From Private to Co-Op to Private - Is PI Electricity About to Go Full Circle?

[BrettGC]

As some of you may or may not be aware, there's quite the struggle going on with relation to privatisation of the country's 120 or so electricity co-ops (ECs).  Unless you're in a major regional capital, you've experienced how out-of-date, unreliable and expensive the current co-ops are and understand that something needs to be done.  In his state of the nation address a few months ago  El Presidente stated that as of that date, there should be no more unscheduled power interruptions thanks to his policies... Yes, he said this with a straight face. 

Anyway, the following is an opinion piece on the waste in government and consumer paid subsidies under the EC system and the fact that they were all private to begin with.   

https://www.bworldonline.com/opinion/2024/10/15/627662/nea-batelec-nordeco-and-other-electric-cooperatives/

Quote

NEA, Batelec, Nordeco and other electric cooperatives

One of the more wasteful agencies in the government, one that needs an endless subsidy from Philippine taxpayers, is the National Electrification Administration (NEA).

Consider these points:

1. In 2020 alone, taxpayers nationwide sent P12.9 billion to NEA, then another P2 to P3 billion/year from 2021 to 2025. The NEA subsidy, on average, is larger than the annual budget of its mother agency, the Department of Energy (DoE), and at least three times the annual budget of the Energy Regulatory Commission (see the table).

2. The NEA is sending billions in taxpayers’ money to inefficient, if not failing, electric cooperatives (ECs) which are in need of capital expenditures (capex) or working capital, short-term (S-T) credit, etc. See these reports from the NEA website itself: “NEA Loans to ECs Reached P1.2 Billion in 2022” (Feb. 18, 2023), “NEA Loans Extended to ECs Exceed P1-Billion for 2023” (Jan. 11, 2024), “27 Electric Cooperatives Access Loans Worth P1.28-Billion — NEA” (Sept. 26, 2024).

In 2022, 35 ECs used up P1.2 billion of the NEA’s subsidy — P561 million for capex loans, P506 million for calamity loans, and P10 million for the S-T credit facility. In 2023, 28 ECs used up P1 billion plus of the subsidy — P475 million for capex loans, P465 million for working capital, and P63 million for S-T credit. And this year, up until August, 27 ECs used up P1.28 billion — P780 million for capex loans, P482 million for working capital, P13 million in calamity loans.

3. The NEA is a political institution that gives political patronage to ECs, which are allowed to incur system losses of up to 12% which are passed on to the consumers while private distribution utilities (DUs) are capped at 6% in system losses. That 6% difference between the two could be hundreds of billions of pesos yearly in additional payments by consumers in the provinces.

There is no “market failure” in electricity distribution to justify this continued patronage. I have argued in the past for the abolition of the NEA someday, and that all ECs should become corporations, monitored by the Securities and Exchange Commission (SEC) and not entitled to any taxpayer subsidy.

TWO CASE STUDIES OF INEFFICIENCIES
Let us look at the Batangas Electric Cooperative, Inc. (Batelec) I and II.

Consider the Ganire sa Batangas Facebook page which listed regular blackouts by Batelec 1 on Oct. 8, 11 p.m. to 3 a.m.; Oct. 9, 6 a.m. to 10 p.m. in Malvar; Oct. 11, 9 a.m. to 5 p.m.; and on Oct. 13, from 7 a.m. to 7 p.m.

I read a statement, “Batangas Mayors issue resolution, officially back Meralco-Batelec I joint venture.” It mentions many mayor-members of The League of Municipalities of the Philippines (LMP) — Batangas Chapter. They passed and issued a resolution supporting a joint venture between Meralco and the EC to help stabilize the power supply in the area. Signatories include the mayors of Agoncillo (Cinderella V. Reyes), Nasugbu (Antonio Jose A. Barcelon), San Luis (Oscarlito M. Hernandez), Calaca (Sofronio Leonardo C. Ona, Jr.), Calatagan (Peter Oliver M. Palacio), Sta. Teresita (Norberto A. Segunial), Taal (Fulgencio I. Mercado), Lian (Joseph V. Peji), and Tuy (Jose Jecerell C. Cerrado). Some 72% of the population of the Batelec I franchise area also support improvement of the power supply and the avoidance of frequent and prolonged blackouts.

The mayors declared that they “urge Batelec I’s management and Board of Directors to actively engage with Meralco executives and representatives to explore potential partnership opportunities, ensuring that such collaboration prioritizes the protection of employment for current Batelec I workers, enhance electric services and commit to providing transparent and regular updates on the progress of partnership.”

Meralco Senior Vice-President and Chief External and Government Affairs Officer, Arnel Casanova, said that “We welcome this development. This is an acknowledgment that we are one with LMP-Batangas in the mission to provide reliable and affordable electricity for the consumers. It is urgent and important that our partnership with Batelec I is equally supported by the stakeholders so we can all move forward with credible solutions. Meralco is positioned to lend technical expertise and infuse capital to Batelec I to jointly provide better service to Batanguenos.”

