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Ever increasing rates from the EPIRA A closer look at the electric power industry in the Philippines
Electric power is a basic service that is needed by households in everyday activities and is equally important for industries to operate. The failure of the government to provide electric power was evident when the country faced massive blackouts in the late 1980s and early 1990s due to a shortage of power supply. The response of the government to this power crisis was not to build the necessary infrastructure to meet the demand but to contract out power generation to independent power producers or IPPs. Furthermore, it has made steps to privatize the whole power industry effectively abandoning its role in providing electric power services and opening up the power industry to private companies.

The EPIRA and the privatization of power Historical background

During the late 18th century, the hacienda system had expanded the control of land by Spain and this spurred massive plantations of export crops like tobacco, sugarcane, abaca, etc.raw materials for the Spain to compete with other countries. In order to hasten the exchange of goods and extraction of raw materials, transportation and communication facilities were developed. They constructed steamships, roads, more efficient seaports, railroads, and so on. During the later part of 19th century, due to the urgent need of Spain, the first power corporation was born in the Philippines, the La Electricista that had 10 60-KW AC steam generators. When the United States (US) replaced Spain in colonizing the Philippines in 1998 through the Treaty of Paris, it did not change our economic orientation but increase the amount of commercial crops and raw materials for export. Manufacturing and processing industries like sugar centrals, coconut oil refineries, rope factories, and other industries necessary for extracting and exporting raw materials from the Philippines were maintained. In 1903, the Manila Electric Railroad and Light Company (MERALCO) was established to provide rail transportation and electric services in Manila. In 1905, after being awarded a 50-year franchise, MERALCO took over La Electricistas business and its first 2,250-KW power plant was commissioned. A year after the establishment of Philippine Commonwealth Government in 1935, the Commonwealth Act No. 120 creating the National Power Corporation or NPC as a non-stock, government-owned corporation was passed. After two decades, NPC became a stock corporation through RA 2641. In 1972, two months after Martial Law is declared, PD 40 was enacted. This mandated NPC to construct generation and transmission facilities in Luzon, Visayas, and Mindanao. Moreover, NPC was tasked to own and operate a single integrated network for all power-generating facilities nationwide. When NPC bought MERALCOs thermal power plants in 1979 and this plant was integrated in the Luzon power grid, the total generation capacity of NPC increased by 90% and this made NPC the countrys dominant producer and supplier of electricity. In 1987, EO 215 signed by President Cory Aquino in 1987 effectively deregulated the power generation sector. This was to fulfill the governments commitment to prepare the groundwork for the eventual privatization of the NPC as pushed by the International Monetary Fund (IMF). The first build-operate-transfer (BOT) contract allowed by the EO was signed in 1988 with Hopewell, a Hong Kong-based firm, to construct and operate a 210-MW power plant (Navotas I). The issues surrounding the privatization of NPC are mostly related to the power crisis and due to the governments efforts to address this critical shortfall in power supply. By 1991, the 6- to 10-hour daily blackouts were costing the Philippine economy an estimated $1 billion in lost output annually. To stave off the crisis, RA 7638 or the Department of Energy Act of 1992 was enacted to create the Department of

Energy (DOE). DOE was tasked to develop and update the existing Philippine Energy Program (PEP) which shall provide for an integrated and comprehensive exploration, development, utilization, distribution and conservation of energy resources. As its policy response to the power crisis, RA 7648 or the Electric Power Crisis Act was enacted in the same year that the DOE was created. This further opened the door to entry of private power corporations. DOE was tasked to boost the entry of these private firms in construction and operation of power plants.

