Calls to investigate system losses have put one of the most controversial charges on electricity bills back under the spotlight.
But Nicky Franco, research head at Abacus Securities, argues the debate has focused on the wrong target, saying meaningful reductions in power prices will require sweeping reforms across the entire electricity.
He reshared on Tuesday a blog post he penned last May, saying Meralco’s roughly 5 percent system loss is broadly in line with many developed markets, citing losses of about 4 to 5 percent in France and Norway, 5 to 6 percent in Sweden and Italy, 6 to 7 percent in Spain and around 7 percent in the United Kingdom.
He likened system losses to the 5-10 percent that restaurants price in to account for food spoilage, overproduction and kitchen waste.
“Maybe the price of electricity feels more visceral but across most if not all unsubsidized electricity markets around the world, systems losses are an accepted component of monthly bills,” Franco, who has consistently championed lower rates, wrote in the post.
Nicky Franco
Abacus Securities research head
Franco also said subsidies account for just over 3 percent of consumers’ bills and deliver broader social benefits, making them unlikely to materially reduce electricity costs even if removed.
Instead, he outlined six reforms that he believes would have a much bigger impact on consumers over the long term.
- Require Meralco to disclose its distribution returns. Franco said the Energy Regulatory Commission should require Meralco to disclose the return on equity of its regulated distribution business before approving future rate petitions.
- End the Santa Rita interim supply agreement. Franco said the ERC should not renew the interim contract covering First Gen Corp.’s 1,000-megawatt Santa Rita plant, arguing Meralco no longer needs the additional capacity and consumers should not have to pay for excess supply.
- Shorten power supply agreements. Franco proposed limiting power supply contracts to about 10 to 12 years instead of as long as 25 years to encourage competition and allow newer, cheaper technologies to replace older contracts sooner.
- Stop indexing domestic energy to global prices. Franco questioned why Malampaya gas remains tied to Brent crude prices and why some geothermal steam prices track the wholesale electricity market despite being produced locally.
- Replace, rather than simply remove, VAT on electricity. While removing value-added tax would lower bills, Franco said the lost revenue should be replaced, suggesting a tiered VAT system with higher rates on luxury goods and services.
- Reform electric cooperatives. Franco said improving the efficiency of electric cooperatives, or making it easier for capable private operators to take over struggling utilities, would reduce costs, improve reliability and support economic growth outside major cities.
—Edited by Miguel R. Camus