I also saw a Facebook video post of the chairman of the Batangas Forum and former Tanauan mayor, Francisco Lirio. He lamented that in the 47 years of Batelec presence in the province, there is little and very slow improvement in its services, saying that the problems before are still the problems today, and that he welcomes a joint venture between Meralco and Batelec II.

Rep. Joey Salceda, Chairman of the House Ways and Means Committee, emphasized in a statement that “Meralco provides the most reliable service among all major electric cooperatives and distribution utilities (EC/DUs), with outages suffered by the average consumer totaling to mere minutes in an entire year, versus days’ or weeks’ worth of blackouts for other neighboring EC/DUs.”

Good luck, people and local leaders of Batangas. Your province is rich — it had a provincial GDP of P671 billion in 2022 which is among the top 10 in the Philippines, but it is lower than Laguna’s P1.023 trillion and Cavite’s P780 billion. The whole of Cavite and portions of Laguna are under the Meralco franchise area. A good power supply at competitive prices can spur more growth, and more businesses and jobs, in a province.

Then there is the Northern Davao Electric Cooperative (Nordeco).

Last week at the House of Representatives Committee on Legislative Franchise, legislators questioned Nordeco over its repeated failure in delivering quality and reliable power to consumers within its franchise area, and opposed the planned expansion of the franchise coverage area of Davao Light and Power Co. which includes 16 municipalities and two cities in Davao del Oro and Davao del Norte.

Pwersa ng Bayaning Atleta Rep. Margarita I. Nograles argued that Nordeco’s arguments were just repeated, and that private DU Davao Light, which has a good track record, is willing to improve the reliability of the power supply to the consumers in the area.

Rep. Gustavo Tambunting of Paranaque’s 2nd District, the panel chairman, said that the committee had given enough time to Nordeco: “so much leeway has been given, and it has been a very transparent and open hearing.”

Rep. Cheeno Miguel Almario of Davao Oriental’s 2nd District corroborated the suffering of the consumers from “terrible electricity.”

Many ECs were formed through the forced merger, consolidation, and nationalization of private DUs. A friend told me that one Visayas-based private energy corporation alone lost two utilities in Ormoc and Jolo, and lost Dipolog and Dumaguete franchises.

Franchising was devolved from being a purely legislative prerogative and was granted to the NEA. Construction and development loans to ECs pre-EPIRA or during the 1990s have interest rates of 3% a year, while operating loans, mostly unpaid bills to NPC, are charged 7%. Plus, they pay no taxes and enjoy subsidies. So, it is ironic that some ECs want to be protected from private DUs when they were created at the expense of the private DUs in the past.

 

Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers. He is an international fellow of the Tholos Foundation.

It was my experience in Australia that when various state governments privatised the state own electricity authorities (it confused many of us at the time - they all operated at a profit and as such guaranteed income for the state), respective state Premiers all promised us that prices wouldn't rise and supply would remain stable.  No prizes for guessing what actually  happened.  But over time as more companies entered the market prices did level out, due to competition in major population centres, and after an initial downturn in stability things went back to normal eventually.  If you weren't in a major population centre, prices continued to rise due to there normally only being one provider.  

The PI situation is different.  In Australia the system worked and privatisation was introduced either to make a quick buck for the state government forgetting about long-term profits, or ideology - I suspect probably a little of both.  In PI privatisation would be introduced in an attempt to cure the numerous ills of the current EC system - let's face it, it's a mess. You only have to look up at the lines to understand that "Something is rotten in the state of Denmark" and that's just at the surface level; I have no doubt that the rot runs deep.  In my opinion, this could only work if there were was more than one provider in each area and price-fixing banned.  If they don't introduce legitimate competition into the market it'll be a case of "same shit, different shovel" for most consumers. 

[Mike J]

Each time the electric bill arrives I smile and pat myself on the back for having a solar system with battery backup.  The water supply is mostly solved with a 1.3 meter stainless steel water tank with booster pump.  Seriously considering getting one of those small 3 or 4 wheel electric vehicles I see running around.  90% of my driving is just around Moalboal short trips of 10-15 km or less.  

[BrettGC]

10 minutes ago, Mike J said:

Each time the electric bill arrives I smile and pat myself on the back for having a solar system with battery backup.  The water supply is mostly solved with a 1.3 meter stainless steel water tank with booster pump.  Seriously considering getting one of those small 3 or 4 wheel electric vehicles I see running around.  90% of my driving is just around Moalboal short trips of 10-15 km or less.  

I'm a little envious Mike!  We're holding off on the solar as we've decided that when we move we'll be building or buying something relatively new and installing then so double dipping doesn't make sense for us.  The trigger for the move will be Momma passing which could be years, but that's a good thing; I love the old girl and she's universally loved around town.  She's a bit of a fixture locally.  Until then we have the house to a state where it's comfortable and that'll do for now. 

 

[Mike J]

10 minutes ago, BrettGC said:

The trigger for the move will be Momma passing which could be years, but that's a good thing; I love the old girl and she's universally loved around town

That was actually one of the triggers for us.  Mama had a stroke in 2014 and was mostly in bed for nine years.  She and papa required 24/7 care for all that time so our budget was pretty tight.  Papa passed in 2010, mama in 2013.  I loved them both, they were both "good people" for sure.

