A couple of weeks ago, the government's Ombudsman suspended the country's chief power regulator for allegedly delaying some tariff-setting procedures.
I don't know where the SCMP obtained its data, but that increase is plausible, especially for the "captive" customer sector. These are customers whose consumption is below 500 kW.
Power rates disparity
As of March 2024, the prices for contestable customers (greater than 500kw demand) ranged from as low as P3.74/kwh to as high as P8.00/kwh, with the median between P5.00-P6.00/kwh.
The reported increase in power rates must then be in the captive market - households and small and medium-sized (SMEs). Unfortunately, these consumers bear the brunt of increased power rates, a disparity that not only raises questions about the fairness of the current system but also highlights its inherent injustice.
If these consumers are supposed to be protected by a regulatory framework, why are their rates higher than contestable customers?
Producing electricity for the captive market is the same as producing electricity for the contestable customers. There is some additional cost for power transformation for households, but this cannot be a significant difference.
Financing, transmission line rentals
However, unlike the contestable customers, generators face a significantly higher regulatory risk. This risk, which includes passing through the Competitive Selection Process (CSP) prescribed by the Department of Energy (DOE) and Energy Regulatory Commission (ERC) and the ERC approval process for the winning bid, leads to a premium added to the generation cost. This imbalance in regulatory risk versus the contestable customer system results in higher prices for ordinary consumers and SMEs, highlighting the need for a drastic solution.
There are a myriad of other reasons why power rates are high in the Philippines. Among these are the need for a deeper financial market and the cost of line rentals due to congestion in the transmission lines.
Philippine banks must find ways to extend the maturities of non-recourse financing it allows power plant generators.
The cost of the line rentals brought about by congestion in the transmission lines has also contributed to the high power rates. These line rentals can cost consumers an additional P2.00/kwh to P4.00/kwh. These issues are further explored in another column.
Regulations jack up rates
What is clear is that large consumers classified as contestable customers get better power rates than household consumers and SMEs regulated by the ERC. The logic is simple: regulation increases power rates.
The solution is crystal clear: Include households and SMEs in the contestable market. The competition will bring down power rates. The WESM will have enough market competition among buyers to balance the competition between generators.
Efforts should also be made to reduce lifeline rates and missionary electrification subsidies.
Let's get this done.
A power industry expert with over 40 years in experience as chief executive officer in firms ranging from banking, power, and advisory services.
