CSP, EPIRA rules must favor public

CSP, EPIRA rules must favor public | Daily Tribune

Even policies with the greatest intention do not pan out perfectly which is how a policy designed to favor consumers in the electricity sector is ending up due to market manipulation.

The competitive selection process or CSP was introduced during the term of former Energy Secretary Al Cusi and was hailed as a crucial policy to keep electricity prices affordable.

Under the Electricity Power Industry Reform Act or EPIRA, the Energy Regulatory Commission or ERC was designated to oversee the CSP as the quasi-judicial body for the sector.

Controversy erupted last year after the Court of Appeals intervened in two power supply contracts through injunction orders that effectively negated the result of the CSPs conducted.

The CSP’s goal was to comply with the EPIRA requirement to provide consumers with reliable and competitively-priced electricity.

Surprisingly, the recent announcement of a 57 centavos per kilowatt hour or kWh increase in electricity prices was not met by the usual protests indicating acquiescence, a quiet acceptance of what should not be taking place.

CSP is mandated by law to ease the plight of electricity users but the aim is being defeated by the realities in the industry where players game the system.

Distribution utilities, or Dus, for instance, have full discretion in implementing CSP on those offering natural gas to fuel power plants.

DUs can always say it was just implementing ERC rules and are pushing a formula that is binding to the power plants.

Painful pass-through costs

It sweeps under the rug the fact that other factors determining costs are pass-through, or borne by consumers. One is freight costs on liquefied natural gas, for instance, which isn’t fixed but rises or fall depending on market forces.

In the case of the natural gas plant Ilijan in Batangas, the actual generation cost is above P8 per kWh, against the plant owners’ bid of P7 per kWh.

The CSP, in effect, should favor indigenous gas which is naturally cheaper because of the Malampaya field.

In truth, however, indigenous gas is unfairly treated as the CSP completely disregards advantages offered by indigenous over imported gas.

Foremost is the fact that the country gets back 60 cents per every dollar worth of Malampaya gas that is sold. So far, more than $13 billion have been remitted.

Despite the inherent advantage of locally-produced gas and the Department of Energy’s advisory to prefer indigenous over imported gas, not a single watt of energy was awarded to a gas plant that uses indigenous gas.

The more recent power supply agreements, or PSAs, were awarded to indigenous plants only in case of a tie with plants running on imported gas.

The nation, thus is being placed at the mercy of LNG traders who could, given the infinitesimally miniscule volumes of gas the Philippines imports compared to countries like China, South Korea and Japan, easily just stop delivering gas to the Philippines through bypassing the country.

Pakistan has had a national energy crisis since 2023 due to the LNG dependence.

The trend in gas importation hurt local exploration projects since prospectors may hesitate to fund the hundreds of millions of dollars needed to drill well as they know that gas-fired power plants would only buy their fuel from abroad.

It will also have a domino effect on the Department of Energy’s Philippine Energy Plan for 2020-2040 which aims to provide “secure, sustainable and resilient energy.”

Natural gas is projected to corner 25 percent of the energy mix which is a share that is expected to further grow as natural gas-fired power plants are the obvious replacements for the country’s aging and obsolete coal plants.

Thus far, the EPIRA has been proven to support an effective regime for a competitive energy sector if stakeholders would stick to the letter and spirit of the law.