The Electric Power Industry Reform Act or the EPIRA

Due to the pressure by creditors to the Philippine government to fast track the approval of the Power Act before they release the power reform program loans to finance the countrys power development program, the Electric Power Industry Reform Act, or the EPIRA, railroaded and signed into law by President Gloria Macapagal Arroyo in 2001 despite intense disapproval from of the people. Major creditors include the Japan Export-Import Bank, Asian Development Bank (ADB), and World Bank (WB). These power sector reforms and the sale of NPC to private business were long standing recommendations of the IMF. These recommendations were part of the structural reform program the country has to implement as a pre-condition for more loans. The EPIRA seeks to restructure the electricity industry and privatize the National Power Company or the NAPOCOR. The governments objective in privatizing NAPOCOR is to cut losses from loans and pass on the burden of power infrastructure investment to the private sector, while earning revenues from the sale. Contrary to what has been promised during the passage of the law, the EPIRA has not caused any real decrease in power rates. Aside from the initial, and fleeting, 30 centavo Power Act reduction, there has been no decrease in power rates due to the EPIRA. Instead, it has legitimized the PPA through the contracts entered into by the NAPOCOR and have hidden it through the unbundling of rates. Even with the establishment of the wholesale electricity spot market (WESM) which would purportedly be the mechanism to identify and set the prices between sellers and buyers of electricity, the bilateral contracts between distribution utilities would still be honored. Cross subsidy removal would translate to an increase in power rates to residential consumers which by numbers would dominate the end-users of electricity. Even with discount schemes within customer classes, the removal of subsidies would at the least translate to a 71 centavo increase within 3 years. Note that this increase would already render useless the 30 centavo rate reduction. The law was designed to reform the power industry not for the benefit of end users and development but it only seeks to privatize NAPOCOR and deregulate the power industry for the entry of foreign companies regardless of the costs to the general public. The various highlights of the EPIRA ranging from the creation of the National Transmission Company (TRANSCO), the Power Sector Asset and Liabilities Management corporation (PSALM), the Energy Regulatory Commission (ERC), the wholesale electricity spot market (WESM), the unbundling of power rates and the various codes and rules implemented under the EPIRA are designed to segregate each saleable part of NAPOCOR, make it attractive to investors and create structures and offices to facilitate these transactions. Furthermore, the EPIRA makes the national government assume P 200 B worth of NAPOCOR loans to make it viable for sale. This P200 B however would be recovered as stranded debts in future bills to end users. The law integrates the independent power producers (IPP) and their onerous contracts into the whole power industry. These IPPs and the contracts entered into by the government and distribution utilities are the source of the PPA or the purchased power adjustment. The PPA remains to be a large part of electric power rates of end-users albeit under different names. With the unbundling scheme ordered by the ERC, the PPA was hidden and distributed in the various line items in the new electric bill such as the generation charge, the transmission charge, system loss charges, subsidies and franchise taxes. These IPPs are mostly owned by foreign transnational corporations in partnership with big local power tycoons. At least twenty two out of the 41 IPPs are largely foreign owned. Five are partly or wholly owned by Meralco and some others by regional distribution utilities. Furthermore, in the findings of an inter-agency committee tasked to review IPP contracts, only six out of 35 contracts were found to be without any legal or financial issues. The rest was supposed to be renegotiated by the government. Privatization actually facilitates the entry and control of national economies by foreign TNCs who, at present, are the dominant players among the IPPs. Only these foreign TNCs alongside a number of local power tycoons (Lopez, Aboitiz, Alcantara, etc) have the financial capacity to operate and maintain power generation, transmission and distribution, and even buy out the Napocor.

If we exclude the US, the IPP capacity in the Philippines exceeds that put up over the rest of the world combined in terms of installed capacity. This would continue to increase with the full implementation of the EPIRA and the privatization of power generation. The EPIRA brings about the exploitation and plunder of our natural resources to the benefit of these foreign companies. Far from improving our electric power independence by promoting indigenous energy sources, it has reduced taxes and royalties from those exploiting our resources. This would make our resources free for plunder and profit to all takers which are mostly foreign owned transnational companies. The EPIRA provides for the equalization of taxes and royalties on the exploitation of natural energy sources which just means the removal of these taxes or the exemption from such taxes of the IPPs. Under the bill to increase VAT rates to 12% being discussed in Congress, IPPs are already being exempted despite the fact that these companies are paying only 3% of their revenues as taxes. In addition, the power of eminent domain, as provided for in the act (Sections 6 and 12), granted to transmission and distribution companies gives them prior rights over the countrys land resources and thus may evict the occupants or owners of the land in question. The dislocation of the indigenous peoples (IPs) from their ancestral domain and of other peasant settlers with the construction of power plants and other development projects over their claimed territories has been well documented The EPIRA favors power industry players over consumer interests. It legitimizes the passing on of costs of power generation to end users. The passing on of power generation costs to consumers is legitimized by the EPIRA such as the passing on of system loss charges transfer the inefficiency losses of distribution utilities to end users. Other line items in the unbundled bill such as the missionary electrification charge and environmental charges passes on the responsibility of rolling our new electric power lines and the environmental maintenance of power utilities to the general public. Stranded costs and debts by both the NAPOCOR and utilities are also to be recovered from the general public in the Universal Charge. The EPIRA has put as policy the full recovery of prudent and reasonable economic costs of a distribution utility. As a result, distribution utilities now recover and pass on currency fluctuations, fuel cost fluctuations as well as contract obligations (PPA) to the end-users. The mechanisms approved by the ERC such as the Generation Rate Adjustment Mechanism (GRAM) and the Incremental Currency Exchange Rate Adjustment (ICERA) are concrete examples of these pass on costs to consumers. The unbundled rates, even with the discounts, hit the smallest end users hardest. Small end users, even with the 50% discounted rates, still pay 159% more than their real electricity costs. Higher users of electricity would pay from 120% (100 kwh) to double (more than 500 kwh) their real electric costs. The EPIRA has not brought about and will not bring about a stable electricity supply to the whole country. In 2003, the total installed capacity in the country is 13,380 megawatts, of which 11,191 megawatts is the actual dependable capacity. Current peak demand is 67% of dependable capacity or 7,497 megawatts. The Philippines has an excess capacity of around 11% factoring buffer requirements. This has changed in 2004, where the country's total installed generation capacity stood at 15,763 MW and its dependable capacity at 14,008 MW. Our peak demand is 9,069 MW and thus overall, we have the capacity to provide for our electricity needs. However, interconnections of major islands are needed to distribute this power capacity over the country. It is indeed true that the construction of power plants will still have to continue but the government and the EPIRA makes sure that the IPPs will play a key role in providing electricity. However, this does not mean that the IPPs would find it viable to build and maintain in the long run a power plant. As soon as the location becomes a liability to the private companys profit margins, they can and will shut down operations. This can be seen in the threats some years of the Cebu based Cebu Private Power Corp (CPPC) that it will shut down operations of its 65 MW plant due to financial constraints further aggravating the projected shortage in the Visayas. Such moves makes the development and industrialization of our country hostage to the whims and profit margins of the private industry players.

