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PHILIPPINE POWER RATES: ASIA’S HIGHEST

PHILIPPINES -------US$0.2460/kWh

Japan---------------US$0.243/kWh

Singapore---------US$0.22/kWh

Indonesia----------US$.092/kWh

Thailand------------US$.086/kWh2

International Energy Agency (Q1 2011)

RESIDENTIAL (/kWh)Denmark ---

US$0.3563Germany ---

US$0.3248Italy --- US$0.2632Austria --- US$0.2576PHILIPPINES-

US$0.2460Ireland --- US$0.2326Japan --- US$0.2322Belgium --- US$0.2317Netherlands ---

US$0.2212Sweden --- US$0.2180

WORLD’S HIGHEST POWER RATES

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International Energy Agency (Q1 2011)

INDUSTRIAL (/kWh)Italy --- US$0.2581Slovak Republic –

US$0.1691Japan --- US$0.1544Turkey --- US$0.1509Czech Republic –

US$0.1439Ireland --- US$0.1372PHILIPPINES ---

US$0.1320Belgium --- US$0.1245Netherlands ---

US$0.1230Luxembourg ---

US$0.1219

WORLD’S HIGHEST POWER RATES

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IMPLICATIONS: Uncompetitive regionally

PPP viability suspect

Investors moving to Asia Pacific, we might miss out on the boat

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WHY AND HOW DID THIS HAPPEN?

EPIRA unbundled the natural horizontal monopoly of the industry: generation, transmission, distribution unbundled.

Theory that the generation firms would compete with one another.

What the industry did was to vertically re-integrate so that the Genco sells power to the Disco through a “sweetheart contract” involving firms which are cross-owned .

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WHY AND HOW DID THIS HAPPEN?

In Generation Sector

The Generation sector under EPIRA defined as not being a “utility”. Only utilities are subject to the 12% RORB ceiling of the Public Utilities Law.

The RORB of Gencos ranges from 29% to 40%.

Cross-ownership was allowed under the EPIRA 7

WHY AND HOW DID THIS HAPPEN?

Unbundling created four (4) middlemen structures to jack up the rates at each stage: (i) generation; (ii) transmission; (iii) distribution; and (iv) aggregation

The PSALM holds NPC hostage through an Operations and Management Agreement (OMA) whereby all the gross receipts from the operations of the NPC must be turned over to the PSALM.

RESULT: Additional “Stranded Costs”.8

WHY AND HOW DID THIS HAPPEN?

A politicized and captured ERC. The ERC contributed to the problem through a Performance-Based Rate-making Formula (PBR).

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WHY AND HOW DID THIS HAPPEN?

In Distribution Sector PBR allowed distribution utility to charge extra

for: (i) Connection of new applicants;

(ii) Putting back lines brought down by typhoons;(iii) Increased street-lighting and lighting for public

areas such as parks;(iv)Better efficiency in operations; and(v) Meeting hurdles the DU set up itself.

BUT THESE ACTIVITIES WERE PROMISED BY THE DU AS BASIS FOR AWARD OF FRANCHISE

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HISTORICAL OVERVIEW OF THE POLITICAL DYNAMICS THAT CONTRIBUTED TO THE HIGH TARIFFS

FVR Administration. The 35 IPP Take-or-Pay Contracts left for consumers or taxpayers to assume as stranded costs.

Government sold NPC assets debt-free.

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HISTORICAL OVERVIEW OF THE POLITICAL DYNAMICS THAT CONTRIBUTED TO THE HIGH TARIFFS

Estrada Administration. Allowed the private sector to take over the industry whole hog.

A financially rapacious and socially unaccountable private sector cartelized the electricity industry.

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HISTORICAL OVERVIEW OF THE POLITICAL DYNAMICS THAT CONTRIBUTED TO THE HIGH TARIFFS

Arroyo Administration. The Arroyo government sold the remaining assets low (by overvaluation of liabilities and undervaluation of assets).

RESULT: the high stranded costs of NPC remained unaddressed.

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THE COMING STORM:ADDITIONAL POWER RATE INCREASES

PSALM’s P1 Trillion stranded costs is to be charged as part of the “Universal Charge”. Estimated to cost an additional P0.39/kWh.

SPUG-NPC budget shortfall of P7 Billion just for 2011. This will cost additional P0.07/kWh included in the “Universal Charge.”

Additional SPUG-NPC P3.1 Billion budget shortfall for ICERA and GRAM. This will increase power rates for off-grid areas.

