There is no complex explanation to the recent power outages that struck the Luzon grid. Those rotating brownouts simply reflect the state of major power plants on the main island—many of them are aging and require frequent maintenance shutdowns to keep them in running condition.
But politicians and other so-called experts are concocting their own conspiracy theories and blaming other factors for the electricity disruption. The- thin power reserves or inadequate electricity supply in the Luzon grid is not a plausible argument for them. Worse, the 2022 national elections are nearing and the issue is giving them a platform to sell themselves to the electorate as the champion of consumers.
The power outage issue is being muddled by some people whose sole agenda is to get elected or re-elected in next year’s elections. When analyzed thoroughly, however, the supply disruption really stems from the thin power reserves of the Luzon grid.
Many of the power plants in the grid have been operating for 40 years and the government and the private sector have been unable to replace them and build new ones to keep up with economic growth. The Calaca coal-fired power plants in Batangas and Zambales provinces are now outdated, while the hydro facilities in Pantabangan, Nueva Ecija and Magat in Isabela were built in the 70s and 80s. The steam plants from the geothermal fields of Laguna and the Bicol region are likewise ancient.
Energy Regulatory Commission chairperson Agnes Devanadera acknowledged that the tightness of power supply was due to a “confluence of events.”
“There is an increase in demand due to the summer season, something that is a perennial problem during this time and also there is a decrease in available supply primarily due to the planned, unplanned and derating of power plants,” she said.
Politicians like Sen. Risa Hontiveros, meanwhile, sidestepped the issue in recent Senate hearings. The lawmaker seized the opportunity and harped, instead, on grid operator National Grid Corporation of the Philippines and distribution utilities to reduce power rates.
Ms. Hontiveros cited the high 15-percent weighted average cost of capital (WACC) of NGCP and distribution utilities as the cause of prohibitive electricity rates in the Philippines. The WACC is essentially the minimum return on investments needed by NGCP and other utilities to keep their operations viable and attractive. The government as regulator can reduce the WACC of utilities that in turn can translate into lower rates. But investors in the company can shift their capital elsewhere (like fixed-income instruments such as Treasury bills and bonds with very low risks), if the WACC is no longer attractive or offers little return on investments.
Ms. Hontiveros wants the WACC comparable to the 8-percent average in Southeast Asia, which Ms. Devanadera subtly rebuked during the same hearing. Ms. Devanedra told the same hearing that a 12-percent return has already been accepted as reasonable by the Supreme Court, the Office of President (water concession) and Congress through its approval of the Aerocity (airport) franchise of San Miguel Corp.
The regulator and its consultants have finalized the review of NGCP’s WACC, although the ERC head conceded “WACC is actually too complicated and it does not encourage investors.”
It is also not fair to compare the Philippines with its peers in Southeast Asia.World Bank’s report on Doing Business ranks the Philippines 95th out of 190 countries. ASEAN members Singapore, Malaysia, and Indonesia ranked 2nd, 12th and 73rd, respectively.
The United Nations’ World Risk Index for natural disasters ranks the Philippines at 169th out of 171. Singapore, Malaysia, and Indonesia ranked 13th, 86th and 136th, respectively.
Ms. Hontiveros was likely misinformed on the WACC issue. A much lower WACC, or return for utilities, will make the lives of consumers miserable. With little return or profit incentive, utilities will become inefficient and be unable to deliver reliable service that could lead to more outages and impede economic growth.
It is also grossly unfair for any business, especially utilities that are heavily regulated and expected to deliver basic essential services, to give them a rate of return that is just enough to pay for their debt that costs them 6 percent to 7 percent in annual interest rate.
Email: rayenano@yahoo.com or extrastory2000@gmail.com