Why are power rates so high?

Energy is a necessary factor for industrialization and the Philippines is rich in a variety of fossil and renewable energy sources. Despite this no significant industrialization activity has taken place in the country. If we look at the distribution of energy sales (1999), 90.8% of the total energy sales go to households and small businesses (residential and commercial) while only 8.2% is coming from sales to industries. This implies two things: that the country lacks industries to utilize the production of energy and it is the

consumer of electric power (mostly households and commercial buildings) that are most affected by rate increases. The privatization of Napocor through the Electric Power Industry Reform Act of 2001 or the Power Act therefore has direct implications on the people's daily routine (since electricity is a basic utility) and has long term strategic implications on our national development. In December 2004, it will cost you at least 28% more in electricity bills this compared to the same time the previous year. A household consuming 150 kWh per month will effectively be paying P7.20 per kilowatt hour in year end 2004 compared to P5.61 for each kWh December last year. The 28% increase is mainly due to the provisional authority granted by the Energy Regulatory Commission to the National Power Corporation (NAPOCOR), increases in transmission rates, previous adjustments in generation rates due to the Generation Rate Adjustment Mechanism or GRAM as well as adjustments in the currency exchange rates. Those with 70 and 100 kWh monthly usage are going to pay 23 % and 22% more, respectively.

Electricity rates (usage in kWh/month) MERALCO FRANCHISE AREAS Amount Effective amount per kWh Dec 2003 Dec 2004 Increase % increase Dec 2003 Dec 2004 Increase % increase 50 125.76 170.70 44.94 36% 2.52 3.41 0.9 36% 70 241.53 296.36 54.83 23% 3.45 4.23 0.78 23% 100 438.36 534.34 95.98 22% 4.38 5.34 0.96 22% 202 1207.12 1506.38 299.26 25% 5.98 7.46 1.48 25%

Comparative Rates for December 2003 and 2004

These increases in electric rates is a direct result of the Electric Power Industry Reform Act, or the EPIRA, and the rabid implementation of the government of Gloria Macapagal Arroyo of her privatization policies. Nor had the so-called discounts for users with monthly consumption less than 100 kWh, those using 50 kWh will be paying 36% more this year. These discounts are in reality paid for by other consumers and not the government nor Meralco. These high power rates have made the Philippines fourth in Asia after Japan, Hongkong and Cambodia in terms of residential power rates. Industrial rates are also seventh in Asia according to the DOE as of June 2004 after Cambodia, Japan, India, Hongkong, Indonesia and China.

Source: 5th status report on EPIRA Implementation, May 2004-October 2004, Department of Energy Since 1990, where one kWh costs P1.83, the price of electricity has increased to 300% resulting to at least P5.58 on the average for the country.

Unbundling of rates
With the unbundling of power rates, it is instructive to study the costs of each item in the approved rate

schedule. Although, it is a vital part of the EPIRA and energy privatization, it is worthwhile to note that the Court of Appeals (CA) annulled the Energy Regulatory Commissions decision to unbundle electric power rates for Meralco. Recently, the CA have denied the motion of reconsideration of Meralco and the ERC on this decision. This means that the unbundling should again be heard and rates reverted back to its previous levels. Furthermore, consumers should also be refunded from rates stemming from the unbundling decision. We estimate the refund to total at least P 6.4 billion pesos. For a family using 200 kWh per month this would be around P680 pesos for the 20-month duration since the unbundling up to January 2005. Other unbundling cases previously approved by the ERC should be reviewed. There are several electric cooperatives and distribution utilities whose unbundling should be looked into in the light of the CA decision. With the unbundling of power rates, several recovery mechanism has been prescribed by the ERC, effectively hiding the PPA, and passing on all risks and price fluctuations to the consumers.

