Electricity rate hike, competition and bureacratism: Reviewing energy supply and

demand in the Philippines

Bienvenido “Nonoy” Oplas Jr.

Presentation at the University of San Carlos (USC) Main Campus, Cebu City

15 March 2014

Outline

I. Review: recent Luzon power rate hike

II. Luzon power supply-demand

III. Visayas Mindanao supply-demand

IV. Natural Gas challenge

V. Conclusions

I. Recent Luzon power rate hike

2014 P/kWh

10.0610 5.3708

* Ave. price 2013 lower\/cheaper than in 2012 by P0.236/kWh

* Generation charge rate hikes last Dec. 2013 (P4.56/kwh) and Jan. 2014 (P3.44/kwh)

Main cause: Use of expensive diesel to run previously nat gas-running power plants in Batangas, purchase from oil-fired power plants, to prevent brown outs last December.

II. Luzon power supply-demand

III. Visayas Mindanao suppoly-demand

Source: Sec. Carlos Petilla, “Draft Supply-Demand Outlook, 2013-2020”, MAP Breakfast Dialogue, August 02, 2013

Mindanao, Almost Daily “Earth Hour”

Legislators and politicians of Mindanao have “opted out of EPIRA” and objected privatization of many NPC power plants there.

Dependable Capacity (as of May 2013)

• Clockwise, from right: Luzon, Visayas, Mindanao

• As of 2013, Luzon dependence on coal is 37.2%, on natural gas 24.3%, and on hydro 18.9%.

• Visayas is dependent on coal and geothermal, 73.7% of total.

• Mindanao is dependent on hydro 51.2% and oil-based 29.1%

EPIRA Achievements 1. Expanded competition among more generating companies

(gencos). From less than a handful, now over a dozen players.

2. Privatized Power Sector Assets and Liabilities Management Corp. (PSALM) assets. Transmission now under a regulated private company. Removed public debt burden and contingent macroeconomic risks.

3. Established WESM/PEMC (Wholesale Electricity Spot Market/ Philippine Electricity Market Corp.), now a fully functioning trading platform.

4. Introduced Open access, expanded a competitive market. Threshold now of 1 MW and above represents around a quarter of the Meralco and Visayan Electric Co. (Cebu area) service area total demand. To jump 40% once the threshold is brought down to 0.75 MW.

IV. Natural gas challenge for the PH

Pathetic figure for the PH in terms of natural gas research and exploration

The 3 power plants in Batangas relying on Malampaya gas to power project (MGPP)

IV. Concluding Notes

1. Power rate hike immediate cause was overlapping maintenance or scheduled shutdown + forced or unscheduled shutdown. DUs bought from expensive oil plants to prevent brownouts.

2. High electricity rates largely due to high government taxes, fees and royalties. Thailand, Indonesia, Malaysia governments do not impose royalties for their oil and natural gas resources. PH government charges about P1.46/kwh nat gas royalties.

3. WESM works. The spot market is real, not a farce or rigged. It has supplied uncontracted or excess demand by DUs and uncontracted excess supply by power generators.

4. EPIRA works, ended NPC monopoly, now more wholesale and retail competition

5. To lower electricity prices in this country:

a. Have more power plants, have more competition among gencos, especially nat gas plants.

b. To encourage more gencos and players, government bureaucracy, permits and regulations should shrink and decline.

c. Reduce taxes, fees, royalties on oil and natural gas. Better yet, abolish royalties.

d. Lower further the threshold of Open Access. Electricity consumers can choose their own power suppliers; small but many power suppliers/generators can compete for end users/consumers, by-pass distribution utilities (Dus)