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THE COMING STORM:ADDITIONAL POWER RATE INCREASES

• NPC-Meralco CA settlement: Php 14 Billion, Meralco may pass-thru amount of penalty imposed upon it to consumers.

• Pending ERC petitions of Meralco, Davao Light and Power, Visayas Electric Company, and other Distribution Utilities (including 119 electric cooperatives).

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THE COMING STORM:ADDITIONAL POWER RATE INCREASES

Transition Supply Contracts between distribution corporations/or NPC and the privatized Generating firms end in 2011, and are up for renewal. These Gencos are defined under the EPIRA as not being utilities and therefore not subject to a 12% ceiling on RORB or ROI. The end result is that these Genco Generation Charges will zoom up with their new contracts.

The Transition Supply Contracts of the Independent Power Producers/Gencos who are selling through an IPPA Administrator (salesman or middleman) will end in 2011. Therefore new IPPA contracts will bring up Genco Generation Charges.

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THE COMING STORM:ADDITIONAL POWER RATE INCREASES

Ecozones discount rate program ends December 25:

Cost goes up by P1.03/kWh279 manufacturing companies affected –

43% of manufacturing exports (P19 Billion)

High electricity rates is 40-50% of total operating cost

222,213 jobs at stake

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THE COMING STORM:ADDITIONAL POWER RATE INCREASES

The proposed Renewable Energy program with its Feed-In Tariff would tie the country up to immature, unreliable and expensive power that would entail an additional P0.1256/kWh.

SC Case on illegal dismissal of NPC workers:Backwages of P48 Billion.

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EVERY ONE (1) CENTAVO PER kWh INCREASE REPRESENTS P657,000,000.00 PER ANNUM (BASED ON CURRENT DEMAND OF 7,300 MW)

One centavo (1)/kWh of power increase means 40% or P263,000,000.00 is taken away which should be food for the poor (based on lifeline rates); 10% or P118,000.00 represents educational costs, medicine, transportation or house rentals

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THE POWER INDUSTRY PLAYERS: THE CARTEL

POWER GENERATION is now in the hands of four (4) sisters: Pangilinan, SMC, Aboitiz, and Lopez/EDC .

DISTRIBUTION is dominated by MERALCO (71% in Luzon), Aboitiz (700 MW Visayas; 300 MW Davao) and CEPALCO (100 MW Cagayan de Oro).

80% of the land area are serviced by electric cooperatives with a total of eight (8) million households.

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THE POWER INDUSTRY PLAYERS: THE CARTEL

TRANSMISSION is the concessionaire National Grid Corporation of the Philippines held by the SM Group, One Taipan Holdings of Henry Sy, Jr.

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RECOMMENDATIONS(NATIONAL)

Define generation sector legislatively as a public utility and therefore subject to 12% RORB ceiling under Public Utilities Law.

Halt additional programs that would only bring up electricity rates: (a) open access; (b) aggregation; (c) PEMC-WESM expansion; (d) RE FIT program.

Do away with PBR Formula: Return to RORB ceilings for Distribution Utilities.

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RECOMMENDATIONS(NATIONAL)

Register all electric cooperatives with CDA to ensure genuine consumer ownership and lower rates through tax exemptions including VAT.

Compel all generation corporations through legislation to have at least 50% of their shares to be publicly held.

Undertake public bidding of the purchase by all distribution firms of their power requirements within the next six (6) to eight (8) months. 23

RECOMMENDATIONS(NATIONAL)

Require all power firms to invest a set percentage of their annual earnings to the development of the baseload of the country with priority to Mindanao.

Establish a National Distribution Corporation for the purpose of doing away with all sweetheart deals between related companies in the generation and distribution sectors.

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RECOMMENDATIONS(MINDANAO)

Accelerate transfer of two (2) power barges from Visayas to Mindanao to provide additional 200 MW capacity in less than a year.

Rehabilitate Operation and Maintenance Contract for Agus Pulangui Hydroelectric plants through international bidding. No need to privatize since a reasonable rate increase can be built in through the ROM contract.

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RECOMMENDATIONS(MINDANAO)

Stop the interconnection of grids between Visayas and Mindanao. This will only jack up the rates. WESM will only bring up rates through additional costs.

Maramag transmission line to connect power produced in Northern Mindanao to power needed in Southern Mindanao.

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RECOMMENDATIONS(MINDANAO)

Rescind OMA of PSALM, remit all gross receipts of Agus-Pulangui for its rehabilitation and maintenance.

Create a GOCC, the Mindanao Power Corporation to operate Agus-Pulangui.

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Thank You.

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