The Purchased Power Adjustment (PPA) and IPPs

The junking of the 650-megawatt US$2.2-billion Bataan Nuclear Power Plant in the mid-1980s, no buffer for increased power demand by industries and households was constructed nor planned. By the early 1990s, this resulted in daily 8 to 12-hour blackouts. Citing lack of sufficient funding to construct power generation facilities to adequately meet present and future demand, the Ramos administration enticed foreign and private-sector investors into the countrys electric power industry using such measures as the Build-OperateTransfer (BOT) program resulting into the entry of Independent Power Producers (IPPs). An estimated US$6 billion to construct and operate power generation facilities with a total capacity of 4,800 MW were built by IPPs around 1998. A year after, half of total energy sales in the country were already sourced from IPPs. As of December 2001, Napocors IPPs accounted for 31%, or 3,667 MW, of the total generating capacity and non-Napocor IPPs (such as those owned by the Lopezes, First Gas and Quezon power) provide the remaining 1,168MW or 10% of the total generation capacity. This generation capacity was not obtained cheaply. With the onerous take-or-pay provisions, where off-take requirements of 70%-85% of contracted capacity, Napocor has to pay the IPPs whether power generated was actually consumed or not. Higher tarrifs result from the recovery of these losses through the controversial Purchased Power Adjustment (PPA). As of June 2002, the PPA was already more than half of the electricity bills of consumers. Added costs from these contracts are features such that Napocor has to deliver fuel on-site to provide taxexemptions for the IPPs. Furthermore, these contracts are dollar-denominated, making these Napocor obligations vulnerable to dollar-peso foreign exchange fluctuations. Only six out of 35 IPP contracts were found to be without any legal or financial issues after a review of these contracts by the Department of Finance. Yet no serious renegotiation to remove the take-or-pay provision was done. Due to massive protests and outrage, President Arroyo personally mandated in May 2002 for the NAPOCOR to limit its PPA to only 40 cents/kwh when its actual PPA was then P1.25/kwh. The NAPOCOR itself said that this order directly contributed to losing 85 cents/kwh, or P29B per year since 2002. In a hearing in the ERC, the Napocor has admitted under cross examination during that part of their losses stem from full payment of contracted power to IPPs despite electricity being not being delivered in full to consumers in the form of the Purchased Power Cost Adjustment. President Arroyo's gambit of reducing the PPCA as her response to protests against the PPA has now fallen flat and her financial engineering because this has resulted to the ballooning of Napocor's debts. These IPP owned by firms such as KEPCO, Edison Global, Mirant and others billed us for 27.27 billion kwh while only delivering 19.15 Billion kWh in 2002. Thats around 30% of what we paid never getting to our homes or industries. This is one of the biggest contributors to the losses NAPOCOR wants to recover from the rate increase.

The Generation Rate Adjustment Mechanism (GRAM)

The GRAM was designed essentially as a replacement for the recovery of the PPA. Like the PPA, it is also an automatic cost recovery mechanism but this time without yet the notoriety that the PPA has earned among the millions of consumers of NPC, Meralco and the various distribution utilities. On top of the generation charge, pegged at P 3.4029 during unbundling and consequently increased through

the provisional authority last year from the ERC to 3.4236. Factored into the formula for generation rate adjustments is the purchased power cost as approved by the ERC. In the PPA formula there is the cost of electricity during a supply month. Both do not make a distinction whether the electricity was actually delivered or not as a result of the onerous take or pay provisions of many IPPs. Both do not also filter out electricity purchased at excessive rates. Certainly neither the GRAM nor the PPA formulas strip those amounts of cost expenses that should not be there at all but which accountans can easily sneak in.

Thus, through the GRAM, as with the PPA, the consumers, among other things, will continue to pay for electricity that they do not actually use; shoulder the cost of excessive rates of power contracted by NPC and Meralco; and pay for the inefficient operations of IPPs. The ERC in its its approval of the unbundling of Meralco rates has acknowledged that The current PPA is allocated between the generation and transmission rates. The generation component shall be periodically updated through the Generation Rate Adjustment Mechanism (GRAM). -ERC Order dated 30 May 2003, page 9 Thus with the unbundling of rates, the PPA is now being paid for under five new line items in the electricity bill as diagrammed below:

Recovery of foreign currency exchange losses throuigh the ICERA

Automatic recovery of losses, designed and approved by the Energy Regulatory Commission, such as the ICERA or the incremental currency exchange rate adjustment, spell no relief for the people. The owners of utilities, transmission and generation companies pass on their bloated operational and maintenance costs to the people and thus our electric bills keep on increasing. Dollar rates have historically risen on the average and thus an automatic recovery of forex fluctuations also automaticcally increase power rates. Far from improving our electric power independence by promoting indigenous energy sources, the EPIRA has reduced taxes and royalties from those exploiting our resources and set these resources for sale and plunder to all takers which are mostly foreign owned transnational companies.

Reduction of cross-subsidies
A 28.52 centavos/kwh increase in the electric bill of the residential consumers starting October 2004 was the result of the reduction by 40% of the interclass cross subsidy. The EPIRA mandates that all subsidies will have to be removed within 3 to 10 years, with the lifeline rate subsidy to the consumers using less than 100 kwh the last to go. Thus, residential consumers will have to pay an additional 42.78 centavos by October 2005 and lifeline consumers will lose their discounts around 2010. Even the 30 centavos Power Act Discount that the government used to sugarcoat the passage of the EPIRA bill is now just 16.52 centavos, effectively increasing our rates by 13.48 centavos. The total removal of inter-class subsidies will result in an increase of 71.30 centavos. In fact this subsidy scheme becomes a milking cow for distributors such Meralco because the amount that they collect is more

than the discounts they give.