[JJReyes]

I don't know if the same system is employed in the Philippines, but in the United States, power plants generate electricity which they sell to electric companies.  Everyone is connected to the grid, meaning power is generated, bought or sold as needed.  Texas decided to become independent of the grid.  A severe winter storm caused blackouts for several days because they couldn't buy electricity outside of the state.  Authorities blamed the problem on wind turbines since the propellers froze in the cold weather.  Not true.  It was a bad policy decision.  One of their senators, Ted Cruz was lambasted for taking his family to Cancun, Mexico on a holiday to wait for the end of the storm.

There have been offers to construct new, efficient power plants by foreign investors.  This would increase capacity which at the present time is barely adequate.  Unfortunately, nationalistic sentiments demand either Filipino ownership or joint ventures.  Many countries offer tax incentives and subsidies for clean energy like solar and wind turbines.  I have seen photographs of a few wind farms in the Philippines, but the quantity is insufficient.  The capital requirements are huge, and the payback period is long.

Palm Springs, California has numerous wind farms.  We visited one on a guided tour.  Each tower apparently cost in the millions and the slow rotation of the blades don't matter because of gear ratio.  Maintenance workers are paid over $120,000 per year because they have to climb up from the inside carrying supplies.  

 

[BrettGC]

55 minutes ago, JJReyes said:

I don't know if the same system is employed in the Philippines, but in the United States, power plants generate electricity which they sell to electric companies. 

NGCP fulfils the generation/maintenance and wholesaling of electricity in PI.  ECs are resellers.  Ironically it's a privately owned entity.  The blame for the for the lack of reliability is on them as it's their mandate to maintain as well as supply the grid nationally.  It owns these rights for a period of 50 years dated from 2009.  It's a concession deal where the government still owns everything by law through TRANSCo.... Convoluted and open to gaming the system.  

Many countries that sold their entire operations put in place some very strict consumer protection and reliability regulations as a condition of ownership.   

[jimeve]

3 hours ago, Mike J said:

Each time the electric bill arrives I smile and pat myself on the back for having a solar system with battery backup.  The water supply is mostly solved with a 1.3 meter stainless steel water tank with booster pump.  Seriously considering getting one of those small 3 or 4 wheel electric vehicles I see running around.  90% of my driving is just around Moalboal short trips of 10-15 km or less.  

Just got another battery, 12k watts in total. Our purchased power last night was ZERO.  Thinking of getting more solar panels in case of cloud covering.

[Possum]

3 hours ago, BrettGC said:

NGCP fulfils the generation/maintenance and wholesaling of electricity in PI.  ECs are resellers.  Ironically it's a privately owned entity.  The blame for the for the lack of reliability is on them as it's their mandate to maintain as well as supply the grid nationally.  It owns these rights for a period of 50 years dated from 2009.  It's a concession deal where the government still owns everything by law through TRANSCo.... Convoluted and open to gaming the system.  

Many countries that sold their entire operations put in place some very strict consumer protection and reliability regulations as a condition of ownership.   

NGCP is 40% Chinese owned and pays lots of dividends to their owners. The two other owners are Filipino. There are no consumer protection/reliability regulations that seem to be enforced.  A very interesting project would be to trace where the billions a year of subsidies actually go. Some studies show the DPWH loses 50% plus to graft so one would expect some saving with DOE are possible.

Building new generating capacity and upgrading transmission equipment is badly needed. When building power plants is needed, choosing the right fuel is an issue. The Philippines has gas reserves but the fields they have are declining. There is plenty more in the Philippine/S.China Sea which is what the argument is about concerning ownership. Hydro is a source but it takes MANY years here to build a hydro plant. Not controlling the deforestation and settlements around hydro plants means they degrade quickly too. I have spoken to a couple of operators at the local power plant. They tell me money for maintenance is always short which means they have to run degraded or risk a shutdown.

 

[GeoffH]

On 11/16/2024 at 11:49 AM, Possum said:

Building new generating capacity and upgrading transmission equipment is badly needed. When building power plants is needed, choosing the right fuel is an issue.

I know coal is an unpopular choice these days but it's simple to build, relatively easy to maintain and coal prices are lower than they've been for a long long time.  And the Philippines already have coal plants so local expertise exists.

Edited 8 hours ago by GeoffH

[Possum]

1 hour ago, GeoffH said:

I know coal is an unpopular choice these days but it's simple to build, relatively easy to maintain and coal prices are lower than they've been for a long long time.  And the Philippines already have coal plants so local expertise exists.

The high efficiency super critical coal plants are expensive to build but much cheaper and cleaner to run than the ones in the Philippines now. They cost about 2-3 million USD per megawatt. They'd have to contract the building and train the operators but they are a viable alternative. However, the ultra super critical steam plants are not something you can skip proper maintenance with as the current operators tend to do. A former associate of mine does maintenance for Siemens worldwide and he tells me properly run they are extremely reliable. Improper running however can be catastrophic.