Rappler is cute, but no cigar, on electricity

As an electricity consumer, I’m grateful for a wrapped-up report on how to understand electricity prices. Rappler.com has come up with such a report. It is an anime that raises more questions than answers.

“Watch this animated illustration to understand how the sins of the past, the capital intensive nature of the power industry, market forces, and moves for cleaner energy sources make their way into the electricy bill.” – Rappler says in its website.

The original question was: Why are our power rates higher than in other countries? We pay double that in Thailand or Vietnam, and even higher than in Japan. However, of the four factors mentioned by Rappler, the last three apply to all countries. For example, electricity is capital-intensive in all countries, and market forces that result in higher input costs of fossil fuel work pretty much the same across all countries. Moves for cleaner energy sources are only recently appearing in electricity bills in many countries, but the Philippines is actually lagging behind other countries in this regard. These factors – capital intensity, market forces, and renewable energy – could not therefore have been the culprits. (Taxes can also be a differentiating factor, but the role of taxes is only barely mentioned in the Rappler report. My best guess for now is that our taxes are not all that high when compared with those in other countries.)

We are left then with only the sins of the past. So, what are they?

It seems there are only two. One is the IPPs, which are guaranteed contracts. Rappler doesn’t say if they are still around, but implies their continued existence given that IPPs ensure a guaranteed-profit “take or pay” system of electricity production. The other, are the “stranded debts” of Napocor, a “sin” committed by our politicians in 2002 who allowed electricity rates to remain (supposedly) low with an awareness that the debts created then will eventually have to be paid by future (now present) consumers.

Three questions:

First, if the IPPs are still around, why can’t the government declare these contracts unconscionable, void, and illegal? After all, the IPP idea was supposed to encourage investors to put up power plants in the 1990s, and by now these investors should have recouped their “guaranteed” investment returns. In other words, the guaranteed-profit aspect of IPPs should by now have ended. (If these IPPs are no longer around, then they would no longer count as a sin of the past.)

Second, if Napocor’s stranded debts were a “sin,” why can’t the penance be imposed on the officials who allowed these debts to come into existence?

Third, if these two factors were dealt with properly, would our power rates still remain higher than that of our neighbors?

(These are questions that should be answered by our current leaders in government. Why doesn’t Rappler report these answers?)

There are two more things worth mentioning that Rappler apparently glosses over:

One is a a suggestion that EPIRA will eventually fix the problems of oligopoly in the power industry, and will result in reducing power rates. But this outcome requires more private players, and so long as there remain only a few, power rates will apparently remain high. The important question is therefore: Why are there still not enough players? If there are not enough, can anything be done to reduce the market power of the few players around?

Rappler does say that the FITs for renewable energy are not yet really in place, but it doesn’t say that this nascent threat can easily be avoided just by not approving them. If anything, Rappler has bought into the idea that renewable energy will lower costs eventually. What Rappler doesn’t say is that the FITs operate like the guaranteed-profit IPPs, and will burden the consumer for an unconscionably long time. In other words, even if renewable energy gets cheaper, the lower cost may not be passed on to the consumer, at least not for a long time.

Finally, from this report, one gets the impression that we the consumers should accept unconscionably high power rates as somehow a fact of life. The Hamlet question: Should we?


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