The mathematics of power rate discounts: Sweetening power rate increases

Malacanang's attempt to sweeten the blow of the hefty power rate increases on the poor is through the socalled 50-percent lifeline rate discount on their rates. This subsidy is taken from 65% of the customer base and is not due to any concern or interest of our government to alleviate the burden of these power increases. It is more a case of the poor subsidizing the poorer. Commercial and industrial electric users pass on the costs of these subsidies as price increases to consumers. Computing the costs of these discounts for a month in 2003, the revenue lost to Meralco is P134,923,561. But to recover these losses, Meralco collects 7.61 centavos/kWh from the residential consumers using 101 kWh and above, from the commercial and industrial consumers. Given the total kWh consumption of these consumers in one month so we simply multiply by 7.61 cents/kwh and we get P152,474,582. This is P17,551,021 (or P210,612,252 per year) more than they lost from the subsidy. Presently, consumers using 100 kwh and below get the following discounts: Monthly consumption (kWh) 0-50 51-70 71-100 101-200 201-300 301-400 over 400 No. of Customers (2002) 661,716 299,737 465,236 1,257,820 564,417 258,133 415,648 collection from lifeline rates 0.0761 0.0761 0.0761 0.0761

Discount 50 % 35 % 20 % -

These discounts apply to the generation, system loss, distribution, metering and supply charges. The above is called by its technical term, lifeline rate subsidy. Those using above 100 kwh presently pay an additional 7.61 centavos per kwh that is used to subsidize the lifeline consumers above who are using less than 100 KWh (which is really a case of one section of consumers subsidizing another section of the consumers). In addition, all residential consumers get a discount of 71.30 centavos per kwh subsidy paid for by collecting from the commercial and industrial consumers. This will be removed within 3 years under the Electric Power Industry Reform Act or EPIRA. This means an increase of 71.30 centavos on top of all the recent rate increases. In this discount scheme, Meralco, NPC and President Arroyo are happy since they earn brownie points while hiding the reality that none of them gave any centavo to alleviate the burden of high electric rates. What Malacanang should do, instead of this obfuscation, is to reduce electric power rates and grant wage hikes to truly address the concerns of the people

Other recovery mechanisms

In summary, the PPA has not been removed. It has been hidden within the generation charge, the transmission charge, the system loss charge, franchise tax and other charges. If the PPA were truly gone, we would have enjoyed a reduction by almost half in our electric bills. Instead most households have received higher bills due to the unbundled power rates. Now that they have hidden the PPA, any further increase in purchased power cost will be hidden under the Generation Rate Adjustment Mechanism (GRAM) charge. This is the new PPA. Power consumers would have to prepare for the eventual imposition of the Transmission Rate Adjustment Mechanism (TRAM) which would pass off the costs of transmission companies to the people, similar to the function of GRAM. Any changes in the cost of the transmission of electricity through the transmission towers will be shouldered by the people. The other "pass-through" charges are also really pass-on costs to consumers. Generation charges are computed with a 60-40 mix of National Power Corp. (Napocor) and Meralco power plants. About 53 percent

of this cost is remitted to Meralco's independent power producers (IPPs), most of which charge nearly twice as much per kilowatt-hour as Napocor plants. The Lopezes earns also from the generation charge. The systems loss, including pilfered power and the electricity used by Meralco offices and facilities, is passed on to us at a rate of 69.65 centavos per kWh. This is despite the fact that for the past years, Meralco's technical system loss (i.e. excluding pilferage) has not changed from 8%. That means Meralco has not seriously tried to become more efficient. It goes after pilferage since they can recover twice of their losses, once from the pass-on cost as part of the systems loss charge, another courtesy of the Anti-Pilferage act which allows them to charge the households the estimated cost of their pilferage. The systems loss has several components. One is the electricity lost through pilferage. Another is electricity lost as they pass through distribution equipment and wires. A third component bundled with the systems loss charge is electricity consumed by Meralco offices and facilities, technically called company use. The Meralco consumers pay for all this, and it is all legal because the government allows it. Republic Act 7832 or the Anti-Pilferage of Electricity and Theft of Electric Transmission Lines/Materials Act of 1994 supposedly provides for the rationalization of system losses by setting caps on recoverable system loss allowed to private electric utilities and electric cooperatives. This cap shall be no lower than nine percent. Essentially this passes on to consumers any inefficiency of a distribution utility like Meralco. Technical losses are losses inherent in the electrical equipment, devices and conductors used in the physical delivery of electricity. These are losses in sub-transmission lines, substation power transformers, primary and secondary distribution lines, distribution transformers, service drops, voltage regulators, capacitors, reactors and all other equipments used in the operation of the distribution of electricity. On top of these technical losses, load loss due to electric energy pilferage is also considered as part of what is termed as non-technical loss. System loss charges also includes administrative losses (company use) which are the electric consumption of distribution substations, the offices, warehouses and workshops of the distribution utility. Meralcos system losses currently amount to 13.38 %. Our main criticism with regard to system losses is the fact that Meralco and other distribution utilities pass on these system losses to the public. This pass on charge was part of the PPA previously and the public is unduly burdened in paying for the inefficiencies of the distribution utility. This part of our electric bill is due to energy that never gets used in our homes and is mainly due to any technical inefficiency in the part of the distributor, their in-house use of electricity and pilferages. Although pilferage is being pointed to at by Meralco as a big part of these losses, any violator that will be caught is required to pay consequent fees despite these losses being already collected and paid for by the item for system loss in our bills. If so, why do we still have to be charged for system losses? More pass-on charges are the metering charge and franchise and local taxes. Universal charges, which include many other components such as the missionary and environmental charge, will also include in the future stranded cost and debt recoveries that amounts to around 200 billion pesos to be collected in 15 to 25 years. The missionary charge is a compulsory contribution to a fund to be used for electrifying remote barangays because no businessmen would like to invest in those areas where there are only a few customers but requires big capital outlay for the long wires and many posts. But why are we charged for a job the government should be doing? This is also true of environmental charges. Why are we charged for the havoc that the generation plants of Napocor or these IPPs do to the environment? Consumers seem to be the perpetual milking cow of Meralco, Napocor and the IPPs. Unbundling has increased power rates and it will continue to increase because of the new charges, the passing on of the 200-billion-peso stranded cost and debt recoveries and the eventual reduction of subsidies. All these mean higher electric rates for all.

