Summer power shock: Consumers ‘stress test’ on rate hikes, brownouts

By Myrna M. Velasco – March 9, 2023, 3:09 PM
from Manila Bulletin

SPECIAL REPORT

This isn’t a plot on a horror show – but can anyone imagine the ‘fear factor’ and dread engulfing a consumer when electric bills that are worth a king’s ransom will arrive?

And just when you’re thinking things couldn’t get any worse, on the flipside, you are also warned to brace for tight supply – or even probabilities of rotational blackouts (uniquely known as brownouts to Filipinos) when supply gets extremely strained.

That is exactly the scenario that will torment Filipino consumers within this year’s stretch of summer months from March to July – especially for those who are in the Luzon grid. To label such predicament as ‘double whammy’ is an understatement. Explicitly, that is an ‘act of terror’ of a different kind in the socio-economic realm.

The government has been aiming for a post-pandemic recovery that will make the country competitive economically with its Asian neighbors, but without the policymakers and regulators addressing the very basic issues of power supply and affordable electricity rates, that goal may just end up in the dumps.

Having reasonably-priced electricity rates and solving the country’s power supply predicaments had been among the major policy promises of the current administration, but are the energy officials at the Department of Energy (DOE) and Energy Regulatory Commission (ERC) delivering toward concretizing that targeted covenant of the government with the Filipino people?

The pain and mess of energy-starved economy

Just recently, system operator National Grid Corporation of the Philippines (NGCP) raised alarm bells “of thin power supply this summer due to higher demand in 2023.” With the economy rebounding from the mare’s nest of the coronavirus pandemic, the DOE itself has projected peak demand reaching 13,125 megawatts (MW) this year – a leap of 8.35-percent or 1,1012MW climb from last year’s 12,113MW.

Suffice it to say that the forecasted demand growth is higher than the compounded annual growth rate (CAGR) of 5 to 6-percent being mapped out in the government-cast energy planning.

Even the DOE, on its own pronouncements to the media, had admitted that there will be roughly dozen instances of ‘yellow alerts’- or insufficiency of reserves in the power system – and that may be experienced in the Luzon grid from March to November this year. The department is not anticipating the occurrence of rotational blackouts – at least not yet – although it calculatedly stated that if the power plants’ habitual delinquency of forced outages will recur, then service interruptions will not be far-fetched. Very often, it’s the ‘usual suspects’ that have their power plants breaking down – and most of the time simultaneously.

The alarming scenario here is that: the grid in distress is Luzon – and this is the country’s main economic center. What does that entail for the residential consumers and businesses? If the “worst case scenario” of blackouts will hit, that’s like punching us direct into the gut and will be leaving us cursing in the pitch-black, while the economy stumbles. And apart from disruption of electricity services, the other naturally-occurring consequence would be sky-high electricity rates.

Are tangible solutions available on that twin dilemma? Far from being there at this point – instead, what’s being laid on the table are band-aid measures, such as reactivating the interruptible load program (ILP) for those with self-generating assets when supply runs tight in the grid; while for rate reduction, the latest step taken by the ERC was to temporarily enforce six-month suspension of the P0.0364 per kilowatt hour (kWh) feed-in-tariff allowance (FIT-All) cost item in the electric bills. Perceptively, that is not enough and also far from being a concrete solution to the consumers’ bid for rates that will be affordable on their wallets and paychecks.

Energy Secretary Raphael P.M. Lotilla also advanced an appeal for the consumers to embrace energy efficiency and conservation as part of their lifestyle changes – but even shift to energy efficient-gadgets and appliances have upfront costs that would not come easy to families that are already struggling just to put food on the table amid rising costs of all basic commodities.

For other consumers, EE&C as a strategy will definitely be an acceptable precept to help stave off demand in the grid. However, the bigger question is: what are the tangible actions being done by government to solve short-term power supply woes? Frankly, it is not comforting to see the energy officials swaggering on their ‘overseas field trips’ purportedly to explore long-term solutions for the country’s energy security goals.

