he joined AES. I ran into him at the PCCI power committee meetings about a year ago.

The macro-analysis was quite impressive and I got goose bumps when his presentation at the Task Force came up with P1.75 per kwh target reduction which was uncannily in the same ballpark as the P2.00 our advocacy group, Matuwid na Singil sa Kuryente Consumer Alliance Inc initially presented in writing to the Task Force just days before.

Before you dirty minds get any ideas, the target number is as far as the similarities go between Chrys Herreras analysis for PIPPA and my analysis for MSK.

Chrys tried to answer the question “How much should our power cost be reduced?”. My analysis for MSK sought to answer the question “How much CAN our power cost be reduced?”. Different take-off point, Different methodology.

I have since revised my estimate of achievable power cost reduction to P3.00 per kwh.

PIPPA is supposing that of the P1.75 per kwh reduction, a total of 1.60 can actually come from various government sacrifices like giving up VAT, revenue on natural gas, and more BOI incentives. Only P0.10 will come from reduction in average generation rate! (Pilyo ka Chrys!). This has been the line of First Gen’s Ernie Pantangco for many years.

MSK’s position is, of our proposed target of P3.00 per kwh power cost reduction, fully half or P1.50 per kwh can come from the reduction of Meralco’s average generation rate from the current P5.50 per kwh range to P4.00. This will be by the introduction of true competition for bilateral contracts and changes in the WESM trading rules. The rest of the P3.00 per kwh reduction can come from various rate setting methodologies and the curbing of system abuses as detailed in MSK’s 10 point recommendations to the Task Force. We will detail the basis for our calculations once MSK gets its chance to present its recommendations.

His detractors can say whatever they want about DOE Secretary Carlos Jericho Petilla, I believe there is a daredevil quality about him that makes him put his guts on the line for what he believes in. (We just wish he doesn’t offer to resign from his job too often when something important is not achieved. In the power sector, getting things done in the time frame he wants is not totally under his control.)

Is the Jericho in him willing though to take on a P3.00 per kwh power cost reduction target? That is actually a meaningful target and an achievable dream. Can he get President Pnoy to buy-in to this national competitiveness goal?

How about it Secretary Petilla? The nation is holding its breathe.

(Hey Chrys, buy me coffee sometime!)

David Celestra Tan

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

(For Love of God and Country!)