Electric cooperatives
An electric coop (or REC, or rural electric cooperative, the legal nomenclature used) is owned and managed by the consumers who are also its members who elect the members of the board and appoint a GM to manage its day-to-day operation. An REC can be either a non-profit non-stock or a stock coop. If a stock coop the member/consumers own stocks and can be paid out dividends when a profit is made. SORECO II is an example of a stock coop

where the member consumers buy stocks on monthly installments, many at P5.00 per month up to a certain maximum. A coop can either be registered or not with the Cooperative Development Authority (CDA). If registered it is exempted from income and other taxes, which is an incentive for coops to be registered. Both are supervised by the CDA as far as their coop legal responsibilities are concerned, like calling for a regular assembly and the like. A coop belongs to that group called Distribution Utility (DU). Since distribution is still regulated under the EPIRA a coop must file for its power rate with the ERC (Energy Regulatory Commission) before it can bill its customers. In its application for power rate (or tariff) the coop factors in its O&M (operation and maintenance) expenses, a reinvestment fund (for upgrades and expansion), other expenses that may be allowed by the ERC, and the desired RORB (Return on Rate Base) which is the provision for profit so that members can have dividends. If non-profit, non-stock there is no such provision so that the power rate would be lower. Normally though member/consumers of stock coops would not mind a higher electricity rate because they would share in the profit. The big difference then between an REC and a DU that is privately-owned like Meralco (Lopezes) or Davao Light (Aboitiz) is the nature of ownership and control of the utility. If the DU is a coop the consumers themselves own and control and manage the utility firm and any profit made (if stock coop) are shared among the consumers who are of course the people in the community. The coop is responsible to the members who are also its consumers who are also its owners. Conflict of interest is very minimal because the owners and the consumers are the same people. If the DU is a private company a few wealthy individuals own, control and manage the utility firm. Any profit made is shared only among them. Since the objective of businessmen is to maximize their profit you will easily understand why such racket as the overcharging case of Meralco happened, where it had to pay us back P29B in overcharges illegally collected in ten years. In reality, many coops in the 70s, when Marcos issued his PD ordering the setting up of coops, started correctly and with very good intentions. Of the 119 coops today, only about 1/3 are classified as Class A, many in Class D and E and mired in debt and operational losses due to inefficiencies and overpricing of materials, etc. With many coops in sorry state and in debt the government, instead of setting things aright through ways of strengthening the coops wants to have thse coops sold to private companies through what is called an Invstment Management Contract (IMC) or outright buy. The IMC is the more clever way because a private company, after 5 years of managing and controlling a coop operations can buy the coop for a song. These IMCs are going to be part of the strategic plan to privatize wholly the power sector.

The role of foreign interests in the privatization of the power industry

It was not a secret that President Arroyo railroaded the signing of the EPIRA due to the pressure by creditors on the Philippine government before they release the power reform program loans to finance the countrys power development program. Major creditors include the Japan Export-Import Bank, Asian Development Bank (ADB), and World Bank (WB). These power sector reforms and the sale of NPC to private business were long standing recommendations of the IMF. These recommendations were part of the structural reform program the country has to implement as a pre-condition for more loans. The recent joint application of rate increases was also clearly due to a pressure from the creditors of the Napocor on its USD 10 billion loans. The training of staff, and even the website, of the ERC, as well as its gamut of consultants, are courtesy of the AGILE, a USAID program that seeks to facilitate liberalization of our economy. According to US Department of Energy, the Philippines is important to world energy markets because it is a growing consumer of energy, particularly electric power, and a major potential market for foreign energy firms. Aside from importing from these foreign energy firms, the Philippines also buys from these foreign TNCs who own most of the private local energy supply. The passage of the Power Act, which will fully privatize the Napocor, further increases the dependence of the country from these profit-thirsty TNCs. Here is a country that is a market of foreign firms who sell goods that are extracted from the country itself. If these trend will not be reversed, the Philippines would likely end up being a private property of foreign TNCs.