First things first: what part of “domestic problem” and “how do we survive summer months in the country” cannot be understood – at least for them to be initially grounded at home and fix first the short-term predicaments of the country’s power supply and expensive rates? Because once that is fixed, the quandary of high power rates may also be solved if power supply would no longer be at its wobbly state. Several investors are already complaining that if they will reach out to the DOE, some of the top officials are not easily accessible because they are overseas for those ‘dam beautiful’ or ‘wind-swept’ study tours. So what about a moratorium on these offshore expeditions until the short-term solutions are in place, then travel all you can when the country is already at its pace of exploring the medium- to long-term solutions?

On the country’s energy transition agenda, the preferred investment influx will be renewable energy – and that is entirely understandable given the world’s conundrum on climate change risks. Nevertheless, given the intermittency of the emerging RE technologies and while battery systems aren’t at commercially mature phase yet for longer duration of energy storage, what are the short-term baseload solutions being pursued to address the critical post-Covid economic recovery needs of the country?

Through the years, the failure and negligence of policymakers to anticipate and address the fragility of the country’s need for adequate and apt infrastructure to address power supply – including those on incentives’ availment and physical availability to listen to the plea of investors – have brought us to the state of energy crisis that we are in now. The nagging question is: will the energy officials of the Marcos administration willing to make a difference?

Falling for the ‘sweet seduction’ of low cost

This year’s income reporting season has been showing many of the energy companies posting record-high profits – compare that to the struggle of consumers who are already squeezing blood from stone given the pinch of incessantly rising electric bills.

Residential end-users in off-grid domains and many on-grid regional areas are primarily complaining of soaring power rates ranging from P12 to P24 per kWh; but a simple look at the electric bills will also reveal that even consumers in urban centers are confronted with the same mess.

As could be gleaned from billed rates of private utilities this January 2023, the overall tariff paid by residential customers in Cebu served by the Visayan Electric Company (VECO) was at P16.08 per kWh; MORE Electric and Power Corporation in Iloilo had been at P13.306 per kWh; Davao Light & Power Co. (DLPC) at P12.447 per kWh; Iligan Light & Power Inc. (ILPI) was at P11.78 per kWh; while residential end-users in Metro Manila and nearby provinces served by Manila Electric Company (Meralco) paid P10.9 per kWh.

Circling back to this administration’s pledge of lower rates, the direction leading to that is still sketchy and highly debatable at this point, hence, the ERC is prodded to lay down concrete rules and regulations to achieve that.

ERC Chairperson Monalisa C. Dimalanta had given word on an updated rate setting on the transmission rate component in the bills, that way, electric bills can start going down early part of this year – but that promise has yet to be delivered.

And in the series of caravans undertaken by the regulatory body in various parts of the country, the ERC officials also guaranteed review of the power supply agreements (PSAs) so they can find ways to bring down generation charge or even the distribution rates of the power firms – but the specific strategies to achieve that are not also clear so far.

The ERC just plainly stated that it will “explore feasible immediate measures to ease the burden of electricity consumers who will have to set aside additional funds to pay for their higher electric bills due to increase in generation charge.” To note, generation charge – which goes to the power suppliers – accounts for the biggest cost component (at 60 to 65-percent) being passed on to end-users in their monthly electric bills.

Some generation companies (GenCos) would often shoot the messenger if they dislike the message that their PSA charges are expensive, costly or exorbitant. To be forthright about it, there are different shades of truth and these are: what the generation companies will claim as cost-competitive supply; the distribution firms upholding a regulatory-approved charges; while for the consumers, there is only one truth that they know and will hope for: what is affordable in their pockets.

The mechanism for ‘low cost supply’ that power utilities would heed on underwriting PSAs is via the competitive selection process (CSP), or the bidding of power capacity that shall be underpinned by power supply contracts.

Lately, however, that edict had been seen muddled to some extent, not just because of the war-induced surge in prices of fuel (coal, gas and oil) in the world market that practically knocked down the lower fixed-priced contracts (even in the retail competition and open access or RCOA space for big-ticket consumers); but even the DOE-exempt emergency power supply procurements had not really been yielding lower rates.

The allure of ‘affordable power rates’ was dangled to consumers since the passage of the Electric Power Industry Reform Act in 2001. But more than two decades after, Filipino consumers are still stuck with the basic problem of supply and high rates of many utilities; while most energy markets are now focusing on technological innovations and service improvements. Le sigh, when will our distressing summer months be actually ending?