Energy sources of the Philippines

The Energy Information Administration of the Department of Energy of the US has enumerated the following main sources of energy in the Philippines: geothermal, hydropower, coal, oil, and natural gas. All of these contribute to the countrys energy production, which is concentrated in the electricity sector. Oil production in the country remains flat and far below oil consumption. Oil consumption on the other hand has been increasing since 1986 up to the present. Despite small proven oil reserves, companies, like Australia-based Nido Petroleum (formerly Sydney Oil Company Drilling and Exploration), that are into oil explorations in the northwest and southwest Palawan Basin, the Cagayan Basin, and other small concessions elsewhere in the country believes that significant quantities of oil may be recoverable. The Philippines has 2.8 trillion cubic feet of proven natural gas reserves. In the largest natural gas development project in the country and one of the largest-ever foreign investments in the country, Shell Philippines Exploration (operator, with a 45% stake), Texaco (45%), and the Philippine National Oil Company (PNOC, 10%) has tapped the Malampaya natural gas fields estimated 2.5 trillion-cubic-feet reserves. Gas from Malampaya will fire three power plants with a combined 2,700-MW capacity for the next twenty years, and could replace as much as 50% of the oil that the Philippines currently imports for power generation. Coal is the Philippines largest source of fossil energy production but 82% (1998) of total coal consumption is imported. Geothermal power accounts for the countrys largest share of indigenous energy production, followed by hydropower, coal, and oil and gas. The Philippines is the worlds second largest producer of geothermal power, after the United States. The country is located in the volcanically active Ring of Fire. As of April 2000, Geothermal power makes up around 17% of the Philippines installed generation capacity, most of which has been developed by the Philippine National Oil Company-Energy Development Corporation (PNOC-EDC). The Philippines does have significant amounts of hydroelectric potential. The most notable development, the Agus units, has been built at the Maria Cristina Falls on northern Mindanao, which makes for 32% of the countrys total hydroelectric power as of December 1999. Hydroelectric power on Luzon accounts for the largest share to the total hydroelectric power generation (1,280 MW, 56%). According to EIA, electricity demand is expected to grow almost 9% per year until 2009, necessitating almost 10,000 MW of new installed electric capacity. As of 1999, the total electric power generation is 12,050 MW. The National Power Corporation (Napocor) provides a total of 5,400 MW (45%) of electricity while various independent power producers (IPPs) provide the remaining 6,650 MW. Southern Energy, a wholly owned subsidiary of Consolidated Electric Power Asia Ltd. (CEPA) of Great Britain, is the Philippines largest IPP and operates five power plants in the country. Southerns new coalfired Sual plant began commercial operation in late 1999. The 1,218-MW plant is about 130 miles north of Manila and reportedly is the nations largest electricity producer. Napocor is the sole purchaser of Sual electricity. Texas-based El Paso Energy International and Hawaiian Electric Industries in February 2000 formed a 5050 joint venture to own and operate five power plants now owned by East Asia Power Resources Corporation, a public Philippine company. The total generation capacity of the ventures holdings will be 390 MW. The plants are located in Manila and Cebu. Actually, there is an oversupply of power generated by the Napocor power plants and those of the IPPs combined. Honoring its Power Purchase Agreements (PPAs) with the IPPs, the NPC had to retire the operations of its power generating plants to accommodate the higher priced power generated by the IPPs. The current demand for power is only around 7,000 MW while the total supply is 11,000 MW. Indeed, the Philippines is rich in energy sources and it seems that explorations for such resources is endless. In late 1999, the Philippine and Spanish governments agreed to a plan whereby Spain would assist in bringing solar power to some of the Philippines rural areas. Finland plans to help fund a project to electrify 10,000 homes in the rural Antipolo area with methane generated by the San Mateo landfill, following the landfills December 2000 closure. In cooperation with the Netherlands, the Philippine government is planning to expand its wind energy capacity. DOST estimates that wind resources could generate 70,000 MW of power.

Power to the people

The Philippines rich energy sources did not result to economic prosperity of the Filipino people. The EPIRA has only resulted into ever increasing power rates, the plunder of our natural resources, the intensifying control of foreign TNCs over our power industry and our economic development as a whole. Furthermore, it has shown the vulnerability of the government to pressure and dictates of huge foreign banks and financial institutions. It is indeed an ironic situation that the Philippines rich energy sources did not result to economic prosperity of the Filipino people, power consumers and power sector workers alike. Public utilities are services that are used by the people in their daily activities and economic production. These are power, water, fuel, transportation and telecommunications services. Limited access to these services would introduce additional difficulties that can be eased or facilitated by the use of the services provided by said utilities. In the case of power, water and fuel, the role of a public utility is to generate or procure these resources, deliver and distribute it to the public. In the case of transportation and telecommunications services, the public utility provides the infrastructure and means that enable people to take advantage of the goods and services inherent to the utility. Power, water and fuel utilities provide access to electricity, water and fuel to households and industry. These utilities should be accessible and affordable to the people. Limiting access by increasing the costs of these services would make, in general, daily activities more difficult for the people. Nationalization of public utilities is important since it these public utilities are strategic in nature to the development of the country. It provides the necessary infrastructure and support to the peoples daily activities and industrial growth. If these industries are left to foreign monopoly capital, whose interest is to recoup their investment and rake in profits--- we would lose quality of service, an unending increase in utility costs and our national interest will not be addressed. In particular, electric power is a basic service that should be provided to the people and is an indispensable factor required in genuine industrialization. The governments excuse of having no funds to build the requirements of the power industry is a false claim because it can shell out hundreds of billions of pesos to debt servicing and military deployments. Furthermore, it gives numerous incentives and sweetheart deals to foreign investors. The privatization and deregulation of electric power by the EPIRA runs counter to the interests of the Filipino people. It has only resulted in non-stop increases of rates. The long term solution to the excessive electricity charges entails the nationalization of the entire power sector. We must work to call for a stop to this policy of privatization and deregulation by calling for the scrapping of the EPIRA and to have the government take over NAPOCOR, the IPPs, transmission lines and the distribution utilities such as MERALCO. Furthermore, alternative sources of power that are low-cost and environment friendly should be promoted and developed. The government should pursue genuine nationalization of the power industry instead of neoliberal power reform if it is truly serious about bringing down the electric power rates.### The paper is written by Dr. Giovanni Tapang, Engr. Ramon Ramirez and Mr. Kim Gargar References: 1. 2. 3. 4. 5. 6. 7. Energy Information Administration, US Department of Energy, http://www.eia.doe.gov PNOC-Energy Development Corporation, http://www.energy.com.ph Comptons Encyclopedia Online 1998 FAQ Sheet on House Bill No. 8457, Committee on Energy, House of Representatives Complete privatization of Napocor: private power, IBON Special Release 38, October 1998 Power reform or privatization, IBON Special Release 52, April 2000 Ang Panganib ng Pribatisasyon, prepared by ACT, AHW, COURAGE, CONTEND, and HEAD for the Peoples Summit, July 19, 2001 8. Meralco Employees and Workers Association Press Release, May 26, 2001 9. Power play causes delay, article by Marcelo E. de la Cruz and Pablo C. Villasenor 10.5th status report on EPIRA Implementation, May 2004-October 2004, Department of Energy 11.AGHAM files and press releases

Ako ni Elektrokyut ng Anakpawis (with apologies to the kid in the TV ad) Gastos sa: Generation charge...ako Transmission charge...ako Systems loss charge...ako Ninakaw na kuryente...ako Kuryenteng di naman nila nilikha...ako Kuryenteng di ko naman ginamit...ako Kuryenteng di nasukat dahil sira pala ang metro...ako Kuryenteng ginamit ng Meralco sa nga opisina nito...ako Gastos sa: Distribution charge...ako Supply charge...ako Retail customer charge...ako Metering charge...ako Discount para sa mga da poor lifeliners...ako Discount ko, binawasan na ako Overcharging ng Meralco...ako Gastos sa: CERA dahil sa pagtaas-pagbaba ng dolyar...ako Local franchise tax...ako National franchise tax...ako Noon nga pati income tax...ako Buti na lang nagreklamo at nanalo ako GRAM sa pabago-bagong gastos sa paglikha ng kuryente...ako Pakuryente sa mga liblib na pook, alyas missionary charge...ako Para sa pag-alaga sa kalikasan, alyas Environmental charge...ako Gastos sa: 12% Return on Rate Base o Kita ng Meralco....ako 8% Return on Rate Base o Kita ng NPC...ako P24 Bilyon kita ng Mirant noong 2002...ako P4.6 Bilyon kita ng Lopez' First Gas Power noong 2002...ako Bilyon-bilyong kita ng iba pang IPPs at power utilities...ako Milyon-milyong suweldo ng mga executives ng mga ito...ako May mga darating pang gastos sa: TRAM na pabago-bagong gastos sa pagdeliver ng kuryente...ako pa rin kahit na alam kong tinaTRAMtado na nila ako Bilyon-bilyong stranded debts ng NPC...ako pa rin Bilyon-bilyong stranded contract costs ng NPC...ako pa rin Equalization taxes and royalties...ako pa rin Lagi na lang ako. Lahat din lang naman ang gumagastos ako I-takeover ko na lang kaya ang NPC, Mirant, mga IPPs at Meralco. Pagkatapos ako ang magiging may-ari....si Juan de la Cruz, ako!